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A  TREATISE 


3 


J/\.lO 


ON    THE 


LAW    OF 


STOCK  AND  STOCKHOLDERS 


AS   APPLICABLE   TO 


RAILROAD,     BANKING,    INSURANCE,     MANUFACTURINa 
COMMERCIAL,  BUSINESS,  TURNPIKE,  BRIDGE,  CANAU 
AND  OTHER  PRIVATE  CORPORATIONS. 


By   WILLIAM  W.  COOK, 

OK   THE    NEW    YORK    BAR. 


NEW    YORK: 
BAKER,  VOORHIS  &  CO.,  LAW  PUBLISHERS, 


66    NASSAU    STREET, 
1887. 


h 


/ay 


T 

mi 


Copyright,  1887. 
By  William  W.  Cook. 


Willis  McDonald  &  Co.,  Printers, 
No.  26  Park  Row,  N.  Y. 


bo 


TO 
THE   HONORABLE 

THOMAS  M.  COOLEY,  LL.D., 

PROFESSOR,    AUTHOR,    AND    JUDGE, 

WHOSE     PRE-EMINENT     ABILITY,      UNTIRING     RESEARCH, 

PROFOUND    LEARNING,     AND     EXALTED     CHARACTER, 

HAVE     SECURED     FOR     HIM 

AN     IMPERISHABLE     FAME     AS     A     JURIST, 

UNDER   WHOSE   INSTRUCTION    THE    AUTHOR    ACQUIRED    A    DESIRE    TO    SEARCH    OUT 
AND    MASTER    THE    PRINCIPLES    OF    THE    LAW, 

THIS    WORK 

IS 

\  RESPECTFULLY    DEDICATED. 


?'<Dij7'J 


PREFACE 


The  remarkably  rapid  grovvtii  of  corporations  during  the  past 
twenty-five  years  has  created  a  body  of  law  which  is  fast  becom- 
ing a  system  of  jurisprudence  in  itself.  This  system  has  become 
so  vast,  complicated,  and  unwieldy  that  it  is  believed  that  the 
time  has  come  when  a  thorough  treatment  of  the  subject  re- 
quires a  division  of  it  into  many  parts.  To  a  large  extent 
this  division  has  already  been  accomplished.  As  regards  the  im- 
portant subject  of  Stock  and  Stockiiolders,  however,  there  has 
been  a  singular  deficiency  in  the  text-books,  and  a  study  of  the 
cases  has  led  the  writer  to  a  realization  of  the  fact  that  no  single 
treatise  attempts  to  treat  of  the  principles  of  law  relative  to  that 
subject.  It  was  in  consequence  of  this  fact,  and  because  the 
need  of  a  treatise  on  the  subject  of  Stock  and  Stockholders  has 
been  clearly  felt  and  often  manifested,  that  this  work  was  under- 
taken. 

It  is  not,  however,  the  result  of  a  preconceived  idea  as  to 
the  scope,  divisions,  and  limits  of  the  subject.  The  subject  itself, 
in  its  extent  and  plan,  has  been  a  matter  of  growth  in  the  author's 
mind.  It  was  found  that  many  of  the  most  important  and  prac- 
tical principles  governing  stocks  had  never  been  investigated  and 
presented  by  law  writers.  Particularly  was  tin's  true  as  regards 
fictitiously  paid-up  stock,  commonly  called  "  watered "  stock, 
legacies  of  stock,  life-estates  and  remainders  in  stock,  methods  of 
issuing  stock,  the  law  regulating  corporate  rights  in  allowing  or 
refusing  a  registry  of  transfers,  the  risks  incurred  in  purchasing 
certificates  of  stock,  pledges  of  stock,  taxation  of  stock,  joint- 
etock  companies,  and  frauds  of  directors.     It  was  found  also  that 

V 


PREFACE. 

many  of  the  other  subjects  herein  had  been  only  partially  in- 
vestigated by  the  text-book  writers,  or  had  been  dismissed  with 
a  bare  reference,  as  illustrating  general  principles  of  corporation 

law. 

The  plan  of  the  work  is  original,  and  this  volume  is  the  result 
of  a  long  and  conscientious  study  of  the  sources  of  authority — 
the  cases  themselves.  These  have  been  systematically  examined 
and  collected,  and  made  the  groundwork  of  the  limits  and  sub- 
divisions of  the  work.  Nevertheless  the  text-books  on  the  va- 
rious branches  of  corporation  law  have  not  been  neglected,  but 
in  the  preparation  of  the  work,  the  writer  has  consulted  them, 
and  he  fully  appreciates  their  excellence,  learning,  and  intrinsic 

worth. 

The  writer  has  sought  to  make  a  clear,  practical,  and  complete 
presentation  of  the  subject  for  the  every-day  use  of  the  bench  and 
bar.  The  divisions  of  the  treatise,  the  chapter  subjects,  and  the 
section  headings,  are  so  made  as  to  aid  in  finding,  without  delay,, 
the  point  of  law  in  which  any  one  may  be  interested.  These 
divisions  and  headings  have  been  built  up  from  the  cases  them- 
selves, and  from  a  study  of  the  subjects  which  arise  most  fre- 
quently in  the  courts  and  in  business  transactions.  The  writer 
has  carefully  avoided  all  theories,  long  discussions,  and,  as  far  as 
possible,  the  use  of  technical  language.  He  has  not  hesitated  to 
express  his  opinion  when  the  occasion  seemed  to  warrant  it,  but 
his  sole  object  has  been  to  give  a  complete  and  concise  statement 
of  the  law  governing  the  subject  of  Stock  and  Stockholders. 

A  special  effort  has  been  made  to  develop  fully  those  sub- 
jects which  are  most  often  litigated  in  our  courts,  and  Avhich 
occasion  doubt,  difliculty,  danger  and  law  suits  to  corporations 
and  stockholders.  The  number  and  complexity  of  the  decisions 
have  caused  some  confusion  and  doubt,  even  in  the  mind  of  the 
bench  itself.  Out  of  the  chaos  of  material  which  lay  scattered 
throughout  many  thousands  of  reports,  the  writer  has  sought  to 
construct  a  treatise  that  will  be  a  practical  guide  on  all  subjects 
vi 


PREFACE. 

relative  to  stocks,  which  are  of  importance  and  constant  interest 
and  use  to  lawyers,  investors,  directors,  stockholders,  corporations 
and  the  general  public. 

Copious  notes  are  given  for  the  purpose  of  illustrating,  forti- 
fying, and  explaining  the  text.  By  this  method  it  is  believed  that 
the  thread  of  the  subject  is  preserved  in  the  text  and  the  mind  of 
the  reader  not  distracted  by  a  mass  of  details.  On  the  other 
hand,  by  the  notes,  the  subject  is  still  farther  developed  and  the 
application  of  the  principles  to  particular  facts  fully  set  forth. 

The  dates  of  most  of  the  cases  are  given  in  the  notes.  It  is 
believed  that  thereby  the  relative  importance  of  a  given  case  can 
be  more  easily  ascertained  and  determined.  It  is  also  worthy  of 
note  that  the  dates  of  the  cases  become  of  great  use  when  there  is 
a  conflict  of  authority.  By  the  dates  also  the  important  facts  are 
brought  out  that  the  law  of  Stock  and  Stockholders  is  of  very 
recent  origin  ;  that  most  of  the  cases  have  arisen  within  the  past 
fifty  years ;  that  the  law  relative  to  stockholders'  actions  against 
directors  has  arisen  within  thirty  years,  and  that  we  are  as  yet 
only  on  the  threshold  of  that  new  jurisprudence  which,  though 
now  in  a  formative  state,  is  for  the  future  to  regulate  the  great 
subject  of  corporations  having  a  capital  stock. 

In  the  composition  of  this  work,  the  author  has  been  burdened 
with  an  abundance,  rather  than  a  paucity  of  material.  The  law 
of  Stock  and  Stockholders,  when  explored  in  all  its  branches  and 
details,  is  a  vast  subject,  and  that  which  was  expected  to  fill  a 
volume  of  five  hundred  pages  has,  with  difficulty,  been  confined 
to  nine  iiundred  pages.  There  are  about  six  thousand  cases  cited 
in  this  volume,  a  number  which  is  a  surprise  even  to  the  writer 
himself.  Although  it  is  difficult  to  exhaust,  in  a  single  volume, 
the  law  contained  in  so  great  a  number  of  cases,  yet  a  conscien- 
tious effort  has  l>een  made  to  that  end,  in  so  far  as  these  cases  bear 
upon  the  subject. 

In  the  final  preparation  of  the  sheets  for  the  i)ress,  I  have 
received    valuable    suggestions   and    assistance    from    my   fiiend 

vii 


PREFACE. 

-Charles  F.  Beach,  Jr.,  Esq.  (the  author  of  the  work  on  "  Con- 
tributory Negliijence  "),  to  whom  I  extend  my  thanks. 

If  my  work  shall  prove  to  be  of  use  to  the  profession,  1  shall  feel 
.amply  compensated.  Although  this  book  has  received  my  unre- 
jnitting  attention  and  anxious  care  for  several  years,  in  order  to 
render  it  trustworthy,  yet  the  multiplicity  and  difficulty  of  the 
questions  which  it  treats  and  the  large  number  of  cases  which  have 
been  examined,  studied,  condensed,  and  stated,  are  such  as  to 
forbid  the  hope  that  I  have  always  avoided  error  or  that  tlie  work 
is  free  from  faults.  Trusting  however  that  it  may  be  found  to 
have  merits,  it  is  submitted,  with  diffidence,  to  the  judgment  of 
a  candid  and  discriminating,  yet  generous  profession. 

William  W.  Cook. 
115  Broadway,  New  York, 
January  12th,  1887. 


VI 11 


CONTENTS. 


PART  I. 

ISSUE  OF  AND  LIABILITY  ON  STOCK. 


CHAPTER  I. 

SECTION 

INTRODUCTORY.— OF     STOCK    AND    STOCKHOLDERS    GEN- 
ERALLY, ....... 


1 


CHAPTER  II. 
METHODS  OF  ISSUING  STOCK,  .  .  •  •  ^1 

CHAPTER  III. 

THE  ISSUE  OP  FICTITIOUSLY  PAID-UP  STOCK,     .  •  21 

CHAPTER  IV. 

THE  FORMATION  OF  THE  CONTRACT  OF  SUBSCRIPTIONS,        53 

CHAPTER  V. 

CONDITIONAL  SUBSCRIPTIONS,  .  .  •  •  '^'^ 

CHAPTER  VI. 

MUNICIPAL  SUBSCRIPTIONS,      .  .  .  •  ^^ 

ix 


CONTENTS. 

CHAPTER  Vll. 

SEC. 

CALLS, 104 

CHAPTER  VIII. 

FORFEITURE  OF  SHARES  FOR  NON-PAYMENT,      .  .  121 

CHAPTER  IX. 

PAROL    AGREEMENTS    AND     FRAUDULENT     REPRESENTA- 
TIONS INDUCING  SUBSCRIPTIONS  FOR  STOCK,  .  135 

CHAPTER  X. 

MISCELLANEOUS  DEFENSES  TO  SUBSCRIPTIONS  FOR  CAPI- 
TAL STOCK, 166 

CHAPTER  XI. 

THE    STOCKHOLDERS'    LIABILITY    TO    CORPORATE    CRED- 
ITORS UPON  UNPAID  SUBSCRIPTIONS,  .  .  19& 

CHAPTER  XII. 

STATUTORY  LIABILITY  OF  STOCKHOLDERS  TO  CREDITORS,      212 

CHAPTER  XIII. 

LIABILITY  AS  PARTNERS  AND  FOR  ASSESSMENTS  BEYOND 

THE  PAR  VALUE  OF  THE  STOCK,  ...  230 

CHAPTER  XIY. 
LIABILITY  OF  TRUSTEES,  EXECUTORS,  AGENTS,  &c.,     .  244 

CHAPTER  XV. 

LIABILITY  AS  AFFECTED  BY  TRANSFERS,  .  .  254 

CHAPTER  XYL 

ISSUE    OF    PREFERRED    STOCK    AND  STOCK    UPON  WHICH 

INTEREST  IS  GUARANTEED,  .  .  .  .  267 

X 


CONTENTS. 

CHAPTER  XVII. 

8EC. 

INCREASE  AND  REDUCTION  OF  THE   CAPITAL  STOCK  AND 

OVERISSUED  STOCK,  .....  279 


PART  11. 

TRANSFERS  OF  STOCK. 


CHAPTER   XVIII. 
LEGACIES  AND  GIFTS  OF  STOCK,       ....  299 

CHAPTER  XIX. 

SALES  OF  STOCK.— COMPETENCY  OF  PARTIES  TO  BUY  AND 

SELL  STOCK,    .......  309 

CHAPTER  XX. 

SALES  OF  STOCK.— FORMATION,  LEGALITY,  ENFORCEA- 
BILITY, AND  PERFORMANCE  OF  A  CONTRACT  TO  SELL 
STOCK,    ........  331 

A. — Formation  and  Performance  of  Contracts  to  purchase  Stock. 

B.— Gambling  Sales  of  Stock. 

C. — Fraud  as  aflfecting  a  Sale  of  Stock. 

CHAPTER  XXI. 

SALES    OF    STOCK.— MISCELLANEOUS    RIGHTS     OF     THIRD 

PARTIES,  .......  358 

A. — Purchases  without  a  Certificate  of  Stock. 

B. — Suits  affecting  Sales  of  Stock. 

C. — Forgery. 

D. — Stolen  or  Lost  Certificates. 

xi 


CONTENTS. 

CHAPTER  XXII. 

SEC. 

SALES    OF    STOCK.— FORMAL  METHOD    OF    TRANSFERRING 

CERTIFICATES,  AND  REGISTRY  THEREOF,        .  .  373 

A. — Method  of  Transferring  the  Certificate. 
B. — Method  of  Registering  a  Transfer  of  Stock. 
C. — Rights  and  Duties  of  the  Corporation  in  Allowing  or  Refus- 
ing Registry. 

CHAPTER  XXIII. 

RULES   FOR   CORPORATIONS  IN  REGARD  TO  REFUSING  OR 

ALLOWING  REGISTRIES  OF  TRANSFERS  OF  STOCK,  393 

CHAPTER   XXIY. 

NON-NEGOTIABILITY  OF  STOCK  AND  DANGERS  INCURRED 

IN  THE  PURCHASE  OF  CERTIFICATES  OF  STOCK,      .  411 

A, — Non-Negotiability. 

B. — Dangers  incurred  in  Purchasing  Stock. 


PART  111. 

MISCELLANEOUS  INCIDENTS  OF  STOCK. 


CHAPTER  XXY. 
STOCK-BROKERS   AND  THEIR  CONTRACTS,  .  .  445 

CHAPTER  XXVL 

PLEDGES  AND  MORTGAGES  OF  STOCK,         ...  463 

Xll 


CONTENTS. 

CHAPTEK  XXYII. 

SEC. 

LEVY   OF   ATTACHMENT   AND    EXECUTION    UPON   SHARES 

OF   STOCK, 480 

CHAPTEK  XXYIII. 
AMENDMENTS   AND  REPEALS   OF   CHARTERS,       .  .  492 

CHAPTER  XXIX. 

JOINT-STOCK   COMPANIES,         .....  504 

CHAPTER   XXX. 

STOCKHOLDERS'  RIGHT  TO   INSPECT   THE  BOOKS  OF  THE 

CORPORATION,  .  .  .  .  .  .  511 

CHAPTER  XXXI. 

LIENS  OF  THE  CORPORATION  ON   STOCK  FOR  THE  STOCK- 
HOLDER'S  DEBTS  TO  THE  CORPORATION,        .  .  521 

CHAPTER  XXXII. 

DIVIDENDS  ON  STOCK, 534 

CHAPTER  XXXIII. 

LIFE-ESTATES  AND  REMAINDERS  IN  SHARES  OF  STOCK,         551 

CHAPTER  XXXIV. 

TAXATION   OF   SHARES  OF   STOCK,  ...  561 

CHAPTER  XXXV. 

FORMS  OF  ACTIONS  AND  MEASURE  OF   DAMAGES  WHERE  A 

STOCKHOLDER  HAS  BEEN   DEPRIVED  OF  HIS  STOCK,        573 

CHAPTER  XXXVI. 
CORPORATE  MEETINGS.— CALLS,  TIME,  PLACE,  AND  CLASSES 

OF   MEETINGS.  ....,•  589 

xiii 


CONTENTS. 

CHAPTER  XXXVri. 

SEC. 

CORPORATE    MEETINGS.— ELECTIONS    AND    OTHER    BUSI- 
NESS,         ...  603 

A, — Elections. 

B. — Other  Corporate  functions  belonging  to  the  Stockholders  as 
distinguished  from  the  duties  of  Directors. 

CHAPTER  XXXYITI. 
DISSOLUTION,  .......  638 


PART  IV. 

STOCKHOLDERS'  WRONGS  AND  REMEDIES  AGAINST 
DIRECTORS,  MAJORITY  OF  STOCKHOLDERS,  AND 
OTHERS,  FOR  BREACH  OF  TRUST,  &;c. 


CHAPTER    XXXIX. 

FRAUDULENT  ACTS  OF  DIRECTORS,  MAJORITY  OF  STOCK- 
HOLDERS, AND  THIRD  PERSONS,  ...  640 

A.  -The  Occasion,  Scojie,  and  Purpose  of  the  Subject  herein. 

B. — Frauds  of  Corporate  Directors,  of  a  majority  of  the  Stock- 
holders, or  of  third  persons,  to  remedy  which  a  Stockholder 
may  bring  suit. 

« 

CHAPTER  XL. 

STOCKHOLDERS'  ACTION  TO  REMEDY  ULTRA  VIRES  ACTS, 
INTRA  VIRES  ACTS,  AND  NEGLIGENCE  OF  CORPORATE 
DIRECTORS   AND   OTHERS,  ....  664 

A. —  Ultra  vires  Acts. 

-Q A.  Stockholder  cannot  remedy  through  the  Courts  any  acts 

intra  vires  of  the  Directors,  or  of  a  majority  ot  the  Stock- 
holders, since  they  are  matters  of  internal  management. 

C Stockholders'  actions  to  hold  the  Directors  liable  for  negli- 

o-ence  in  the  discharge  of  their  duties, 

xiv 


CONTENTS. 

CHAPTER  XLI. 

SEC. 

RATIFICATION,  ACQUIESCENCE,  OR  LACHES  AS  A  BAR  TO  A 

STOCKHOLDER'S  ACTION   HEREIN,  .  683 

CHAPTER  XLIl. 

PARTIES,  PLEADINGS,  AND  REMEDIES,  ...  688 


PAGE 

GENERAL  INDEX.  .....  .747 


XV 


TABLE  OF  CASES. 

\_The  references  are  to  sections,'\ 


Abbin  Street,  &c.  Co.  v.  Martin,  652 
Abbot  V.   American  Hard   Rubber   Co., 

610,  629,  632,  666,  692 
Abbott  t'.  Aspinwall,  185  224,  226 
Abbott  V.  Johnstown,  &c.  R.  R.  Co.,  625, 

668,  670 
Abbott  V.  Merriam,  694 
Abbott  V.  Omaha  Smelting  Co.,  234 
Abeles  v.  Cochran,  309 
Abels  V.  McKean,  504,  509 
Abercrombie  v.  Riddle,  543,  552,  560 
Aberdeen  Ry.  Co.  v.  Blaikie,  649,  652 
Abrath  v.  Northeastern  Ry.  Co.,  157 
Academy  of  Music,  Appeal  of  the,  611 
Accidental  Ins.  Co.  v.  Davis,  146 
Ackerman  v.  Emott,  322 
Ackerman  v.  Halsey,  681 
Acklin  V.  Paschal,  638 
Adair  v.  Brimmer,  322 
Adam's  Case,  57,  168 
Adams  v.  Fort  Plain  Bk.,  546 
Adams  v.  Goodrich,  215 
Adams  v.  Nashville,  218,  571 
Adamson's  Case,  106 
Adamson  v  Jarvis,  451 
Addams  v.  Ferick,  252 
Adderly  v.  Storm,  4,  246,  247,  260,  262, 

265,  464 
Addison's  Case,  168,  247 
Addison  v.  Mayor  of  Preston,  199 
Addley  v.  Reeves,  1 24 
Adkins  v.  Thornton,  224 
Adler  v.  Milwaukee  Patent  B.  Mfg.,  108, 

204,  205,  207 
Adley  v.  Whitstable  Co.,  1 34,  524,  626 
Adin'r  of  Bigelow  v.  Cong.  Society  of  M., 

235 

Adriance  v.  Roome,  667 


Afferby  v.  Page,  240 

Agate  V.  Edgar,  221 

Agate  V.  Sands,  194,  227 

Agricultural  Bk.  v.  Burr,  192 

Agri.  C.  Ins.   Co.  v.  Fitzgerald,  491 

Agricultural  Bank  v.  Wilson,  10,  52,  263 

Agri.  Branch  R.  R.  Co.  v.  "Winchetster,  499 

Aikin  v.  Wasson,  215 

Ala.  &  Fla.  R.  R.    Co.  v.  Rowley,    105, 

118,  119,  517 
Albany  City  Nat.  Bk.  v.  Maher,  571,  572 
Albion  Steel  Co.  v.  Martin,  652 
Alberts.  Sav'gs  Bk.  of  Baltimore,  325,  327 
Albert  v.  State,  634 
Alcock  V.  Sloper,  557 
Aldham  v.  Brown,  240 
Alexander's  Case,  248 
Alexandra  Palace  Co.,  In  re,  550 
Alfonso's  Appeal,  329 
Allen  V.  Buchanan,  496 
Allen  V.  Dykers,  474,  478,  587 
Allen  V.  Curtis,  626,  679 
Allen  V.  Graves,  264,  456 
Allen  V.  Herrick,  275 
Allen  V.  Hill,  611,  612 
Allen  V.  Inhabitants  of  Jay,  91 
Allen  V.  Londonderry,  &c.  Ry.  Co.,  272 
Allen  V.  Louisiana,  90,  96 
Allen  V.  Montgomery  R.  R.  Co.,  125,  127, 

202,  203.  204,  206,  255,  265,  331,  523 
Allen  V.  N.  J.  Southern  R.  R.  Co.,  692,  702 
Allen  V.  Sewell,  224,  226 
Allen  V.  Pegram,  6,  350 
Allen  V.  Walsh,  224,  226 
Allerton  v.  Lang,  308 
Allibone  v.  Hager,  227,  251 
Allin's  Case,  266 

Allison  V.  Versailles,   «fec.  R.    R.    Co.,  01 
Allman  v.  Havana,  R.  &  E.  R.  R.  Co.,  176 

xvii 


[B] 


TABLE  OF  CASES. 


[The  references  are  to  seclions.'\ 


Amberjrate  N.  &  B.  &  E.  J.  Ry.  Co.  v. 

Mitchell,  104,  109,  116,281,627 
Ambrose  Lake  Tin  «fe  Copper  Min.  Co., 

In  re,  23,  38,  40,  43,  45,  48 
American  Acad.,  &c.,  Appeal  of,  4 
American  Bk.  v.  Mumford,  567 
American  Coal  Co.  v.  County  Com'rs,  566 
American  File  Co.  v.  Garrett,  288 
American   Primitive   Society  v.   Pilling, 

591 
American   Railroad  Frog  Co.  v.  Haven, 

282,  286,  314,  613 
American  Silk  Works  V.  Saloman,  15 
American  Tel.  <fe  C.  Co.  v.  Day,  365 
American  Tube  Works  v.  Boston  Machine 

Co.,  9,  275 
Ames  V.  Williamson,  560 
Amey  v.  Mayor,  91,  93 
Amherst  Academy  v.  Cowls,  70 
Amory  v.  Lawrence,  252 
Amory  v.  Merryweather,  347 
Amoskeag  Natl.  Bk.  «.  Ottawa,  91 
Anaconda  Tribe  v.  Murbach,  626 
Anderson's  Case,  47,  48 
Anderson  Co.  Commissioners  v.  Beal,  93 
Anderson  v.  Line,  224 
Anderson  v.  New  Castle  &  R.R.  R.  Co.,  191 
Anderson  v.  Nicholas,  368,  676 

Anderson  v.  Phil.  Warehouse  Co.,  247,466 

Anderson  v.  Township  of  Santa  Anna,  94, 
692 

Andover,  .fee,  Co.  v.  Gould,  68,  69,  70, 
124,  125 

Andover,  Ac,  Co,  *.  Hay,  52,  65 

Andrews  v.  Callender,  211,  248 

Andrews  v.  Gierke,  460 

Andrews  v.  Hart,  15 

Andrews  V.  Murry,  218 

Andrews  v.  O.  &  Miss.  R.R.  Co.,  115,  149 

Angas'  Case,  62,  251 

Angell  V.  Hadden,  387 

Angel  V.  Hume,  93 

Angell  V.  Lawton,  510 

Angelo,  Re,  466 

Anglesea  Colliery  Co.  Re,  247 

Ano-lo-Californian  Bk.  v.  Granger's  Bk.  of 
"California,  522,  524,  531 

Anglo-Californian  Bk.  v.  Mahoney  Mining 
°Co.,  285 

Anglo-Da uubian,  <fec.,  Co.  Re,  268 

xviii 


Anglo-Greek  Steam  Co.  In  re,  636 
Ansonia  Brass  &  Copper  Co.  v.  New  Lamp 
Chimney  Co.,  200,  221 

Antelope,  The,  218 

Appeal  Tax  Court  v.  Gill,  568 

Appeal  Tax  Court  v.  Patterson,  568 

Appeal  Tax  Court  v.  Rice,  568 

Appleman  v.  Fisher,  445,  459,  462 

Appleton  Mut.  Fire  Ins.  Co.  v.  Jesser,  185 

Appleyard's  Case,  15 

Archer  v.  Rose,  220 

Ardesco  Oil  Co.  v.  North  American  Oil, 

<fec.,  Co.,  228 
Arenz  v.  Weir,  216 
Argyle  C.  &  C.  Co.  Re,  168 
Arki-ight  v.  Newbold,  143,  355,  356,  651 
Arlington  v.  Peirce,  285 
Arms  V.  Conant,  591 
Armstrong  v.  Church  Society,  674,  690 
Arnold  v.  Ruggles,  5,  6,  319 
Arnold  v.  Suffolk  Bank,  10,  383,  522,  523, 

527,  574 
Arnold  v.  United  States,  92 
Arnoldi  v.  Gonin,  215 
Arnot  V.  Pittston,  <fec.,  Coal  Co.,  348 

Arthur  v.  Commercial,  <tc.  Bank,  228 

Arthur  v.  Griswold,  355 

Arthur  v.  Midland  Ry.  Co.,  253 

Ashburner  v.  Macguire,  306,  595 

Ashbury  Ry.,  <fec.  Co.  v.  Riche,  683 

Ashbury  v.  Watson,  269 

Ashby  V.  Blackwell,  134,  364,  579 

Ashe  V.  Johnson's  Administrator,  338 

Ashhurst's  Appeal,  658,  686 

Ashhurst  v.  Brown,  681,  685 

Ashhurst  v.  Field's  Admr.,  554 

Ashhurst  v.  Mason,  309 

Ashley's  Case,  145,  161,  162,  163 

Ashmead  v.  Colby,  156,  295 

Ashpital  V.  Sercombe,  76,  240 

Ashtabula,  <fec.  R.  R.  Co.  v.  Smith,  53,  58 
71,  77,  82,  85,  86,  173,  621 

Ashton's  Appeal,  472 

Ashton  V.  Ashton,  301 

Ashton  V.  Atlantic  Bank,  326 

Ashton  V.  Burbank,  125,  672 

Ashton  V.  Dakin,  344 
Ashton  V.  Langdale,  6 
Ashuelot  R,  R.  Co.  v.  Elliot,  497 


TABLE  OF  CASES. 


[77te  references  are  to  sectio7is.'\ 


Ashuelot,  (fee.  Co.  v.  Hoit,  67 
Ashworth  v.  Munn,  340 
Askew's  Case,  155,  295 
Aspinwall  v.  Jo.  Daviess  Co.,  91,  92,  101 
Aspinwall  v.  Ohio,  (fee.  R.  R.  Co.,  592 
Aspinwall  v.  Sacchi,  185,  229,  288 
Aspinwall  v.  Torrene,  211 
Assessors  v.  Commissioners,  92 
Atcherson  v.  Troy,  (fee.  R.  R.  Co.,  215 
Atchinson,  &c.  R.  R.  Co.  v.  Phillips  Co., 

97,  103 
Athenaeum  Life  Assurance  Society,  In  re, 

199,  217 
Atherford  v.  Beard,  341 
Atherton  v.  Sugar  &  Co.,  110 
Athol,  (fee.  Co.  V.  Carey,  67 
Athol,  (fee.  R.  R.    Co.   V.   Inhabitants    of 

Prescott,  125 
Atkins  V.  Albru,  555,  559 
Atkins  V.  Gamble,  6,  469,  475,  576 
Atkinson  v.  Atkinson,  328,  377 
Atkinson  v.  Pocock,  240 
Atlanta  &  West  Point  R.  R.  Co.  v.   Hod- 

nett,  142 
Atlanta,  Ac.  R.  R.  Co.  v.  State,  633 
Atlantic  Cotton  Mills  v,  Abbott,  69,   181 
Atlantic  DeLaine  Co.  v.  Mason,  241,  595 
Atlantic  Mut.,  »fec.  Ins.  Co.  v.  Sanders,  594 
Atlantic,  (fee.  R.  R.  Co.'s  Case,  668 

Atlantic,  (fee,  Tel.  Co.  v.  Commonwealth, 

544 
Attorney-General  o.  Bank  of    Chenango, 

631 
Attorney-General  v.  Bank  of  Niagara,  633 

Attorney-General  v.  Bay  State  Min.  Co., 

563 
Attorney-General  v.  Clergy  Society,  629 
Attorney-Grneral  v.  Davy,  607 

Attorney-General  v.  Foundling  Hospital, 

644 
Attorney- General  v.  Grote,  304 
Attorney-General  v.  Guardian  Mut.,   (fee. 

Ins.  Co.,  216 
Attorney- General  V.  Lord  Gower,  638 
Attorney- General  v.  Mercantile  Ins.  Co., 

504 
Attorney-General  v.  Scott,  610 
Attorney -General  v.  State  Bk.,  589 
Attorney -General  v.  Utica  Ins.  Co.,  666 
Attorney-General  v.  Wilson,  644 


Attorney-General,  In  re,   v.  North,   <fec. 
Ins.  Co.,  702 

Attree  v.  Howe,  5 

Atwood  V.  Rhode  Island  Agri.  Bk.,   208, 
241 

Atwool  V.  Merryweather,  645,  662 

Aubert  v.  Walsh,  298 

Augusta  V.  National  Bk.,  564 

Augusta  Bk.  v.  Augusta,  91 

AuU  V.  Colket,  368,  576 

Aultman's  Appeal,  218,  227,  253,  255, 256, 

265 

Aurora  Agri.,  tfec.   Society   v.   Paddock, 
285,  686 

Austin  V.  Aldermen,  570 

Austin  V.  Bk.  of  Eng.,  330 

Austin  V.  Boston,  569,  570 

Austin's  Case,  129,  131 

Austin  V.  Gillaspie,  338 

Anther  v.  Anther,  302 

Avelyn  v.  Ward,  302 

Avil  V.  Alexander  Water  Co.,  371 

Ayer  v.  Ayer,  546 

Aylesbury  Ry.  Co.  v.  Mount,  255 

Aynsworth  I).  Bk.  of  Eng.,  330 

Ayre's  Case,  139,  160 

Ay  res  v.  French,  354,  575,  576 


B 


Babcock  v.  Helena,  94 
Babcock  v.  Thompson,  341 
Bach  V.  Pacific,  (fee,  Co.,  676 
Bacheller  v.  Pinkham,  681 
Bachman,  In  re,  256,  265,  622,  527.  531 
Bacon  v.  Irvine,  694 
Bacon  v.  Robertson,  638 
Badger  v.  Am.  <fec.,  Ins.  Co.,  95 
Badger  v.  Badger,  686 
Bagg'a  Case,  626 
Bagshaw's  Case,  636 

Bagshaw  v.  Eastern  Union  Ry.  Co.,  672, 
675,  689,  692 

Bagshaw,  Ex  parte,  636 
Bagshaw  v.  Seymour,  161 
Bagnall  v.  Carlton,  143,  661 
Bahia,  (fee.  R.  R.  Co.  In  re,  293,  367,  681, 
684 

xix 


TABLE  OF  CASES. 


[The  references  are  to  sec(ions.'\ 


Baile  v.  Calvert  C.  E.  Soc,  138 

Bailey  v.  Atlantic,  &c.  R.  R.  Co.,  562 

Bailey  v.  Bancker.  222,  224,  226,  227 

Bailey  v.  Birkenhead,  113,  676,  691 

Bailey  v.  Buffalo,  657 

Bailey  v.  Citizens'  Gas  Light  Co.,  536 

Bailey  v.  Clark,  3 

Bailey  v.  Hannibal,  &c.  R.  R.  Co.,  56,  269, 

276 
Bailey  v.  HoUister,  248,  497,  499 
Bailey  v.  Railroad   Co.,  3,  51,    271,  272, 

536,  542,  611 
Bailey  v.  Strohecker,  390,  482 
Bailey  v.  Universal,  <fec.  Life  Assoc,  227 
Baine  v.  Whitehaven,  &c.  Ry.  Co.,  383 
Baird's  Case,  248 
Baird  v.  Ross,  240 
Baker  v.  Atlas  Bank,  199,  227 
Baker  v.  Bachus'  Adm'r,  227,  631 
Baker's  Case,  63,  250 
Baker  v.  Drake,  457,  458,  460,  462,  467, 

681,  583,  587 
Baker  v.  First  Nat.  Bk.,  570 
Baker  v.  Marshall,  390 
Baker  v.  Pynte,  483 
Baker  v.  Wasson,  284,  360,  575 
Baldwin  v.  Canfield,  316,    379,   465,   468, 
678,  691 

Baldwin  v.  Commonwealth,  338 

Baldwin  v.  Lawrence,  691 

Balch  V.  Hallet,  555 

Balch  V.  New  York,  &c.  R.  R.  Co.,  215 

Balch  V.  Wilson,  227 

Bale  V.  Cleland,  157 

Ball  V.  Gilbert,  341 

Balliet  v.  Brown,  667,  C89 

Balston  Spa  Bank  v.  Marine  Bank,  205, 
228 

Baltimore  v.  City  Passenger  R.  R.  Co.,  566 

Baltimore  City  P.  Ry.  Co.  v.  Sewell,  174, 
378,  576,  581,  584 

Baltimore,  <fec.  Turnpike  Co.  v.  Barnes,  195 

Baltimore  Retort,  <fec.  Co  v.  Mali,  308 

Baltzen  v.  Nicolay,  339 

Banet  v.  Alton,  &c.,  R.R.  Co.,  67,  105, 
110,  499 

Bangor,  <fec.,  R.R.  Co.  v.  Smith,  500 

Bangor,  Ac,  Slate  Co.,  JRe,  278 

Bangs  V.  Duckinfield,  130 
XX 


Bank  v.  Boyce,  471 

Bank  v.  Kennedy,  634 

Bank  v.  Lanier,  262,  359,  412,  522,  533 

Bank  v.  Richardson,  499 

Bank  v.  Trenholm,  471 

Bank  of  America  v.  McNiel.  378,  530, 532, 

575,  576 
Bank  of  Attica  v.  Manufacturers  &  T.  Bk., 

332,  521,  522, 525 
Bank  of  Augusta  v.  Earle,  237,  591 
Bank  of  Australasia  v.  Nias,  209,  222 
Bank  of  Bethel  v.  Pahquioque  Bank,  634 
Bank  of  Cape  Fear  v.  Edwards,  568 
Bank  of  Charlotte  v.  City  of  Charlotte,  500 
Bank  of  Chenango  v.  Brown,  497 
Bank  of  Columbia  v.  Patterson,  285 
Bank  of  Commerce's  Appeal,  414,  542,  639 
Bank  of  Commerce  v.  New  York,  569 
Bank  of  Dansville,  Matter  of,  505 
Bank  of  Eng.  v.  Lunn,  330,  481 
Bank  of  Eng.  v.  Moffat,  330 
Bank  of  Eng.  v.  Parsons,  330 
Bank  of  Ga.  v.  Savannah,  564 
Bank  of  Hindustan  v.  Alison,  288 
Bank  of  Hindustan,  In  re,  701 
Bank  of  Holly  Springs  t'.  Pinson,  521,  522, 

524,  531 
Bank   of  Ireland  v.  Trustees   of  Evans' 

Charities,  366,  575 
Bank   of  Kentucky   v.    Schuylkill  Bank, 

293,  625 
Back  of  Lawrence  v.  Barber,  92 
Bank  of  London  v.  Tyrrell,  650,  651 
Bank  of  Michigan  v.  Gray,  266 
Bank  of  Mississippi  v.  Duncan,  638 
Bank  of  Montgomery  v.  Reess,  286,  583, 

584 
Bank  of  Omaha  v.  Douglas  County,  569 
Bank  of  Pennsylvania  «;.  Gries,  215 
Bank  of  Pennsylvania  v.  Reed,  285 
Bank  of  Poughkeepsie  v.  Ibbotson,  200, 

203,  216,  221,  224,  226,  227 
Bank  ot  Republic  v.  County  of  Hamilton, 

565 
Bank  of  Rome  v.  Rome,  91,  94,  98 
Bank  of  South  Australia   v.    Abrahams, 

105,  111 
Bank  of  Statesville  v.  Town  of  Statesville, 
96 


TABLE  OF  CASES 


[The  references  are  to  sections.'^ 


V.  St    John,  169,  215, 
Bank  of  Turkey, 


Bank  of  St.  Marys 

548,  549 
Bank  of  Switzerland  v 

629,  630 
Bank  Tax  Case,  569 
Bank  of  United  States  v.  Dallam,  195,  200, 

203,  204 
Bank  of  United  States  v.  Dandridge,  625 
Bank  of  United  States  v.  Planters'  Bank,  99 
Bank  of  Utica  v.  Smalley,4, 379,  522,  523, 

529,  532,  542 

Bank  of  Virginia  v.  Adams,  200,  218 

Bank  of  Virginia  v.  Craig,  328,  362 

Bank  of  Wooster  v.  Stevens,  209 

Banks  v.  Judah,  656,  686 

Banner  v,  Lowe,  558 

Baptist  Meeting  House  v.  Webb,  633 

Barber's  Case,  620 

Barclay  v.  Culver,  469 

Barclay  I'.Qu'.cksilver  Mining  Co.,  636,  667 

Barclay  v.  Tallman,  200,  633 

Barclay  v.  Wainewright,  552,  556 

Bard  v.  Pool,  591 

Bardweil  v.  Sheffield,  Ac,  Co.,  277,  540 

Bargate  v.  Shortridge,  262,  332 

Barge's  Case,  106 

Barington  v.   Pittsburgh  &  Steubenville 

R.  R.  Co.,  80,  115,  141 

Barker  v.  Bucklin,  70 

Barker,  In  re,  612 

Barker  v.  Rutland  <fe  Washington  R.R. 
Co.,  17 

Barksdale  v.  Finney,  5,  6 

Barnard  v.  Bockhaus,  341,  344,  346,  347 

Barnard  v.  Vermont,  (fee.  R.  R.  Co.,  271, 

277,  541 
Barned's  Banking  Co.,  Re,n&,  377,  380 
Barned  v.  Hamilton,  581,  588 
Barnes  v.  Atcbinson,  91,  92 
Barnes?;.  Brown,  23,40,  348,  618,  624,649 
Barnes  v.  Hall,  480,  666 
Barnes  v.  Lacon,  90 
Barnes  v.  Morgan,  483 
Barnes  v.  Ontario  Bank,  95 
Barnes  v.  Ferine,  70 
Barnetl's  Case,  47,  168,  193,  227 
Barney  v.  State,  566 
Barnstead  v.  Emynre  Min.  Co.,  4 
Barr  v.  N.  Y.,  <fec.  R.R.  Co.,  662 


Barre  National  Bank  v.  Hingham  Manfg. 

Co.,  199.  206,  247 
Barrett  v.  Alton,  &c.  R.R.  Co.,  500 
Barrett's  Case,  253,  202 
Barrett  v.  Hyde,  342 
Barrett  v.  Mead,  342 
Barrington  v.  Miss.  C.  R.R.  Co.,  173 
Barry  v.  Craskey,  139,  342,  348 
Barry  v.  Merchants'  Ex.  Co.,  3, 199,  540, 


541 

Barstow  v.  Savage  Min.  Co.,  368,  412 
Bartholomew  v.  Bentle}-,  4,  549,  620 
Bartlett  v.  Drew,  201,  206,  548,  549 
Bartlett  v.  Pentland,  200 
Bartlett  v.  Smith,  344,  336 
Barton  v.  Cooke,  301 
Barton's  Estate,  322 
Barton,  Ex.  parte,  123 
Barton  v.  Port  Jackson  &  U.  F.  P.  R.  Co., 

311 
Barton,  iJ^-,  519 

Barton's  Trust,  In  re,  537,  555,  556 
Barwick  v.  English  Joint  Stock  Bk.,  157 
Bassett  v.  Monte  Christo,  dec.  Co.,  591,  653 
Bassett  v.  St.  Albans  Hotel  Co.,  199,  214, 

224 
P.asshor  v.  Forbes,  217 
Bateman  v.  Service,  218 
Bates  V.  Androscoggin,  268,  269,  270,  271 
Bates  Co.  v.  Winters,  93,  94,  96 
Bates  V,  Lewis,  138 
Bates  V.  McKinley,  543,  552,  556 
Bates  V.  N.  Y.  Ins.  Co.,  521,  526,  529,  547 
Bates  V.  Wiles,  587 
Bath's  Case,  153,  171 
Battle's  Case.  266 
Bauton  v.  Dry  Dock,  Gd.  St.  &  S.  F.  Stage 

Co.,  107 
Baxter  v.  Moses,  200 
Bayard  v.  Farmers'  <fe  M.  Bk.,  323, 327, 385 
Bayard  v.  Hoffman,  340 
Bay  City  v.  State  Treasurer,  91,  92 
Bayley  v.  Wilkins,  451,462,  588 
Bayless  v.  Orne,  627,  631 
Bayliffo  v.  Butterworth,  461,  462,  588 
Bayliss  v.  Lafayette,  M.  &  B.  R.R.  Co., 

649,  659 
Beach  v.  Hazard,  174 
Beach  v.  Smith,  16,  174 

XXI 


TABLE   OF  CASES. 


IT  he  references  are  to  sections.'\ 


Beardsley  v.  Smith,  91 

Beardsley  v.  Hotchkiss,  63 

Beatty  v.  North  "West,  (fee.  Co.,  652 

Beaujolais  Wine  Co.,  In  re,  636 

Beaumont  v.  Meredith,  504 

Beavan  v.  Beavan,  558 

Beaver  v.  Heartsville  University,  56 

Becher  V.  Wells  Flouring  Mill  Co.,  414, 

465,  616,  676 
Beck,  Ex.  V.  McGillis,  305 
Beckett  v.  Houston,  lO,  611 
Beckford  v.  Wade,  686 
Beckitt  V.  Bilbrough,  15,  338 
Beckwith  v.  Burrough,  340,  3*78,  464,  484 
Bedford  v.  Bagshaw,  161,  353 
Bedford  County  v.   Nashville,   C.  &  St. 

Louis  R.R.  Co.,  15 
Bedford  R.R.  Co.  v.  Bowser,  80, 128,  168 

289,  503 
Beene  v.  Cahawba,  <fec.  R.R.  Co.,  67, 68, 124 
Beers  v.  Bridgeport  Spring  Co.,  540,  541, 

544, 545,  546 
Beers  v.  Waterbury,  226 
Belcher  v.  Willcox,  227 
Belfast,  &c.  R.R.  Co.  v.  Belfast,  267,  269, 

270,  271,  272,  540 
Belfast,  (fee.  R.R.  Co.  v.  Cottrell,  68,  69, 

176,  180 
Belfast,  (fee.  R.R.  Co.  v.  Inhab.  of  Brooks, 

93,  97,  180 
Belfast,  (fee.  R.R.  Co.  v.  Moore,  68,  69,  78 
Bell's  Case,  145 
Bell  V.  Donohue,  688,  692 
Bell  V.  Hull,  4 
Bell  V.  Lafiferty,  542 
Bell  V.  Railroad  Co.,  90 
Bellairs  v.  Tucker,  353,  355 
Bellows  V.  Todd,  591 
Belmont  v.  Coleman,  209,  222 

Belmont  v.  Erie  Ry.  Co.,  283,  631,  632, 

690,  702 
Belo  V.  Corns,  of  Forsyth,  567,  568 
Beloit  V.  Morgan,  91 
Beman  v.  Rufford,  673,  691 
Bend  v.  Susquehanna,  Co.  (fee,  70, 255,  256 
Bengley  v.  Wheeler,  653,  691,  692 
Bennett's  Case,  251,  266,  309 
Bennett,  Ex  parte,  266 
Bennett  v.  Maryland  Fire  Ins.  Co.  285 
Bennett  v.  St.  Louis,  (fee.  Co.,  657 

XXil 


Bennington  v.  Park,  91 

Benson  v.  Albany,  91 

Benson  v.  Heathorn,  650,  651 

Bercich  v.  Marye,  368,  580,  581,  582,  584 

Beresford,  Ex  parie,  127 

Berger  v.  Williams,  209,  222 

Bergerw.  Porpoise  F.  Co.,  234 

Bergman  v.  St.  Paul  Mut.  Building  Assoc., 

280 
Berlin  v.  Eddy,  469 
Berliner  v.  Waterloo,  93 
Bernard's  Case,  139,  258 
Berney  v.  Tax  Collector,  569 
Bent  ?;.  Hart,  3,  5,  311,  650 
Berry  v.  Yates,  191,  317,  322 
Berryman  v.  Trustees,  (fee,  650 
Bertram  v.  Godfrey,  448 
Bery  v.  Marrietta,  (fee.  R.  R.  Co.,  197 
Besley,  Ex  parte,  52 
Best's  Case,  67 
Bestor  v.  Wathen,  650 
Bethel  &  Hanover  T.  Co.  v.  Bean,  120 
Bethune  v.  Kennedy,  303 
Betts  V.  De  Vitre,  L.  R.  74 
Beveridge  v.  Hewitt,  344,  346,  347 
Baylis  v.  Swift,  221 
Biddle's  Appeal,  537,  554,  559 
Biddle  v.  Bayard.  368,  576 
Biederman  v.  Stone,  451,  462,  588 
Bigelow,  Admr.  of  v.  Cong.  Society  of  M, 

235 
Bigelow  V.  Benedict,  344,  445 
Bigelow  V.  Gregory,  234 
Bigelow,  In  re,  524 
Bigelow,  In  the  Matter  of,  527,  531 
Biggar  v.  City  of  Glasgow  Bk.,  62 
Bigg's  Case,  131 

Bill  V.  Boston  Union  Tel.  Co.,  658. 
Bill  V.  Western  Union  Tel.  Co.  694 
Billings  V.  Robinson,  208,  216,  255,  265 
Billings  V.  Trask,  216 
Bingham  v.  Rushing,  201,  215 
Bingham  v.  Weiderwax,  638 
Birch's  Case,  266 
Bird  V.  Bird's  Patent  (fee,  Sewage  Co.,  636, 

670 
Bird  V.  Calvert,  200,  221 
Bird  V.  Chicago  I.  <fe  N.  R.  R.  Co.,  327 
Bird  V.  Hayden,  218 


TABLE  OF  CASES. 


[The  references  are  to  sections.] 


Birkenhead,  L.  &  C.  J.  Ry.  Co.  v.  Pilcher. 

250,  318 
Birkenhead,  L.  &  C.  Ry.  Co.  v.  Webster, 

116 
Birmingham  v.  Gallagher,  508 
Birmingham  v.  Sheridan,  338,  383 
Birmingham,  Bristol  &  Thames  Junction 

Ry.  Co.  White,  519 
Birmingham  Fire  Ins,  Co.  v.  Com.  390 
Birmingham  National  Bank    v.    Mosser, 

200,  221 
Birmingham,  &c.,  Ry.  Co.,  In  re,  208 
Birmingham,  <fee.,  Ry.  Co.  v.  Locke,  68, 

129,  130,  131,  611 
Bish  V.  Bradford,  70,  149,  190 
Bish  V.  Johnson,  670 
Bishop  V.  Brainerd,  301 
Bishop  V.  Globe  Co.  377,  523,  527,  531 
Bishop  of  Potersborough  v,  Mortlock,  302 
Bishop's  Case,  266 
Bishop's  Fund  v.  Eagle  Bk.,  169 
Bissell  V.  Kankakee,  91 
Bissell  v.  Michigan  Southern    R.  R.  Co. 

288,  664 
Bissell  V.  Ryan,  462 

Bissell  V.  Spring  Valley  Township  93,  95 
Bissit  V.  Kentucky  Riv.  Nav.  Co.  205,  209, 

222,  228 
Bittinger  v.  Bell,  91 
Black  V.  Del.  &  Raritan  Canal  Co.,  500, 

502,  625,  630,  636,  668,  671 
Black  V.  Homersham,  543 
Black  V.  Huggins,  689,  692 
Black  V.  Zacharie,  8,  414,  489 
Blackburn's  Case,  146 
Blackman  v.  Central  R.  R.  <fec.,  Co.  625, 

659 
Black  River  &  Union  R.  R.  Co.  v.  Clarke, 

174,  186 
Black's  Case,  227 
Blackshaw  v.  Rogers,  306 
Blackstone  v.  Blackstone,  302,  306 
Black  &  White  Smith's  Society  v.  Van- 
dyke, 626 
Blain  v.  Agar,  240 
Blair  v.  Compton,  480,  482 
Blair,  &c.  Co.,  v.  Walker,  660 
Blaisdell  v.  Bohr,  366 
Blake  v.  Buffalo  Creek  R.  R.  Co.  660 
Blake,  Ex  parte,  168 


Blake  v.  Hinkle,  200,  663 

Blake  v.  Portsmouth,  <fec.  R.  R.  Co.,  634, 

638 
Blakeley's  Case,  248 
Blake's  Case,  143,  145,  163,  193 
Blanchard  v.  Dedham  Gas  Co.,  414,  490 
Blanchard  v.  Dow,  621 
Blanchard  v.  Kaull,  234 
Blann  v.  Bell,  305 

Blatchford  v.  Ross,  499,  667,  691,  699 
Blew  V.  Bear  River  Co.,  <fec..  285 
Blewitt  V.  Roberts,  305 
Bligh  V.  Brent,  6 
Bliss  V.  Anderson,  675 
Bliss  V.  Matteson,  664 
Blisset  V.  Daniel,  624 
Block  V.  Commissioner  of  Bourbon  Co., 

93 
Blodgett  V.  Morrill,  138,  168 
Blomin  v.  Liquidators,  &c.,  465,  476 
Bloodgoed  v.  Mohawk,  <fec.  R.  R.  Co.,  91 
Bloxam  v.  Metropolitan  Ry.  Co.,  539,  640, 

676,  687,  690 
Bloxam' s  Case,  57 
Blundell  v.  Winsor,  504 
Blunt  V.  Walker,  15,  52 
Blyth  V.  Carpenter,  581,  584 
Blyth's  Case,  192 

Board  of  Bartholomew  Co.  v.  Bright,  91 
Board  of  Comrs.  v.  Elston,  569 
Board  of  Corn's  of  T.  County  v.  Reynolds, 

320,  351 
Board,  <fec.  of  Tippecanoe  Co.  v.  Lafayette, 

<fec.  R.  R.  Co.,  675,  695 
Boardman  v.  Cutter,  339 
Boardman  v.  Gaillard,  462 
Boardman  v.  Halliday,  615 
Boardman  v.  Lake  Shore,  <fec.,  R.  R.  Co. 
269,  270,  272,  274,  276,  543,  546,  668, 
686 
Boatmen's  Ins.  &  Trust  Co.  v.  Able,  360 
Bodley  v.  Goodrich,  228 
Bodley  v.  Reynolds,  585 
Bodwell  V.  Eastman,  608 
Boeppler  v.  Memoson,  108 
Bogfirdus  V.  Rosendale  Mfg.  Co.  206 
Hoggs  V.  Adger,  322 
Boggs  V.  Olcott,  4,  52 
Bohlcn's  Estate,  323,  327 
Bohmer  v.  City  Bk.  of  Richmond,  522,  528 

XXIII 


TABLE  OF  CASES. 


\The  references,  are  to  sections.^ 


Bolin  V.  Brown,  214,  220,  222 

Boisgerard  v.  New  York  Banking  Co.  505 

Bolz  V.  mdder,  34 

Bond  V.  Appleton,  218,  224,  260,  261 

Bond  V.  Mt.  Hope  Iron  Co.  383,  5Y5 

Bone  V.  Ekless,  298 

Bonewitz  v.  Van  Wert  Co.  Bank,  206,  226 

Bonham  ?'.  Bonham,  560 

Bonnarcht  v.  Taylor,  519 

Bonner,  Re,  475 

Boody  V.  Drew,  509 

Booe  V.  Junction  R.  R.  Co.,  .500 

Booker,  Ez  jmrie,  4,  187,  503,  701 

Boorman  «).Atlantic  &  Pacific  R.  R.Co.,519 

Booth  V.  Bunce,  636 

Booth  ?;.  Campbell,  215 

Booth  V.  Fielding,  456 

Booth  V.  Robinson,  317,  658 

Booth  t'.Wonderly,  238 

Boot  &  Shoe  Co.  v.  Hart,  13, 16 

Borton  v.  Dunbar,  305 

Bosanquet  v.  Shortridge,  258 

Bostock  V.  Blakeney,  324,  557 

Boston  Glass  Co.  v.  Langdon,  629,  633 

.Boston  &c  ,  Iron  Works,  Matter  of  the,220 

Boston  Music  Hall  v.  Cory,  331, 490 

Boston.  <fec.  R.  R.  Co.  v.  Commonwealth, 

537, 543 
Boston  (fee.  R.  R.  Co.  v.  N.  Y.  &  N.  E.  R.  R. 

Co.,667,  668,  686 
Boston,  (fee.  R.  R.  Co.  v.  Pearson,  605,  507, 

508 
Boston  (tc,  R.  R.  Co.  v.  Richardson,  363, 

364,584,585 
Boston,  (fee.  R.  R.  Co.  «^.  Wellington,  16,  52, 

54,69,  124,  125,  177 
Bostwick  V.  Fire  Department  of  Detroit, 

626 
Boswell's  Lessees  v.  Otis,  200 
Bothamley  v.  Shersan  304 
Bouchaud  v.  Dias,  73 
Bouch,  In  re,  657 
Boughton  V.  Otis,  218 
Boutwell  V.  Townsend,  215 
Bowdell  V.  The  Farmers,  <fec.,  Natl.  Bank  of 

Baltimore,  247 
Bowden  v.  Johnson,  265 
Bowden  v.  Santos,  265 
Bowker  v.  Pierce,  323,  555 
XXIV 


Bowlby  V.  Boll,  451,  688 

Bowling  Green,  &c.,  R.  R.  Co.  v.  Warren 

Co.,  93 
Bowman  v.  Wathen,  686 
Bowring  v.  Shepherd.  259,  264,  462 
Bowron,  In  re,  57 
Boyd  V.  Hall,  224,  226,  227 
Boyd  V.  Peach  Bottom  Ry.  Co.,  79, 


80, 


175 


Boyd    V.  Rockport  Steam  Cotton  Mills, 

414, 490 
Boyer  v.  Boyer,  571 
Boylani-.  Huguet,  457,  462,  469,  575,  576, 

581,584,585 
Boylan  Hull,  &c.,Co.,  i2e,.18 
Boyle's  Case,  189 
Boynton  v.  Andrews,  34 
Boyntoni*.  Hatch,  34 
Boys  V.  Williams,  302 
Box's  Trusts,  i2f,  557,  560 
Braddock  v.  Phil.,  Marthon  &  Medford  R. 

R.Co.,  104,  105,119,  138 
Bradford  Banking  Co.  v.  Briggs,  523 
Bradford  Navigation  Co.,  In  re,  635 
Bradley  v.  Bander,  5,  563,  564,  566 
Bradley  v.  Farwell,  653 
Bradley  v.  Holdsworth,  6 
Bradley  v.  Illinois,  569 
Bradley  v.  Luce,  356 
Bradley  v.  Marion,  <fec.,  Co.,  660 
Bradley  v.  People,  571 
Bradley  v.  Poole,  350 
Bradner,  In  re,  95 
Brady  v.  Mayor,  <fec.,  667 
Brady  v.  Rutland  &  Burlington  R.  R.  Co., 

17 
Brainerd  v.  Cowdrey,  302 
Branch  v.  Baker,  222,  224 
Branch  v.  Jesup,  15,  268 
Brand  v.  Henderson,  344 
Branderv.  Brander,  537,  556,  557 
Brandt  v.  Benedict,  629 
Branham  v.  Record,  56 
Bransdan  w. Winter  Ambl.,  56,  302 
Branson  v.  Oregonian  Ry.  Co.,  226,  246 
Brant  II.  Ehlen,  13,  15,34,44,47,50 
Brass  j/.Worth,  459, 477,  478,  587 
Bray  v.  Farwell,  176,  504,  508 
Bray's  Admr.  v.  Seligman's  Admr.,  210 


TABLE  OF  CASES. 


[The  references  are  to  sections.'\ 


Breitung  v.  Lindairer,  409 

Brent  t/.  Bank  of  Wasliington,522,52.5,526, 

527,  530,  547 
Brewer  i'.  Boston  Theatre,  694 
Brewer  Brick  Co.  v.  Brewer,  91 
Brewer  v.  Michigan,  <fec.,  Association,  549 

Brewers,  Ac,  Ins.  Co,  v.  Burger,  56,  71,  73, 

137 
Brevv'ster  v,  Hartley,  255,  464.465,608,612, 

615,623 
Brewster  v.  Hatch,  652 
Brewster  v.  Lathrop,  543 
Brewster  v,  Sime,  325,  473 
Brice  v.  Munro,  200 
Brick  V.  Brick,  465 
Bridge  v.  Penniman,  356 
Bridgeport  v.  Housatonic  R.  R.  Co.,  91 
Bridgeport  Bank  v.  N,Y.  &  K  H.  R.  R.Cc, 

358,359,377,380,412 

Bridger's  Case,  18,138,  168 

Bridgewater  Iron  Co.  v.  Lissberger,  489 

Bridport  Old  Brewery  Co.,  In  re;  595 

Briggs,  Ex  parte,  146, 160 

Briggs  V.  Oliver,  476 

Briggs  V.  Massey,  416 

Briggs  V.  Penniman,  194,  199,  215,  221 

Brigham  v.  Mead,  255,  256,  259,  342,  374 

Bright  w.  Lord,  542,543 

Brighton  Arcade  Co.  v.  Dowling,  193 

BrightwelU.  Mallory,  5,  331,  481 

Brinckerhoof  v.  Bostwick,  666,  679,  680, 

692,  695 

Brinham  v.  Wellersburg  Coal  Co.,  211,224, 

225, 226,  229 

Brinkerhoff «;.  Brown,  206 

Brinley  v,  Grow,  559 

Brisbane  v,  Delaware,  L.  &  W.  R.  R,  Co., 

359.542,580 

Bristol  Milling,  <fec.,  Co.  v.  I'robasco,  228 

Bristol,  &c.,  Ry.  Co..  Re,  268 

British  &  American  Tel.  Co.,  In  re,  620 

British  Farmers  Pure  Linseed,  &c.,  Co., 
Re,  60 

British  Provident  Life,  tfec,  Assn.,  In  re, 

620 
British  Seamless,  <fec..  Re,  38,  652 
British  Sugar  Ref.  Co.,  Re,  1 1 5,  595,  599 
British,  Ac,  Telegraph  Co.  v.  Colson,  57 
Broadbent  v.  Farley,  576 


Broadway  Bank  v.  McElrath,  10,  378,  380, 

465,  487 
Brocaw  v.  Gibson  Co.,  91, 92,  97 
Brockenbrough  v.  James  River,  <fec.,  Co., 

125 
Brockway  v.  Innes,  215 
Brockway  w.  Ireland,  34 
Brodie  v.  McCabe,  90 
Bromley,  In  re,  559 
Bromley  v.  Smith,  691 
Bronson  v.  La  Crosse  Ry.  Co.,  636,  659 
Bronson  v.  Wilmington,  (fee.,  Ins.  Co.,  229 
Brooklyn,  Ac,  Co.  v.  City  of  Brooklyn,628 
Brooklyn   Park  Commissioners   v.  Arm- 
strong, 638 
Brooklyn,  &c.,  R.  R.  Co,,  In  re,  628 
Brookman  v.  Rothschild,  450 
Brookville  <fe  G.  T.  Co.  v.  McCarty,  185 
Brotherhood's  Case,  124, 129,  686 
Brower  ■".  Cotheal,  515 
Brower  v.  Passenger  R.  R.  Co.,  59,  61 
Brown  v.  Adams,  382,  414, 639 
Brown  v.  Appleby,  52 
Brown  v.  Boorman,  452 
Brown  v.  Brown,  305 
Brown  v.  Buffalo,  (fee,  R.  R.  Co.,  541 
Brown  v.  Campbell,  322 
Brown  v.  Commissioners,  91 
Brown  v.  Commonwealth,  610 
Brown  v.  Eastern  Slate  Co.,  217 
Brown  v.  Fairmont  Mine  Co.,  499,  500 
Brown  v.  Florida  Southern  Ry.  Co.,  286 
Brown  V.  French,  322 
Brown  v,  Hitchcock,  218,  224,  260,  262, 

263,  264 
Brown  v.  Howard  Ins.  Co.,  364 
Brown  v,  Lehigh  Coal,  tfec,  Co.,  536,  537 
Brown  v.  McGuire,  306 
Brown  v.  New  Bedford  Inst,  for  Sav.,  475 
Brown  v.  Orr,  689 
Brown  v.  Pacific  Mail,  Ac,  Co.,  610,  614, 

624 
Brown,  Petition  of,  558 
Brown  v.  Phelps,  342 
Brown  v.  Smith,  378 
Brown  v.  Speyers,  346 
Brown  v.  Union  Ins.  Co.,  200,  606,  619 
Brown  v.  Vandyke,  659 
Brown  v.  Ward,  476 

XXV 


TABLE  OF  CASES. 


[The  references  are  to  sectiotiK.^ 


Browne  v.  Black,  266 

Browne  v.  Collins,  543,  552 

Browne  v.  Monmouthshire  Ry.   &  Canal 

Co.,  639,541 
Brownlee  v.  Campbell,  145 
Brownlee  v.  Ohio,  <fec.,  R.  R.  Co.,  53,  56, 

58,  131,  149 
Brown's  Case,  29,  24*7,  253,  262,  620,  681 
Brownson  v.  Chapman,  339,  462 
Broyles  v.  McCoy,  243 
Bruas's  Appeal,  341,  343 
Bruce  v.  Piatt,  619 
Bruce  v.  Smith,  333,  334,  414 
Brudlove  v.  Martinsville  &  F.  R.  R,  Co., 
106 

Bruff  V.  Mali,  292,  293,  295 

Brnffett  V.  Great  Western  R.  R.  Co.,  633 

Brundage     v.  Brundage,   534,  542,    543, 
545,  558 

Brundage  v.  Monumental,  Ac.,   Min.  Co., 
206,  226 

Bryan  v.  Baldwin,  450,  458,  4'7'7,4'79,  583 

Bryan  v.  Lewis  R.  &  M.,  386,  342 

Bryant  v.  Goodnow,  599 

Bryant  v.  Ohio  College,  2*71 

Bryne  v.  Union  Bk.  of  La.  521 

Bryson  v.  Raynor,  4Y5,  477,  478,  479 

Bryson  v.  Warwick,  &c.,  Co.,  668,  692 

Buchan's  Case,  245,  248 

Buchanan  v.  Litchfield,  93 

Buchanan  v.  Meisser,  227 

Bucher  v.  Dillsburg,  Ac,  R.  R.  Co.,  53,  55, 
56,  71 

Buckeridge  v.  Ingram,  6 

Buckfield,  Ac,  R.  R.  Co.  v.  Irish,  69,  126 

Buckmaster  v.  Consumers'  Ice  Co.,391,  579 

Bucksport  &  Bangor  R.  R.  Co.  v.  Buck, 
78,  178,  182,499,  699 

Bucksport  <fe  Banger  R.  R.  Co.  v.  Inhabit- 
ants of  Brewer,  78,  88,  97 

Budd  V.  Monroe,  620 

Budd  V.  Multnomah  Street  R.  R.  Co.,  57.6 

Budd's  Case,  266 

Buell  V.  Buckingham,  285,  663 

Buell  V.  Buckingham,  653 

Buell  V.  Com'rs  of  Fayetteville,  570 

Buflfalo  &  Allegany  R.  R.  Co.  v.  Gary,  185, 
232 

Buffalo  Grape  Sugar  Co.  v.  Alberger,  368, 
387 

XXVI 


Buffalo,  &c.,  R.  R.  Co.  v.  Clark,  68 
Buffalo,  &c.,  R.  R.  Co.  v.  Crary,  288 
Buffalo,  Ac,  R.  R.  Co.  v.  Dudley,  10,  52, 
67,  68, 12, 124,  125, 142, 280,  499,  671 
Buffalo.  Ac,  R.  R.  Co.  v.  Gifford,  53,  58, 

59,  67,  68,  189 
Buffalo,  Ac,  R.  R.  Co.  v.  Hatch,  67 
Buffalo,  Ac,  R.  R.  Co.  V.  Lampson,  660 
Buffalo,  Ac,  R.  R.  Co.  v.  Potter,  500 
Buford  V.  Keokuk,  Ac,  Packet  Co.,  629, 

636,  698 
Bugg's  Case,  246 
Bulick  V.  Markham,  457 
Bulkley  v.  Beg,  Ac,  Co.,  694 
Bulkley  v.  Derby  Fishing  Co.,  95 
Bull  V.  Douglas,  581,  584 
BuUard  v.  Bank,  522,  625,  533 
Bullard  V.  Bell,  224,  226,  227 
BuUard  v.  Kinney,  508 
Bullitt  V.  Taylor,  200 
Bullock  V.  Chapman,  266 
Bullock  V.  Kilgour,  222 
Bulmer's  Case,  248 
Bulow  V.  City  of  Charleston,  569 
Bundy  v.  Jackson,  313 
Bunn  V.  Riker,  341 
Bunn's  Appeal,  199,  201,  255. 
Bunn's  Case,  266 
Burgess's  Case,  163 
Burgess  v.  Salmon,  92. 
Burgess  v.  Seligman,  247,  465 
Burke  o.  Badlan,  565,  567 
Burke  v.  Smith,  80,  127,  170,  199,  255 
Burkinshawv.  Nichols,  13,  50. 
Burkitt  V.  Taylor,  448 
Burlingson's  Case,  52,  62,  251 
Burlington  A  Missouri  River  R.  R.  Co.  v. 

Boestler,  87,  88,  207 
Burlington,  Ac,  R.  R.  Co.  v.  Palmer,  54 
Burlington,  Ac,  R.  R.  Co.  v.  White,  600 
Burnape  v.  HasMns  Steam,  Ac,  Co.,  215 
Burnes  v.  Pennell,  52,  350,  550 
Burns  v.  Lawries'  Trustees,  626 
Burr  V.  Chariton  Co.,  93 
Burr  V.  McDonald,  627 
Burr  V.  Sherwood,  642 
Burr  V.  Wilcox,  3,  4,  10,  64,  65,  112,  192, 
227,  249 


TABLE  OF  CASES. 


[77ie  references  are  to  seetions.'\ 


Burrall  v.  Bushwick  R.  R.  Co.,  3,  6,  375, 

382,  391,  581,  638 
Burrel  v.  Associate  Reformed  Church,  623 
Burridge  v.  Anthony,  58*7 
Burroughs  v.  North  Carolina  R.  R.  Co., 

542,  543,  545 
Burrows  v.  Smith,  5,  55,  72,  82,  192 
Burt  I;.  British,  <fec.,  Assn.,  689 
Burt  V.  Dutcher,  587 
Burt  V.  Farrar,  52,  73.  168 
Burt  V.  Rattle,  267,  269,  270 
Busbee  v.  Freeman,  555 
Busey  v.  Hooper,  4,  169,  593 
Bush's  Case,  10 
Bushnell  v.  Beloit,  91 
Busk  ' .  Walsh,  298 

Butcher  t>.  Dillsburg  &  M.  R.  R.  Co.,  175 
Butler  V.  Cupston,  62,  246,  251,  259 
Butler  V.  Dunham,  91 
Butler  V.  Finch,  452 
Butler  V.  Glen  Cove  Starch  Co.,  370 
Butt  V.  Monteaux,  240 
Butt  V.  White,  657 
Butterfield  v.  Beardsley,  507,  510 
Butterfield  v.  Spencer,  507 
Butternuts   &    Oxford    Turnpike  Co.   v. 

North,  82 
Butterworth  v.  Kennedy,  468 
Butterworth  v.  O'Brien,  649 
Button  V.  Hoffman,  624,  633 
Butts  V.  Wood,  657 
But2  D.  Muscatine,  92 
Buxton  V.  Lister,  337 
Burlch-y-Plum  Lead  M.   Co.  v.  Baynes. 

154,  166 
Byers  v.  Beattie,  345 
Byers  v.  Franklin  Coal  Co.,  260 
Byron  v.  Carter,  521,  522,  523,  525 


c 


Cachar  Co.  Re,  145 

Cable  Ry.  Re,  496 

Cable  V.  McCum,  218,  220,  227 

Cabot   <&     West    Springfield    Bridge    v. 

Chapin,  14 
Cabot  <fe  W.  S.  B.  V.  Cliapin,  180 


Cadett  V.  Earle,  305 

Cady  V.  Potter,  360,  387 

Cagwin  v.  Hancock,  93,  94 

Cahill  I'.  Kalamazoo,  <fec.,  Ins.  Co.,  633 

Cairo,  <fcc.,  R.  R.  Co.  v   Sparta,  91,  93 

Caldicott?'.  Griffiths,  504 

Caley  v.  Phil.   &,  Chester  R.  R.  Co.,  79, 

80,  82,  83,  137,  187,  500 
Caldwell  f.  Burke  Co.,  91 
Calhoun  v.  The  Steam  Ferry  Boat,  <fec., 

Co.,  205 
California,  Ac,  Co.  v.  Schafer,  67 
Calisher's  Case,  193,  227 
Callanan  v.  Edwards,  639 
Caltness  Iron  Co.  v.  Black,  540,  541 
Cam  V.  Westchester  R.  R.  Co.,  175 
Camblos  v.  Phil.,  &c.,  R.  R.  Co.,  676,690 
Cambridge,  (fee,  Co.  v.   Somerville,  «fec., 

Co.,  200,  206,  221,  226 
Cambrion  Ry.  Co.  Re,  268 
Camden  v.  Doremis,  200 
Camden,  &c.,  R.  R.  Co.  v.  Elkins,  614 
Came  v.  Brigham,  209,  222,  678 
Cameron  v.  Durkheim,  344,  445,  459,  681, 

586 
Cammayer  v.  United  Church,  620 
Camp  V.  Byrne,  591,  592 
Campbell's  Case,  123,  129,  288 
Campbell  v.  Fleming,  356 
Campbell  v.  Kenosha,  91 
Campbell  v.  London,  Ac,  Ry.  Co.,  273 
Campbell  v.  Miss.  Union  Bk.,  629 
Campbell  V.  Morgan,  10,  25,  41 
Campbell  v.  Paris,  <fec.,  R.  R.  Co.,  90 
Campbell  v.  Parker,  477 
Campbell  v.  Richardson,  341 
Canada  Southern  Ry.  Co.  v.  Gebhard,  654 
Canfield  v.  Minn.  &c.,  Assn.,  477 
Cannon  v,  Bryce,  347 
Cannon  v.  Tra.sk,  590,  594 
Cape  V.  Dodd,  462 
Cape's  Executor's  Case,  263,  264 
Capper's  Case,  63,  250,  260 
Cappin  V.  Grecnlees,  311 
Capron  v.  Capron,  558 
Cappur,  V.  Harris,  337 
Capron  v.  Thompson,  460,  461 
Carey  v.  Cin.  &  Chicago  R.  R.  Co.,  165 

XXVII 


TABLE   OF  CASES, 


[The  references  are  to  sections.'\ 


Carey  v.  Giles,  638 

Cargill  V.  Bower,  15*7,  158 

Cargill  V.  Bower,  295,  353 

Caritable  Corporation  v.  Sutton,  681 

Carting's  Case,  32,  48 

Carlisle  v.  Cahawba,  <fec.,  R.  R.  Co.,  118, 

207 
Carlisle  v.  Evansville,  Ind.,  &  C.  S.  R.  R. 

Co.,  138 
Carlisle  v.  Saginaw,  <fec,,  R.  R.  Co.,  52,  55, 

66,  67 
Carlisle  v.  Southeastern  Ry.  Co.,  539,  545, 

546 
Cartisle  v.  Terre  Haute,  <fec.,  R.  R.  Co.,  500 
Carpenter  v.  Danforth,  320 
Carpenter  v.  Marine  Bank,  205,  224,  226 
Carpenter  v.  New  York,  <fec.,  Ry.  Co.,  539 

641 
Carpenter!;.  New  York,  (fee.,  R.  R.  Co.,  546 
Carr  v.  Hinchliff,  455 
Carr  v.  Iglehart,  241 
Carr  v.  Le  Fevre,  15,  34 
Carriage,  &c.,  Assoc.,  In  re,  650 
Carrol  v.  Green,  227 
Carroll  v.  Cone,  546 

Carroll  v.  Mullanphy  Sav.  Bk.,  378,  414, 
479,  522,  526.  532,  623 

Carroll  Co.  v.  Smith,  93,  95,  97 

Carson  v.  Arctic  Mining  Co.,  125 

Cartan  v.  Father  Matthews,  <fec.,  Society, 

124 
Carter  v.  Ford  Plate  Glass  Co.,  654,  679 
Carter  v.  Manufacturers'  Natl.  Bk.,  330 
Carter  v.  Taggart,  305 
Carters  v.  Mfs.  Natl.  Bk.  474 
Cartmell's  Case,  262,  340 
Carver  v.  Braintree  Mfg.  Co.,  214,  220 
Casev.  Bank,  382,  531,  533 
Case  V.  Mechanics'  Banking  Assoc,  505 
Casey  v.  Galli,  227 
Cass  V.  Dillion,  91,  92 
Cass  i;.  Manchester,  625,  668 
Cass  V.  Ottawa,  <fec.,  Ins.  Co.,  675,691,  692 
Cass  V.  Pittsburgh,  Ac,  R.  R.  Co.,  71,  84, 

87 
Cassard  v.  Heinmann,  342,  344 

Castello  V.  City  Bank  of  Albany,  478 
Castellan  v.  Hobson,  259,  264,  266 
Castello's  Case,  63,  260,  266 
Castleman  v.  Holmes,  63,  224,  250,  260 

XXVIII 


Catchpole   v.  Ambergate,  <irc.,   Ry.   Co., 

129,  382, 575 
Catlin  V.  Eagle  Bk.,  228 
Cayuga,  (fee,  R.  R.  Co.  v.  Kyle,  54,  185 
Cazeaux  v.  Mali,  295,  350,  353 
Cecil,  Matter  of,  612 
Cecil  Natl.  Bk.  v.  Watsontown  Bk.,  531, 

532 
Central  A.  &  M.  Ass.  v.  Alabama  G.  L. 

Ins.  Co.,  185,  221,  265,497 
Central  City  Sav.  Bk.  v.  Walker,  243 
Central   Crosstown  Co.   v.   Twenty-third 

St.,  (fee,  Co.,  625 
Cent.  Natl.  Bk.  v.  White,  520 
Central  Natl.  Bk.  v.  Willistown,  490 
Central  R.  R.  Co.  v.  Clemens,  185,  187 
Central  R.  R.  Co.  v.  Collins,  314,  672 
Central  R.  R.  Co.  v.  Georgia,  668 
Central  R.  R.  Co.  v.  Pettus,  702 
Central  R.  R.  Co.  v.  Smith,  60 
Central  R.  R.  Co.  of  N.  J.  v.  Pennsylvania 

R.  R.  Co.,  315 
Central  R.  R.  &  Banking  Co.  v.  Atlantic, 

(fee,  R.  R.  Co.,  583,  587 
Central  R.  R.  &  Banking  Co.  of  Ga.  v. 

Papot,  543 
Central  R.  R.  <fe  Banking  Co.  v.  Ward,  371 
Central  Turnpike  Co.  v.  Valentine,  176, 180 
Chafife  v.  Ludeling,  233,  243 
Chaffee  v.  Rutland,  <fec.,  R.   R.   Co.,  267, 
268,270,271,534,  536,541 

Chaffin  V.  City  of  St.  Louis,  209 
Chaffin  V.  Cummings,  52,  160,  192 
Chains'  Case,  288 
Chamberlain  v.  Burlington,  91 
Chamberlain  v.  Greeuleaf,  457,  471,  475, 

587 
Chamberlain  v.  Huguenot  Mfg.  Co.,  214, 

221,  550 
Chamberlain  v.  Painesville  &  H.  R.  R.  Co., 

78,  80,  83,  88,  173,  593 
Chambersburg  Ins.  Co.  v.  Smith,  258,  383, 

531,546 
Champion  v.  Memphis,  <fec.,  R.  R.  Co.,  500, 

502 
Chandler  v.  Bank,  657 
Chandler  v.  Brown,  171,  208,  229 
Chandler  v.  Keith,  108,  207,  208 
Chandler  v.  Northern  Cross  R.  R.  Co.,  192 

197 
Chandler  v.  Siddle,  201,  204 


TABLE   OF  CASES. 


[T^e  references  are  to  sections.'] 


Chapin  v.  First,  <fec.,  Soc,  504 
Chaplin  v.  Clarke,  76,  240 
Chapman  v.  Gates,  91 

Chapman  v.  Mad  River  <fe  Lake  Erie  R.  R. 

Co., 
Chapman  v.  New  Orleans,  <fec.,  Co.,  388, 488 
Chapman  v.  Phoenix  Natl.  Bk.,  371 
Chapman  v.  Reynolds,  305 
Chapman  v.  Shepherd,  259,  265,  588 
Chapman's  Case,  57,  620 
Chapman  <fe  Barker's  Case,  65,  245,  246, 

247,  251 
Chappell's  Case,  266,  332,  639 
Charitable  Corporation  v.  Sutton,  644 

Charleston  Ins.  &  Trust  Co.  v.  Sebring, 

653,  692 
Charlotte,  &c.,  R.  R.  Co.  v.  Blakely,  52, 

67,  173 

Charlton  v.  Newcastle,  <fec.,  Ry.  Co.,  668, 
673,  690 

Chartiers  R.  R.  Co.  v.  Hodgens,  187 

Chase  v.  Curtis,  218,  220,  222 

Chase  v.  East  Tenn.,  Ac,  R.  R.  Co.,  121, 

626 
Chase  v.  Ingalls,  220 
Chase  v.  Lord,  4,  214,  224,  241,  248 
Ch:ise  V.  Merrimack  Bk.,  52 
Chase  v.  Railroad  Co.,  69 

Chase  v.  Sycamore,  <fec.,  R.  R.  Co.,  67,  86, 

89 
Chase  v.  Vanderbilt,  270,  271,  276,  540, 

544,  668 

Chater  v.  San  Francisco,  <fec.,  Co.,  67,  75, 
334,  338 

Cheale  v.  Kenward,  246,  259,  264,  333,  338 

Cheever  v.  Meyer,  489 

Cheltenham,  tfec,  Ry.  Co.  v.  Daniel,  52,  378 

Chenango  Bridge  Co.  v.  Paige,  236 

Chenango  County  Ins.  Co.,  Matter  of  the, 

605,  616 
Chenoy  v.  LaFayette  R.  R.  Co.,  657 
Chcraw  &,  Chester  R.  R.  Co.  v.  Garland, 

105,  146 

Cheraw  &  C.  R.  R.  Co.  v.  White,  176 
Cherokee  Iron  Co.  v.  Jones,  672 
Cherry  v.  Frost,  414,  473 
Chesapeake,  (fee.  Canal  Co.  v.  Baltimore, 
<fec.,  K.  R.  Co.,  629,  633 

Chesapeake,  <fec.,   R.  R.  Co.  v.  Paine,  6, 

483,  485,  487,  491 

Cheshire  Banking  Co.,  Re.,  558 


Cheshire,  &c..  Telephone  Co.  v.  State,  567 

Chesley  v.  Cummings,  4 

Chesley  v.  Pierce,  260,  263 

Chester,  <fec,  v.  Dewey,  4,  10,  52, 124, 125, 

192 
Chesterfield  Colliery  Co.  v.  Black,  652 
Chestnut  v.  Pennell,  209,  222 
Chetlaia  v.  Republic  Life  Ins.  Co.,  187, 

281,  282,  311,  701 
Chew  V.  Bk.  of  Baltimore,  134,  320,  378 
Chicago  V.  Hall,  228 
Chicago,  <fec.,  R.  R.  Co.  v.  Aurora,  91,  94, 

97 
Chicago,  <fec.,  R.  R.  Co.  v.  James,  285 
Chicago,  (fee,  R.  R.  Co.  v.  Mallory,  94 

Chicago,  (fee,  R.  R.  Co.  v.  Marseilles,  97, 
311 

Chicago,  B.  &  Q.  R.  R.  Co.  v.  McGinnis, 

187 
Chicago,  <fec.,  R.  R.  Co.  v.  Page,  559 
Chicago,  <fec.,  R.  R.  Co.  v.  Pinckney,  92 
Chicago,  <fec.,  R.  R.  Co.  v.  Schewe,  97 
Chicago,  (fee,  R.  R.  Co.  v.  Smith,  91 
Chicago  Building  Society  v.  Crowell,  285 
Chickaming  v.  Carpenter,  91,  103 
Chicot  Co.  V.  Lewis,  94 
Child  V.  Boston,  <fec..  Iron  Works,  220 
Child  V.  Coffin,  248,  260,  499 
Child  V.  Hudson  Bay  Co.,  522,  523 
Child  V.  Hugg,  475 
Ciiild  V.  Morley,  451 
Cliild  V.  N,  Y.,  Ac,  R.  R.  Co.,  654 
Childs  V.  Digby,  485 
Childs  V.  Smith,  185,  333 
Chillas  V.  Snyder,  342 
Cliillicothe,  <kc.,  R.  R.  Co.  v.  Brunswick,  91 
China   Steamsliip  <fe  L.  Coal  Co.  In  re,  105 
Chinnock's  Case,  246,  266 
Chisholm  Bros.  v.  Forney,  47,  199 
Choat  V.  Yates,  306 
Cliouteau  v.  Allen,  94 
Chouteau  v.  Dean,  13,  128,  199 
Chouteau  Ins.  Co.  v.  Floyd,  113,  138, 170, 

197 
Chouteau  Spring  Co.  v.  Harris,  266,  261, 

265,  831,  378,  382,  383 
Christensen  v.  Euo,  42 
Christensen  v.  Quiiitard,  42 
Christmas  «^.  Biddle,  485 

xxix 


TABLE   OF   CASES. 


[The  references  art  to  sections."] 


Chubby.  Upton,  42,  160,  164,  176,  185, 
199,  207,  208,  215,  263,  281,  288 

Churchill  v.  Bk.  of  Eng.,  330 

Cbynoweth's  Case,  266 

Cincinnati  v.  Walker,  91 

Cincinnati,  Ind.  &  Chicago  R.  R.  Co.  v. 
Clarkson,  15 

Cincinnati,  &c.,  R.  R.  Co.  v.  Clinton  Co., 
91 

Cincinnati,  &c.,  R.  R.  Co.  v.  Cole,  500 

Cincinnati,  <fec.,  R.  R.  Co.  v.  Pearce,  10,  56 
Cincinnati  Union  &  Ft.  Wayne  R.  R.  Co. 

V.  Pearce,  137,  138 
Citizens'  Mut.  Ins.  Co.  v.  Lott,  560 
Citizens'  Mutual,  «fec.,  Ins.  Co.  v.  Sortwell 

593,  596,  624 
Citizens'  Natl.  Bk.  v.  Elliot,  657 
City  of  Atchison  v.  Butcher,  91 
City  of  Aurora  v.  West,  91 
City  of  Chicago  v.  Jones,  285 
City  of  Covington  v.  Covington,  <fec.,  Co., 

268,  499,  500,  624 
City  of  Davenport  v.  Miss.   &  Mo.  R.  R. 

Co.,  566 
City  of  Evansville  v.  HaU,  564 
City  of  Jonesboro' «;.  Cario,  <fec.,  R.  R.  Co., 

90 
City  of  Kenosha  v.  Lamson,  91 
City  of  Knoxville  v.  Railroad  Co.,  501 
City  of  Lynchburg  v.  Slaughter,  91 
City  of  Memphis  v.  Esley,  567 
City  of  Memphis  v.  Farrington,  568 
City  of  Ohio  v.  Cleveland,  Ac,  R.  R.  Co., 

274,  277,  537,  542,  543,  545,  546 
City  of  Philadelphia  v.  Ridge  Ave.  R.  R. 

Co.,  3 
City  of  Richmond  v.  Daniel,  566 
City  of  San  Francisco  v.  Mackey,  567 
City  of  Savannah  v.  Kelley,  92 
City  of  Utica  v.  Churchill,  534,  569 
City  of  Wheeling  v.  Mayor  of  Baltimore, 

&c.,  678 
City  Bank  v.  Bangs,  387 
City  Bank  of  Columbus  v.  Bruce,  282,  311, 

314 
City  Bank  of  Macon  v.  Bartlett,  161 
City  Council  v.  Baptist  Church,  91 
City  Hotel  v.  Dickinson,  69,  124, 125,  282 
City  Natl.  Bank  v.  Paducah,  571,  672 
City  Sav.  Bk.  v.  Whittle,  508 
City  Terminus  Hotel  Co.,  Jn  re,  246,  252 
XXX 


Claflin  V.  McDermott,  200 

Claflin  V.  South  Carolina  R.  R,  Co.,  660 

Clapp  V.  Astor,  642,  543,  558 

Clapp  V.  Cedar  Co.,  91 

Clapp  V.  City  of  Burlington,  570 

Clapp  V.  Peterson,  311,  312,  548 

Clapp  V.  Wright,  227 

Clark  V.  Atkins,  305 

Clark  V.  Continental  Improvement  Co.,  17, 

52,  54,  55,  68,  192 
Clark  V.  Davenport,  92 
Clark  V.  Des  Moines,  91 
Clark  V.  Dickson,  157 
Clark  V.  Edgar,  355 
Clark  V.  Farrington,  4,  15,  17,  52 
Clark  V.  Flint,  338 
Clark  V.  Foss,  341,  346,  347 
Clark  V.  Gibson,  341 
Clark  V.  Janesville,  91,  93 
Clark  V.  Monongahela  Nav.  Co.,  175,  499 
Clark  V.  Pinney,  581 

Clark  V.  South  Metropolitan  Gas  Co.,  329 
Clark  V.  Sparhawk,  477 
Clark  V.  Thomas,  Rec.  &c.,  184,  281,  288 
Clark  V.  Turner,  298 
Clarke,  Ex  parte,  18,  35 
Clarke  v.  Dixon,  163 
Clarke  v.  Hancock  Co.,  93 
Clarke  v.  Hart,  123,  128,  129 
Clarke  v.  Lincoln  Lumber  Co.,  39 
Clarke  v.  Meigs,  448,  460 
Clarke  v.  Rochester,  91 
Clarke's  Case,  623,  650 
Clarkson  v.  Clarkson,  537,  554,  556,  557 
Clarkson  v.  Snider,  471 
Clay  V.  Hawkins,  91 
Clay  Co.  V.  Society  of  Savings,  91,  101 
Clayton  v.  Gresham,  556 
Clear  v.  New  Castle  &  D.  R.  R.  Co.,  196 
Clearwater  v.  Meredith,  493,  500,  502,  633, 

636,  668,  671 
Clem  V.  New  Castle,  &c.  R.   R.    Co.,   56, 

138,  146 
Clements  v.  Bowes,  63 
Clements  v.  Bowers,  240,  689 
Clements  t>.  Todd,  240 
Cleve  V.  Financial  Corporation,  595 
Cleveland  v.  Burnham,  73,  112,  200,  208, 

227,  263 


TABLE   OF   CASES. 


[77i€  references  are  to  sections.'\ 


Cleveland  v.  Marine  Bk.,  200 

Cleveland  (t  M.  R.  R.  Co.  v.  Robbius,  359, 

392,  546 
Cleveland  Iron  Co.  v  Ennor,  138,  191 
Clinch  V.  Financial  Co.,  500,  636,  668,  696 
Cliquot's  Champagne,  581 
Clive  V.  Clive,  542,  543,  552 
Close  V.  Glenwood  Cemetery,  497,  500 
Cloutman  v.  Pike,  627 
Clowes  V.  Brettell,  200,  383 
Clute  V.  Loveland,  504 
Coalfield  Coal  Co.  v.  Peck,  201 
Coates  V.  London  &  S.  W.  Ry.  Co.,  365 
Coates  V.  Nottingham,  «fec.  Ry.  Co.,  272 
Coates  V.  Nottingham  Water  Works   Co., 

539 

Cobb  V.  Prell,  344 

Cochran  v.  Cochran,  304 

Cochran  v.  Ocean  Dry  Dock  Co.,  228,  548 

Cochrane  v.  Chambers,  319 

Cockburn's  Case,  309 

Cockburn  v.  Union  Bk.,  513,  615 

Cockerel  v.  Aucompe,  504 

Cockerell  v.  Van  Dieman's  Land  Co.,  130, 
131 

Cody  V.  Smith,  227 

Coey  V.  Belfast,  &c.   Ry.    Co.,    272,    274, 
544,  546 

Coffin  V.  Chicago  &  N.,  <fec.  Co.,  476 

Coffin  V.  Collins,  73 

Coffin  V.  Reynolds,  215 

Coffin  V.  Rich,  214,  215,  241,  497 

Cogswell  V.  Bull,  694,  695 

Cogswell  V.  Cogswell,  552 

Cohen  v.  Graynn,  325 

Cohen  v.  Gwynn,  134,  387,  507 

Cohen  v.  Wilkinson,  675 

Cohn  V.  Bk.  of  St.  Joseph,  622 

Coil  V.  Pittsburgh  College,  149 

Coit  V.  Campbell,  686 

Coit  V.  North  C.  Gold  A.  Co.,  3,  34,  42,  44 

Colchester  v.  Seaber,  638 

Colderwood  v.  McCrea,  344,  346 

Cole  V.  Butler,  227,  228 

Cole  1).  Joliet  Opera  House  Co.,  119 

Cole  V.  Milmine,  342 

Cole  V.  Ryan,  255,  256,  261 

Coleman  v.  Coleman,  234 

Coleman  V.  Columbia  Oil  Co.,  311,  543,  644 


Coleman  v.  Second  Ave.  R.  R.  Co.,  662 

Coleman  v.  Spencer,  75,  414,  489 

Coleman  v.  White,  205,  206, 208,  224,  226 

Coles  V.  Bk.  of  Eng.,  366,  575 

Coles  V.  Bristowe,  264,  462 

Colket  V.  Ellis,  459,  462 

CoUamer  v.  Day,  341 

Collier  v.  Collier,  305,  550 

Collier  t;.  Squire,  305 

Collins  V.  City  &  County  Bk.,  163 

Colman  v.  Eastern  Countries  Ry.  Co.,  673 

Colquhoun  v.  Courtenay,  266,  321 

Colt  V.  Clapp,  64,  342 

Colt  V.  Netterville,  337,  339 

Colt  V.  Owens,  460,  576,  581,  583,  586,  587 

Colt  V.  Woolaston,  76,  240,  351 

Colton  V.  Ross,  697 

Columbia,  &c.  Level  Co.  v.  Meier,  607 

Columbine  v.  Chichester,  338 

Colvill's  Case,  168 

Colvin  V.  Williams,  339 

Combe  v.  Pitt,  92 

Combination  Trust  Co.  v.  Weed,  661 

Comeau  v.  Guild  Farm  Oil  Co.,  487 

Comfort  V.  Leland,  115 

Comins  v.  Coe,  351 

Commercial  Bk.  v.  Chambers,  638 

Commercial  Bk.  v.  City  of  lola,  90,  91 

Commercial  Bank  v.  Lockwood,  638 

Commercial  Bk.  of  Buffalo  v.   Kortrio'ht, 
377,  382,  465,  532,  579  ° 

Commercial  Bk.  of  India,  In  re,  635 

Commercial  Bk.  of  Natchez  v.  State,  632 

Commissioners  v.  Baltimore,   Ac.    R.    R. 
Co.,  93 

Commissioners,    (fee.  v.    Holyoke    Water 
Power  Co.,  496 

Commissioners  of  Crawford  Co.  v.  Louis- 
ville, &c.  R.  R.  Co.,  91 

Commissioners  of  Johnson  Co.  v.  Thayer, 

93 
Commissioners  of  Knox  Co.  v.  Nichols,  91 
Commonwealth  v.  Allegheny  Co.,  91 
Commonwealth  v.  Boston,  <fec.  R.  R.   Co., 

4,  314,  537 

Commonwealth  v.  Bringliurst,  610 
Commonwealth  v.  Central  Passenger  Ry. 
Co.,  665 

Commonwealth  v.    Cochituate    Bk.,    227, 
497 

xxxi 


TABLE   OF   CASES. 


[The  references  are  to  sections.'] 


Commonwealth  v.  Cooper,  450 
Commonwealth  v.  CuUen,  500,    503,    594, 

622,  633 
Commonwealth  v.  Fisher,  638 
Commonwealth  v.  German  Society,  626 
Commonwealth  v.  Gill,  623 
Commonwealth  v.  Hamilton  Manufg.  Co., 

563 
Commonwealth  v.  McWilliams,  91 
Commonwealth  v.  Oliver,  626 
Commonwealth  v.  Perkins,  91 
Commonwealth  v.  Philanthropic  Soc,  626 
Commonwealth  v.  Phoenix  Iron  Co.,  511, 

513,  514,  515 
Commonwealth  v.  Pike  Beneficial  Society, 

626 
Commonwealth  v.  Pittsburgh,  91,  92,  98, 

103,  536, 537 
Commonwealth  v.  St.  Patrick's  S#c.,  626 
Commonwealth  v.  Trustees  of  St.  Mary's 

Church,  625 
Commonwealth  v.  Watmouth,  487 
Commonwealth  v.  Wickersham,  607 
Commonwealth  v.  Woelper,  621,  623 
Comstock  V.  Buchanan,  320 
Conant  v.  National,  &c.  Co.,  74 
Conant  v.  Reed,  378 
Conant  v.  Seneca  Co.  Bk.,  414,  527,    531, 

532 
Conant  v.  Van  Shaick,  215,  222,  224,  497 
Concord  v.  Portsmouth   Savings  Bk.,   91, 

92,  98 
Condit  V.  King,  387 
Congregational   Society   of    Bethany    v. 

Sperry,  593 
Conklin  v.  Furman,  209,  224 
Conklin  v.  Second  Nat.  Bk.,  522,  523 
Conkey  v.  Bond,  450 
Connecticut,  <fec.  R.  R.  Co.  v.  Baily,  68,  69, 

122,  124,  138,  19! 
Conn.  &  Passumpsic  R.  R.  Co.  v.   Baxter, 

83,85 
Connecticut  River  Sav.  Bk.  v.  Fiske,  222 
Conner  v.  Hillier,  576,  581 
Conrad  v.  La  Rue,  348,  676 
Conro  V.  Gray,  633 
Conro  V.  Port  Henry  Iron  Co.,    625,  636, 

667 
Cousland  v.  Davis,  464 
Consolidated  Assoc'n  v.  Lord,  497 
Const  V.  Harrie,  624 

xxxii 


Constantinople,  Ac.  Co.,  In  re,  57 
Continental  Natl.  Bk.  v.  Eliot  Natl.  Bk., 

8,  379,  465,  487 
Continental  Telegraph  Co.  v.  Nelson,  47, 48 
Converse  v.  Dinock,  694 
Conway  v.  Duncan,  209 
Conwell  V.  Town  of  Connersville,  564 
Conyngham's  Appeal,  475,  477,  478,  579 
Cook  V.  Berlin  Woolen  M.  Co.,  653 
Cook  V.  Chittenden  Bk.,  56,  169 
Cook  V.  City  of  Burlington,  564,  567 
Cook  V.  Manufacturing  Co.,  91 
Cook  V.  Sherman,  650 
Coolidge  V.  Goddard,  40 
Coonloocook  Valley  R.R.  Co.  v.  Barker, 

176 
Cooper  V.  Canal  Co.,  480 
Cooper  V.  Frederick,  280,  289 
Cooper  V.  Neil,  345 
Cooper  V.  Swamp,  &c.  Co.,  390 
Cooper  V.  Webb,  240 
Copeland  v.  C.  Gas  Co.,  667 
Copeland  v.  Copeland,  6 
Copes  V.  Charleston,  91 
Copp  V.  Lamb,  591,  600 
Corbett  v.  Underwood,  462 
Cork,  &c.  Ry.  Co.  v.  Cazenove,  63,  250 
Corn  Exchange  Bk.  v.  Blye,  472 
Corn  Exchange  Bk.  v.  Nassau  Bk.,  462 
Cornell  v.  Hay,  143 
Cornell  v.  Hichens,  15 
Cornell's  Case,  319 

Cornick  v.  Richards,  465,  466,  476,  487 
Corning  v.  McCuUough,  218,  224,  227 
Corning  v.  Mohawk  Valley  Ins.  Co.,  203 
Corry  v.  Londonderry,  <fec.  Ry.  Co.,  268, 

269,  272,  540 
Cortelyou  v.  Lansing,  475,  581 
Corwitt  V.  Culver,  137,  138,  181 
Cosenback  v.  Salt  Spring  Natl.  Bk.,  123 
Costello's  Case,  266 
Cotheal  v.  Brower,  515,  518 
Cottam  V.  Eastern,  &c.  Ry.  Co.,  134,  327, 

363,  365 
Cotting  V.  New  York  &  N.  E.   R.R.  Co., 

270 
Cotton  V.  Leon  Co.,  91 
Coulter  V.  Rober.tson,  638 
Count  Pahlen's  Case,  128,  129 


[TABLE   OF   CASES.] 
^T/ie  references  are  to  sections.^ 


County  Com'rs.    v.  Annapolis,  &c.   R.  R. 
Co.,  668 

County  Com'rs.  v.  Farmers'  Natl.  Bk.,  567 
Count\'  Marine  Ins.  Co.,  In  re,  539 
County  of  Armstrong  v.  Biinton,  91,  98 
County  of  Calloway  v.  Foster,  92,  101 
County  of  Cass  v.  Gillett,  92,  96,  101 
County  of  Cass  v.  Johnson,  94 
County  of  Cass  v.  Jordan,  94 
County  of  Crawford  v.  Pittsburgh  &.  Erie 

R.  R.  Co.,  191 
County  of  Daviess  v.  Hundekoper,  91 
County  of  Henry  v.  Nicolay,  92,  103 
County  of  Jasper  v.  Ballou,  93 

County  of  Lackawanna  v.  First  Natl.  Bk., 

567 
County  of  Leavenworth  v.  Barnes,  218 
County  of  Macon  v.  Shores,  92 
County  of  Morgan  v.  Allen,  199,  208,  226 

County  of  Moultrie  v.  Rockingham,  <fec. 
Bk.,  91,  92,  96,  101 

County  of  Ralls  v.  Douglass,  94 

County  of  Randolph  v.  Post,  92 

County  of  Ray  v.  Vansycle,  92,  101 

County  of  Richland  v.  People,  93 

Countv  of  San  Mateo  v.   Southern  Pacific 

R.  R.  Co.,  496,  501 
County  of  Schuylkill  v.  Copley,  55 
County  of  Schuyler  v.  Thomas,  92,  103 
County  of  Scotland  v.  Thomas,  92, 1 01, 103 

County  of  Tazewell  v.  Farmers'  <fe  Trust 
Co.,  659,  695 

County  of  Tipton  v.   Locomotive  Works, 

103 
County  of  Wilson  v.  National  Bk.,  90 
Coupland  v.  Chailis,  5240 
Courtois  V.  Harrison,  226,  228 
Courtright  t;.  Deeds,  10,  187 
Coveli  V.  Loud,  457 
Covert  V.  Rogers,  4,  597 
Covington,  A'c,  Bk.  v.  Covington,  571 
Covington,  <tc..  Bridge  Co.  v.  Mayer,  592 
Covington,  <fec.,  Co.  v.  Sargent,  268 

Covington  <fe  Lex.  R.  R.  Co.  v.  Bowler's 

Exrs ,  653,  086 
Cowle?  V.  Cromwell,  265,  261 
Cowiea  V.  Whitman,  338 
Cowli;;g  V.  Cowling,  305 
Cox  V.  Bodfish,  504 
Coxe  V.  Hart,  692 


Cox's  Case,  65,  246,  253,  266 

Coyote  Gold  &  Silver  Mining  Co.  v.  Ruble, 

541 
Craft  V.  Tuttle,  564,  570 
Cragg  V.  Riggs,  554 
Cragg  V.  Taylor,  483 
Cragie  v.  Hadley,  45 
Craig  V.  Andes,  94 

Craig  V.  First  Presbyterian  Church,  607, 
610,  624 

Craig  V.  Gregg,  679,  688 

Ci-amer  v.  Bird,  632 

Crandall  v.   Lincoln,  248,  249,  251,  282, 
285,  312 

Craw  V.  Easterly,  620 

Crawford  v.  Dox,  359,  560 

Crawford  v.  Fisher,  387 

Crawford  v.  North  Eastern,  (fee,  R.R.  Co., 

267,  269,  272 
Crawford  v.  Prav.  Ins.  Co.,  378,  382,  390 
Crawfurd  v.  Rohrer,  44,  47,  108, 199,204, 

207 
Crawford  R.R.  Co.  v.  Lacey,  185 
Crease  v.   Babcock,   205,  215,   224,  226, 

243,  245,  247,  262,  311,  612,  634 

Credit  Co.  v.  Webster,  519 

Credit  Foncier  of  England,  In  re,  280 

Cresswell  v.  Oberly,  243 

Creyke's  Case,  125, 127 

Crickmer's  Case,  35,  50 

Crocker  v.  Crane,  59,  72,  174 

Crocker  v.  Crocker,  321 

Crocker  v.  Old  Colony  R.R.  Co.,  330 

Croft  V.  Lumpkin  Chestatee  Mia.  Co.,  532 

Cromford,  tfec,  Ry.  Co.  v.  Lacy,  52 

Crook  V.  Jewett,  700 

Cross  V.  Jackson,  508 

Cross  V.  Peach  Bottom  Ry.  Co.,  497,  499, 
501 

Cross  V.  Phenix  Bk.,  522,  529,  531 

Cross  V.  Pinckneyville,  tfcc,  Co.,  67,  68,  234 

Cross  V.  Sackett,  40,  48,  351,  352 

Cross  V.  Wil  iams,  604 

Cross's  Case,  309 

Crossman  v.  Penrose  Ferry  Bridge  Co.,  138 

Crow  V.  Green,  243 

Croxtou's  Case,  261 

Crubb  V.  Miller,  336 

CruU  V.  Dodson,  339 


[C] 


XXXIU 


TABLE   OF   CASES. 


[The  references  are  to  sections.~\ 


'Cruni's  Appeal,  509 

€rumbe  v.  U.  S.  Min.  Co.,  140,  141 

Crump  V.  U.  S.  Mining  Co.,  285 

Cruse  V.  Paine,  246,  259,  454 

■Cuculler  v.  Union  Ins.  Co.,  67,  201,  202 

■didder  v.  Rutter,  337 

Cudland  v.  De  Mauley,  240 

•Culbertson  v.  Wabash  Nav.  Co.,  4,  592 

'Cullen  V.  Thompson,  352 

•Culver  V.  Fort  Edward,  93 

'Culver  V.  Reno,  (fee.,  Co.,  271 

■Culver  V.  Sunford,  505 

'Culver  V.  Third  Natl.  Bk.,  221,  224,  226 

Cumberland  v.  Magruder,  92 

Cumberland   Coal   Co.  v.  Sherman,    649, 
653,  685 

Cumberland,  <fec.,  R.R.   Co.  v.  Barren  Co 

96 
Cumberland  Valley  R.R.  Co.  v.  Baab,  83 
'Cuming  v.  Boswell,  552 
Cumming  a;.  Prescott,  4,  465,  620 
Cummingsi).  Merchants'  Natl.  Bk.,  571,  572 
Cumnock  v.  Institution  for  Sav.,  475 
Cuninghame  v.  City  of  Glasgow  Bk.,  246 

.Cunningham  v.  Alabama  ife  Trust  Co.,  522 
525,  527 

'Cunnini;ham  v.  Edgefield  &  Ky.  R.R  Co 
141,148,149' 

Cunningham  v.  Pell,  688,  691,  692 

Cunningham  v.  Third,  <fec.,  Bk.  of  Aug-usta, 
347 

Cunningham  v.  Vermont,  &c.   R    R    Co 

277 
Cunningham's  Appeal,  286 
Curier  v.  Santine,  629,  630,  632 

'Curran  v.  State  of  Arkansas,  99,  199,  270 
548,  549,  638 

Currie  v.  White,  333,  537,  542,  543 
Currie's  Case,  47,  48 

Currier  v.  Lebanon  Slate  Co.  251,  282,313 
•Currier  v.  N.  Y.    West  Shore,  .fee.   R.   R 
Co.  649,  689,  695 

Curry  v.  Scott,  61,  268,  286,  574 

Curry  v.  Woodward,    108,   195,  201    204 

207,  534,  543,  606,  619,  638 
Curtis'  Case,  93,  250,  266 
Curtis  V.  Butler  Co.,  91,  98 
Curtis  V.  Harlow,  260,  261 
Curtis  V.  Stever,  319,  483 
iCurtis  V.  Whipple,  91 

xxxiv 


Cushmnn  v.  Hayes,  477 

Cushman  v.  Shepard,  226 

Cushman  v.  Th:iyer  Mfg.  Co.  338, 358,  359, 
378,  383,  390,  414,  579 

Custiir  V.  Titusville  Gas  &  Water  Co.  138, 
140 

Cuthbert  v.  Cuthbert,  302 

Cutler  V.  Estate  of  Thomas,  508 

Cutler  V.  Middlesex,  &c.  Co.,  125 

Culright  V.  Stanford,  200 

Cutting  V.    Damerel,  208,  216,  245,  268, 
260,  262,  380,  ;^83 

Cuykendall  v.  Corning,  216,  218 

Cuykendall  v.  Miles,  224,  226 


D 


Daggett  V.  Davis,  575,  576,  586 

Dails  V.  Lloyd,  451 

Daland  v.  VVilliams,    537,  555,  557 

Dale  V.  Williams,  678 

Dale  V.  Hayes,  557 

Dallas  V.  McKenzie,  686,  92 

Dalovet  v.  Rothschild,  337 

Dalton  V.  Midland,  (fee,  Ry.  Co.,  3,  34,  62, 
365,  387,  503,  546 

Dalton,  <fec.  R.  R.  Co.  v.  McDaniel,108,  202, 

2(14 

Daly  ?;.  Thompson,  293,  383,  575 

Dana  v.  Bank  of  St.  Paul,  95 

Dana  v.  Bk.  of  the  United  States,  625,  667 

Dana  ".  Brown,  521 

Danbury,  &c.,  R.  R.  Co.,  v.  Wilson,  65,  67, 
W,  116,  119,  125,  185,  499 

Dane  v.  Dane  Mfg.  Co.,  214,  248 

Danev.  Young,  208,  215,  216,-224,  253, 

258,  262,  2S9,  382 
Danforth  v.  Penny,  239 
Daniell,  Ex  parte.  23,  29,  32 
Diiniell  v.  Off.  Managers  of  Bk.  163 
Daniell  v.  lloyal  British  Bk.,  883 
Danieil's  Case,  251,  266,  309 
Dannmeyer  v.  Coleman,  686,  689 
Danville  v.  Montpelier,  Ac.  K.  R.  Co.,  95 
Darst  y.  Gale,  585 

Dartmoulh  College  v.  Woodward,  1 
Dauchy  v.  Brown,  200,  214,  221 
Davenport  v.  Dows,  692 


TABLE  OF  CASES. 


YThe  references  are  to  sections.'\ 


'David's  Trusts,  Re,  305 

Davidson  v.  Grange,  616 

Davidson  v.  Ramsey  Co.,  91 

Davidson  v.  Rankin,  195,  214,  221,  224, 

227,  260 
Davidson  v.  Seymour,  651 
Davidson  v.  TuUoch,  352,  581 
Davidson's  Case,  138,  168 
Davies  v.  Fowler,  300,  302 
Davies  v.  Memphis  City  R.  R.  Co.,  657 
Davis  V.  Bank  of  England,  134,  366,  375, 

385,  565,  575 
Davis  V.  Bechstein,  532 
Davis  V.  Beverly,  508 
Davis  V.  Caine's  Exr.,  302 
Davis  V.  Essex  Baptist  Society,  246,  247. 

258 
Davis,  Ex  parte,  252 
Davis  V.  Gray,  216 
Davis  V.  Gwynne,  448 
Davis  V.  Haycock,  259,  455 
Davis  V.  Oswell,  585 
Davis  V.  Proprietors,  (fee,  268,  271 
Davis  V.  Rock,  <fec.  Co.  660 
Davis  V.  Stevens,  265 
Davison  v.  Gillies,  541 
Daw  V.  Gould,  &c.,  S.  M.  Co.  8 
Dawes'  Case,  127 
Dawes  v.  Ship,  502 
Dawkins  v.  Antrobus,  626 
Dawnes  v.  Ship,  145 
Dawson  v.  Kittle,  462 
Day  V.  Am.  Tel.  <fe  Cable  Co.,  365 
Day  V.  Day,  252 
Day  V.  Holmes,  587 

Day  V.  Newark,  India,  <fec.,  Mfg.  Co.  591 
Day  V.  Perkins,  581 
Dayton  v.  Borst,  67,  69,  204,  208 
Dayton,  <fec.  Co.  v.  Coy,  67 
Dayton  tk  Cincinnati  it.  R.  Co.  v.  Hatch, 

14,  15,  19,  88,  499,  500,  504,  625 
Dayton  Natl.  Bk.  v.  Merchants'  Natl.   Bk. 

464 
Deaderick  v.  Wilson,  206 
Dean  v.  Bennett,  626 
Dean  v.  Bii^irs,  200,  201 
Dean  v.  De  Wolf,  215 
Dean  v.  Mace,  221 


Deane  v.  Test,  303 

De  Camp  v.  Aylward,  633 

De  Caumont  v.  Bogert,  308 

Decker  v.  Hughes,  91 

Deems  v.  Albany  <fec.  Line,  508 

De  Froth  v.  Wisconsin,  <fec.,  R.  R.  Co.  96 

De  Gendre  v.  Kent,  542,  543,  552 

Delacy  v.  Neuse  River  Navigation  Co.  620 

Delafield  v.  State  of  111.  462 

Delamater  v.  Miller,  546 

Delamater's  Estate,  305,  308 

Delaney  v.  Van  Aulen,  560 

Delaware,  &c.,   R.    R.    Co.,   v.  Irick,  44, 

500 
Delaware,  <fec.,  R.  R.  Co.,  v.  Oxford  Iron 

Co.,  525,  533 
Delaware,    <fec.    Co.    v.  Sansom,  70,  124, 

256 
Delaware  Railroad  Tax,  8,  494,  495,  562, 

563,  568 
Delaware  R.  R.  Co.  v.  Sharp,  499,  500 
Delevan  v.  Siraonson,  460 
De  Lisle  v.  Hodges,  306 
Delvin  v.  Pike,  587 
Deming  v.  Bull,  225,  260 
Deming  v.  Williams,  308 
Denham  &  Co.,  Re,  158,  548,  550 
Denike  v.  New  York,  <fec.  Co.,  629,  630, 

631 
Dennis  v.  Kennedy,  507,  508,  509,  658 
Dennison,  Ex  parte,  469 
Denny  v.  Lyon,  473 
Densmore  v.  Central  R.  R.  Co.,  690 
Densmore  Oil  Co.  v.  Densmore,  4,  661 
Dent  V.  Holbrook,  583,  587 
Dent  V.  London  Tramways  Co.  272,  541 
Dent  V.  Nickalls.  446,  462 
Denton  v.  Livingston,  6,  480 
Denton  v.  Macneil,  145,  161 
Dent's  Case,  35 
De  Pass's  Case,  268,  266 
Deposite  Life  A.  Co.  v.  Ayscough,  154, 166 
De  Puyster  v.  American  Fire    Ins.    Co., 

199,  540,  649 
De  Ri')eyre  v.  Barclay,  447 
Derrickson  v.  Smith,  218 
De  Ruvigne's  Case,  48,  62,  620 
Desdoily,  Ex  parte,  613,  616 


XXXV 


TABLE   OF   CASES. 


[The  references  are  to  sections.'\ 


Des  Moines,  &e.,  R.  R.  Co.  v.  Graff,  83,  86 
Detroit  v.  Detroit  &  Howell  Plank  R.  Co. 

496, 501 
Detroit  L.  &  L.  M.  R.  R.  Co.,  v.  Starnes 

85 
Detweiler  v.  Breekenkamp,  124 
Devala  Pro  v.  G.  M.  Co.  In  re,  165 
De  Varaigne  v.  Fox.  638 
Devon,  &c.,  Ry.  Co.  Be,  268 
Dewees  v.  Miller,  341 
Dewey  v.  St.  Albans,  <fec.,  Co.,  214,  242 
Dewing  v.  Perdicaries,  297,  371,  679 
Dewitt  V.  Hastings,  185,  234 
Dexter,  &c.,  Co.  v.  Millard,  67,  69,  117, 

119 
Dey  V.  Holmes,  449,  462,  466 
Dick  V.  Balch,  73 
Dickinson  v.  Central  Natl.  Bank,  8,  247, 

320,  378,  465,  530 
Dickinson  v.  Chamber  of  Commerce,  626 
Dickinson  v.  Gay,  462 
Dickinson  t<.  Leival,  449 
Dickinson  v.  R.  R.  Co.,  271 
Dickson's  Executors  v.  Thomas,  341,  343, 

344 
Dill  V.  Wabash  Valley  R.  R.  Co.,  137 
Dillar  v.  Brubaker,  476 
Diman  v.  Providence,  <fec.,  R.  R.  Co.,  55, 

65,  67 
Dimpfel  v.  Ohio,  &c.,  R.  R.  Co.,  690 
Dingley  v.  City  of  Boston,  638 
Dingwell  v.  Askew,  306 
Dinns  v.  Prop,  of  Grand  Junction  Canal,  4 
Directors,  &c.,  of  Central  Ry.  v.  Kisch, 

HO,  143,147,  150,161,  162 
Disborough  v.  Outcalt,  481 
Dispatch  Line  V.Bellamy  Mfg.  Co.,  4,  620, 

625 
Diven  v.  Lee,  214,  224 
Diven  v.  Phelps,  227 
Diversey  v.  Smith,  227 
Dixon?;.  Evans,  123,  128 
Dixon  County  v.  Field,  90,  91 
Dixon's  Case,  168 
Dobbins  iJ.  Watton,  531 
Dobson,  Fz  parte,  378 
Dodd  V.  Winship,  555 
Dodds  V.  Hills,  B25 


Dodge  V.  County  of  Platte.  92 

Dodge  V.  Minnesota,  &c..  State,  (fee,  Co., 

226 
Dodge  t;.  Woolsey,  494,  562,  645, 675,  678, 

688 
Dodgson  V.  Scott,  260 
Dodgson's  Case,  139 
Donald  v.  Suckling,  463,  471.  473 
Donaldson  v.  Gillet,  321,  416 
DoDgan's  Case,  668 
Donohue  v.  Mariposa,  (fee,  Co.,  678 
Donovan  v.  Finn,  481 
Donworth  v.  Coolbaugh,  209,  222 
Doolittle  V.  Marsh,  220 
Door  V.  Geary,  305 
Dorison  ®.  Wesibrook,  337 
Dorman  v.  Jacksonville,  <fec.,  R.  R.  Co., 

189, 191 
Dormitzerv.  Illinois,  tfec.  Bridge  Co.,  54?' 
Dorris  v.  French,  4,  52, 188 
Dorrisv.  Sweeney,  67,  186,502 
Douchy  V.  Brown,  260,  265 
Dougan'sCase,  500,  668 
Dou"-lass  V.  Chatham,  91 
Douglass  V.  Craft,  587 
Douglass  1).  Douglass,  304 
Douglas  V.  Congreve,  6,  305 
Douglas  V.  Ireland,  34,  38,  226 
Douglas  V.  Merceles,  581 
Dousman  v.  "Wisconsin  &  Lake  Superior^ 

&c.,  Co.,  286 
Doveys  Appeal,  321,  362 
Dow  V.  Gould,  319,  336,  542 
Dowd  V.  Wisconsin,  <&c.,  R.  R.  Co.,  695 
Downer's  Adm.  v.  Zainesville  Bk..523,  527 
Downes  v.  Ship,  6  6 
Downie  v.  Hoover,  111 
Downie  v.  White,  138,  168 
Downing  v.  Mt.  Washington  R.   R.    Co.,. 

60 
Downing  v.  Potts,  129,  611,  616,  621 
Dows  V.  City  of  Chicago,  572 
Doyle,  Ex  parte,  248 
Draper  v.  Beadle,  34 

Draper  v.  Manchester,  Ac,  R.  R.  Co.,  519 
Drapers.  Spiingport,  93 
Drinkwater  v.  Falconer,  301 
Drinkwater  v.  Portland  Maine  Ry.,  200, 
219,  221 


XXXVl 


TABLE   OF  CASES. 


[The  references  are  to  sections.'] 


Driscoll  V.  West  Bradley,  &c..  Mfg.  Co., 

521,  522,  524 
Droitwich  Patent  Salt  Co.  v.  Curzon,  281, 

290 
Dionfield  Silkstone  Coal  Co.,  Re,  43,  167, 

168,  170 
Drover  y.  Evans,  52,  64,  67 
Drum  Slate,  &c.,  Co.,  Re.,  650 
Drummond's  Case,  18 
Drury  v.  Cross,  659 
Drybutter  v.  Bartholomew,  6 
Dryden  v.  Kellogg,  200,  220,  221 
Duanesburg  v.  Jenkins,  91,  94 
Dublin,  &c.,  Ry.  Co.  v.  Black,  63,  250,  318 
Du  Bois,  Matter  of,  634 
Dubois  V.  Thompson,  452 
Dubuque  Co.  v.  Dubuque  R.  R.  Co.,  91 
Ducket  V.  Grover,  692 
Duckworth  v.  Roach,  227 
Dudley  v.  Kentucky  High  School,    607, 

624 
Dudley  v.  Price's  Admr.,  638 
Duguid  V.  Edwards,  462 
Duke  V.  Andrews,  240 
Duke  V.  Cahawba  Nav.  Co.,  378,  532 
-Duke  V.  Diver,  240 
Duke  V.  Forbes,  240 
Duke's  Case,  310 
Dummer  v.  Pitcher,  308 
Duncan  v.  Hill,  402^ 
Duncan  v.  Jaudan,  323,  326,  472 
Duncan  v.  Luntley,  363 
Duncomb  v.  New  York,  <fec.,  R.  R.  Co., 

625,  660 
Duncuft  V.  Albrecht,  338,  389 
Dundas  v.  Dritens,  481 
Dunkerson,  In  re,  522,  532 
Dunlop  V.  Dunlop,  627 
Dunlop,  Re,  532 
Dunman  v.  Strother,  341 
Dunn  V.  Com.  Bk.  of  Buffalo,  375,  382,  532 
Dunne  w.  English,  651 
Durinovan  u.  Green,  91 
Dunn's  Adm'r  v.  Kyles  Adm'r,  681 
Dunston  v.  Imperial  Gas  Co.,  657 
Du  Pont  V.  Northern  Pac.  R.  R.  Co.,  660, 

690 
Dupre  V.  Boston  Water  Power  Co.,  311 


Durant  v.  Burt,  842,  346,  451 

Duraty's  Case,  1 56 

Durfee  v.  Old  Colony,  <fec.,  R.  R.  Co.,  601, 

607,  624 
Durham  v.  Man.,  <fec.,  Co.,  390 
Durham's  Case,  217 
Durkee  v.  Board  of  Liquidation,  92 
Durranty's  Case,  141 
Dutcher  v.  Marine  Natl.  Bk.,  216 
Dutchess  Collar  Mfg.  Co.  v.  Davis,  288 
Dutchess,  &c„  Co.   v.  Davis,  67,  70,  124, 

185 
Dutchess  <fe  C.  C.  R.  R.  Co.  v.  Mabbett, 

52.  55,  185 
Dutch  West  India  Co.  v.  Henrequez,  218 
Dutton  V.  Connecticut  Bank,  382,  414,  489 
Duvergier  v.  Pillows,  504 
Dwight  V.  Boston,  565 
Dyer  v.  Osborne,  6,  566 
Dykers  v.  Allen,  457,  469 
Dykers  v.  Townsend,  342 


E 


Eagle  V.  Beard,  102 

Eagle  Iron  Works,  Matter  of  the,  632 

Eaglesfield  v.  Marquis  of  Londonderry,  74, 
158 

Eakright  v.  Logansport,  <fec.  R.  R.  Co., 
55,  110,  117,  138 

Eames  v.  Doris,  226,  228 

Earl  of  Slirewsbury  v.  North  StrafiFord- 
shire  R.  Co.,  664 

Earl  Powlet  v.  Herbert,  323 

Early  v.  Lane's  Appeil,  311 

Earnest  v.  Crogsdill,  686 

Earp's  Appeal,  637,  551,  556 

Earp's  Will,  568 

East  Gloucestershire  Ry.  Co.  v.  Bartholo- 
mew, 10,  173,  383 

East  New  York,  Ac.  R.  R.  Co.  v.  Elmore, 
72, 546 

East  N.  Y.  <fe  Jamaica  R.  R.  Co.  v.  Light- 
house, 16 

East  Oakland  v.  Skinner,  90 

East  P,  Hotel  Co.  v.  West,  185 

xxxvii 


TABLE  OF  CASES. 


[TTie  references  are  to  sections.'] 


East  Pant,  Ac.  Mining  Co,  v.   Merrywea- 

ther,  652 
East  Rume,  <fec.  Co.  v.  Nagle,  674 
East  St.  Louis  v.  Maxwell,  92 
East  Tennessee,  (fee.  R.  R.  Co.  v.  Gammon, 

70,  137,  138,  607,  624 
East  &  West,  <fec.  Co.  v.  Littledale,  387 
East  &  West,  &c  Ry.  Co.  Re,  268 
Easterly  v.  Barber,  218,  620 
Eastern,  &c  Co.  v.  Vaughan.  67,  129,  174 
Eastern  R.  R.  Co.  v.  Benedict,  339,  581 
Eastman  v.  Crosby,  194 
Eastman  v.  Fiske,  334,  414 
Eaton  V.  Aspinwall,  185,  288 
Eaton,  &c.  R.  R.  Co.  v.  Hunt,  633 
Ebbett's  Case,  63,  259 
Ebbw  Vale  Steel,  «fec.  Co.,  hire,  281 
Eby  V.  Guest,  311,  487 
Eckfeld's  Estate,  299,  302 
Edey  v.  Shreveport,  91 
Edgell  V.  McLoughlin,  341 
Edgington  v.  Fitsmaurice,  145,  148,  157 
Edinboro  Academy  v.  Robinson,  67 
Edmondstoa  v.  Crosthwaite,  557 
Edwards  v.  Beugnot,  484 
Edwards   v.  Bringier    Sugar   Extracting 

Co.,  15 
Edwards  v.  Hall,  6 

Edwards  v.  Shrewsbury,  <fec,  Ry.  Co.,  676 
Edwards  v.  Sonoma  Bk.,  383,  576 
Edwards  v.  Wi.liamson,  91 
Ehle  I'.  Chittenango  Bk.,  535 
Eicholz  V.  Fox,  581 
Eidinan  i'.  Bowman,  285,  286,  625 
Eighmie  v.  Taylor,  1 37 
Elder  v.  New  Zeland  L.  T.  Co.,  179 
Election  of  Directors  of  the  Mohawk,  &c. 

R.  R.  Co.,  In  the  Matter  of  the,  599, 

605 
Elkington's  Case,  18 
Elkins  V.   Camden,  <fec.   R.  R.    Co.,  269, 

270,  272,  315,  534,  539,  690 
Ellis  V.  Eden.  305 
Ellis  V.  Proprietors  of  Essex   Merrimack 

Bridije,  10,  328,  542,  552 
Ellis'  Appeal,  472 
Ellison  V.  Mobile,  <fec.  R.  R.   Co.,  56,  80, 

138, 197 
Ellsworth  V.  Cole,  342 


Ellsworth  V.  New  York,  Ac.  R.  R.  Co.,  276 

Elmendorf  v.  New  York,  93,  218 

Elwell  V.  Dodge,  625 

Elwes  V.  Causton,  306 

Ely  V.  Spr-ague,  541 

Elysville,  &c.  Co.  v.  Okisko,  Ac.  Co.,  60 

Emerson  v.  N.  Y.  &.  N.  E.  R.  R.  Co.,  26» 

Emery  v.  Wason,  305 

Emma,  <fec.  Co.  v.  Grant,  651 

Emma  Min.  Co.  v.  Lewis,  143,  650,  651 

Emmerson's  Case,  266 

Emmert  v.  Smith,  227 

Emmitt  »,  Springfield,  J.  &  R.  R.  R.  Co., 

181 
Empire  v.  Darlington,  94,  103 
Empire  Assurance  Co.,  In  re,  620,  636 
Empire  City  Bk.,  Matter  of  the,  193,  215, 

227,  245,  247,  251,  262,  497 
Enders  v.  Board  of  Public  Works,  581 
Enfield,  cfec.   Bridge  Co.  v.  Conn.   River 

Co.,  629 
England  v.  Dearborn,  624,  633 
Englefield  Colliery  Co.,  Re,  52,  620,  624, 

650 
English  V.  Chicot  Co.,  91 
Eppes  y.  Miss.,  Gainesville  &  Tuskaloosa 

R.  R.  Co.,  17,  130,  177,  603 
Erickson  ?;.  Nesraith,  204,  206,    211,    218, 

219,  224,  226,  229 
Ericsson  v.  Brown,  215 
Erie  Ry.  Co.  v.  Casey,  37,  495,  638 
Erie,  &c.  R.  R.  Co.  v.  Owen,  53 
Erie,  (fee.  Ry.  Co.  v.  Patrick,  248 
Erie    &    Waterford    Plank   Road    Co   «.. 

Brown,  14,  175 
Erskine  v.  Lowenstein,  50,  253 
Erskine  v.  Peck,  168,  170 
Ervin  v.  Oregon  Ry.   <fe  Nav.    Co..    619, 

662,  689 
Erwin  v.  Oldman,  481 
Esmond  v.  Bullard,  222 
Esparto  Trading  Co.,  168 
Esser  v.  Linderman,  458 
Essex,  (fee.  Co.  V.  Tuttle,  67,  68,  59,  118,. 

124 
Essex  TiTrnp.  &  Co.  v.  Collins,  66,  68 
Estell    V.    Knightstown    &■    Middletowo- 

Turnpike  Co.,  106 


XXX  VIU 


TABLE   OF   CASES. 


[T7ie  references  are  to  sections.] 


Etna  ins.  Co.  v.  Shields,  153 

EvaBS  V.  Brandon,  679 

Evans'  Case,  5*7 

Evans  v.  Coventry,  199,  211 .  243,  248,  809, 

650 
Evans  v.  Hudson's  Bay  Company,  521 
Evans  v.  Jones,  305 
Evans  V.  Monet.  485 
Evans  v.  Osgood,  593 
Evans  v.  Philadelphia  Club,  626 
Evans  i;.  S.nallcombe,  169,  262,  684,  685 
Evans  v.  Trip,  301 
Evans  v.  Wain,  462 

Evans  v.  Wood,  246,  256,  259,  264.  455 
EvansviUe  Bk.  v.  Britton,  571 
Evansville,  <fec.  R.  R.  Co.  v.  Dunn,  88 
EvansviUe,  &c.  R.  R.  Co.   v.    Evansville, 

91,  94,  98.  268,  270,  277 
Evansville,  Indianapolis   &   C.  S.  R.    R. 

Co.  V.  Posey,  138 
Evansville  Bfat.  Bk.  v.  Metropolitan  Nat, 

Bk.,  522,  525,  533 
Evansville,  <fec.  R.  R.  Co.  v.  Shearer,  83, 

86 
Evarts  v.  Killingworth  Mfg.  Co.,  638 
Everett?;.  Coffin,  546 
Everett  v.   Smith,  624 
Everhart  v.  Westchester  &   Phil.    R.    R. 

Co.,  175,  265,  268,  499,  523 
Everingham  v.  Meighan,  346 
Everitt  v.  Kuapp,  347 
Everitt's  Appeal,  571 
European  Bk.,  In  re,  256 
European  Central  Ry.  Co.,  In  re,  281 
European  Life  Assurance  Society,    In  re, 

632 
European.  &c.  Ry.  Co.  v.  Poor,  648,  649 
Eu4ace  v.  Dublin,  T.  C.  Ry.  Co.,  383 
Ewing  V.  Medlock,  504,  509 
Excelsior  Fire  Ins.  Co.,  Matter  of,  625 
Excelsior  G.  B.  Co.  v.  Stayner,  174 
Excelsior  Petroleum  Co.  v.  Lacy,  549 
Exchange  Banking  Co.,  In  re,  539 
Exchange,  Ac.  Co.,  In  re,  122 
Exchan:^e  Nat.  Bk.  v.  Miller,  571 
Executors  of  Gilmore  v.  Bk.  of   Cincinna- 
ti, 255 
Exeter,  <tc.  Ry.  Co.  v.  BuUer,  676 
Exmouth  Docks  Co.,  In  re,  635 


Eyre's  Case,  251,  266,  309 
Eyerraan  v.  Krieckhaus,  42 


F 


Factage  Parisien  Limited,  Ee,  629,  631,, 

632 
Factors  &  T.  Ins.  Co.  v.  Marine  D.  D.  A 

S.  Co.,  358,  859,  465 
Factors,  (fee,  Ins.  Co.  v.  Harbor,  Ac,  Co.,, 

604 
Faikney  v.  Reynons,  345 
Fairfield,  cfec,  Co.  v.  Thorp,  73,  110,  116, 

119 
Falconer  v.  Buffalo,  <kc.,  R.  R.  Co.,  92,  96, 

97 
Falconer  v.  Campbell,  505 
Fall  River  Iron  Works  v.  Old  Colony  R. 

R.  Co.,  499 
Falman  v.  Lobach,  416 
Falmouth,  (fee  ,  Co.  v.  Shav?han,  195,  20C' 
Fanning  v.  Hibernia  Ins.  Co.,  612 
Fanning  v.  Insurance  Co.,  52,  246 
Fargo  V.  Louisville,  <fec.,  R.  R.  Co.,  505^ 
Paris,  £Jx  parte,  599 

Farmers'  Bk.  of  Maryland  Case,  528,  580- 
Farmers'  Bk.  of  Maryland  v.  Inglehart,, 

522,  627,  628,  530 
Farmers'  &  M.  Bk.  v.  Downey,  650 
Farmers'  &  M.  Bk.  v.  Nelson,  173 
Farmers'  &  M.   Bk.  v.  Wasson,  332,  S18, 

621,  522 
Farmers'  &  M.  Bk.  v.  Wayman,  327 
Farmers'  &  M.  Bk.  v.  Champlain  Trans- 
portation Co.,  311 
Farmers'  Natl.  Bk.  v.  Cook,  570,  672 
Farmers'  Natl.  Gold  Bk.  v.  Wilson,  489 
Farnani  v.  Brooks,  686 
Earned  v.  Harris,  200 
Farnum   v.   Ballard,  (fee.  Machine  Shop^ 

222,  678 
Farnum  v.  Blackstone  Canal  Corp.,  691 
Farnum  v.  Patch,  508 
Farnsworth  v.  Wood,  208,  216,  222 
Farrar  v.  Grubb,  601 
Farrar  v.  Perley,  601 
Farrar  v.  Walker,  161,  164 
Farrier  v.  Gabell,  343,  344,  846,  847 

xxxix 


TABLE   OF   CASES. 


[The  references  are  to  sections.'\ 


Farringtoii   v.   Tennessee,   497,  563,  566, 

567,  568 
Farris  v.  Reynolds,  94 
Farrow  v.  Bivings,  211,  229 
Farwell  v.  Houghton,  <fec..  Works,  599,  613 
Farwell  *■.  Tweddle,  554 
Fatman  v.  Lobach,  473 
Faulds  V.  Yates,  618,  624 
FauU  «.  Alaska,  <fec..  Mining  Co.,  201,  203, 

204 
Faulkner  v.  Ilebard,  337 
Fawcett  v.  Charles,  626 
Fawcett  !'.  Laurie,  534,  545,  546,  691 
Faxton  v.  McCarter,  566 
Fay  V.  Gray,  469,  471 
Fay  V.  Noble,  232 
Fay  V.  Wheeler,  339 
Faymonville  v.  McCollough,  226 
Fearnside's  Case,  248 
Featherston  v.  Cooke.  677 
Featherstonhaugh  v.  Lee  Moor,  (fee,  Co., 

636 
Fechheimer  v.  Natl.  Ex.  Bk.,  832 
Fee  V.  Gas  Company,  668 
Felder  v.  London,  Ac,  Ry.  Co.,  690 
Fel^ate's  Case,  137,  139 
Felt  V.  Heye,  472,  475 
Fenwick's  Case,  246 
Ferguson  v.  Faschall,  338 
Ferguson  v.  Wilson,  74 
Ferris  v.  Ludlow,  281 
Ferris  v.  Strong,  632 
Ferris  v.  Thaw,  234 
Ffooks  w.  South,  &c.,  Ry.   Co.,  671,  675, 

687,  690 
Fidelity  Trust  Co.'s  Appeal,  302,  304 
Field  V.  Cooks,  59,  234 
Field  V.  Field,  654 
Field  V.  Kinnear,  588 
Field  V.  Lelean,  581,  587 
Field  V.  Pierce,  5 
Field  V.  Schieffelin,  328 
Fielden  v.  Lancashire,  <fec.,  Ry.  Co.,  268 
Fiery  v.  Enimert,  205 
Financial  Corporation,  In  re,  281,  290 
Fine  v.  Hornaby,  339 
Finley,  <fec..  Co.  r.  Kurtz,  74,284,  285,  622 
Finney's  Appeal,  465,  476,  479,  487 

xl 


Firemen's  Ins.  Co.,  Ex  parte,  390 

First   Municipality  of  N.   0.   v.   Orleans 

Theatre  Co.,  187 
First  Natl.  Bk.  v.  Almy,  243 
First  Natl.  Pk.  v.  Arlington,  95 
First  Natl.  Bk.  v.  Concord,  94,  95 
First  Natl.  Bk.  v.  Dorset,  94 
First  Natl.  Bk.  v.  Drake,  653,  657,  684 
First  Natl.  Bk.  v.  Fancher,  534,  566,  569 
First  Natl.  Bk.  v.  Giff  )rd,    10,    255,    359, 

374,  379,  382,  466 
First  Natl.  Bk.  v.  Hartford,  <fec.,  Ins.  Co., 

522,  527,  530,  531 
First  Natl.  Bk.  v.  Hendrie,  83 
First  Natl.  Bk.  v.  Hurford,  142,  189 
First  Natl.  Bk.  v.  Natl.  Exchange  Bk..  60, 

316 
First  Natl.  Bk.  v.  Price,  218 
First  Natl.  Bk.  v.  Root,  464 
First  Natl.  Bk.  v.  Smith,  ."66,  670 
First  Natl,  Bk.  tfec.  v.  Walcott,  93 
First  Natl.  Bk.  v.  Waters,  571 
First  Natl.  Bk.  of  AUentown  v.  Hock,  446 
First  Natl.  Bk.  of  Davenport   v.   Daviea, 

234,  236 
First  Natl.  Bk.  of  Garrettsville  v.  Galene. 

200 
First  Natl.  Bk.  of  Hannibal  v.  Smith,  549, 

572 
First  Natl.  Bk.  of  Lyons  v.  Oskaloosa  P. 

Co.,  344,  346 
First  Parish  in  Sudbury  v.  Stearns,  616 
Fiser  v.  Miss.  &  Tenn.  R.  R.  Co.,  173 
Fish  V.  Kempton,  455 
Fishw.  Nebraska  City  Barb  Wire,  <fec.,  Co., 

6o8 
Fisher  v.  Andrews,  695 
Fisher  v.  Brown,  321,  452,  456,  475,  576. 

581,  584 
Fisher  v.  Bush,  348,  610,  619 
Fisher  v.  Essex  Bk.,  5,  6,  378,  414,  490 
Fishery.  Evansville,  &c.,  R.  R.  Co.,  83, 

117,  475 
Fisher  v.  Kean,  626 

Fisher  v.  New  York,  &c.,  R.  R.  Co.,  625 
Fisher  v.  Marvin,  263 
Fisher  v.  Price,  342 
Fisher  v.  Seligman,  42,  46,  52,  258,  262, 

465 
Fisher  v.  World,  Ac,  Life  Ins.  Co.,  684 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Fisher's  Case,  18 

Fisk  V.  Chicago,  Rock  Island  <t  Pac.  R.  R. 

Co.,  29,  41 
Fisk  c.  Kenosha,  91 
Fiske  V.  Carr,  489 

Fitchburg  Sav.  Bk.  v.  Torrey,  378,  466 
Fitzhugh  V.  Bk.   of  Shepherdsville,  521, 

531 
Fitzpatrick  v.  Woodruff,  333,  339 
Flagg  V.  Baldwin,  341,  344,  346,  347 
Flagg  V.  Manhattan  Ry.  Co.,  658 
Flagg  V.  Metropolitan  Ry.  Co.,  625 
Flagler  Co.  v.  Flagler,  40,  48 
Flanagan  v.  Great  Western  Ry.  Co.,  652 
Flash  V.  Conn,  218,  221,  224,  226 
Fleckncr  v.  United  States  Bk.,  625 
Fleeson  v.  Savage  S.  M.  Co.,  4 
Fleet  V.  Murton,  462 
Flemyng  v.  Hector,  504 
Fletcher,  Ez  parte,  123,  168 
Fletcher  v.  Marshall,  449 
Flinn  v.  Bagley,  23,  38,  42 
Flint  V.  Pierce,  242 
Flint,  &c..  Plank  Road  Co.  v.  Woodhull, 

496 
Flint,  (fee,  Ry.  Co.  v.  Dewey,  649 
Flitcroft's  Case,  539,  555 
Follett  V.  Field,  631,  632 
Folger  V.  Chase,  634 
Foljier  V.  Columbian  Ins.  Co..  631 
Foil's  Appeal,  338 
Foote,  Appellant,  304,  543,  558 
Foote  V.  Lirick,  562 
Foote  V.  Mount  Pleasant,  97 
Forbes'  Case,  18,  620 
Forbes  v.  Memphis,  <fec.,  R.   R.   Co.,   5, 

625,  659 
Forbes  v.  Witlock,  678 
Ford  V.  Ford,  306 

Foreman  v.  Bigelow,  13,  15,  50,  256,  304 
Forrest  v.  Elwes,  576,  581,  584 
Forrest  v.  Manchester,  Ac,  Ry.  Co.,  690 
Forrest,  r  v.  Boardnian,  462 
Fort  Edward,  <fec.,  Co.  v.  Payne,  68,  70,  82 
Fortenburg  v.  State,  342 
Fosdick  V.  Goshen,  91 
Fosdick  V.  Greene,  576,  581,  536 
Fosdick  V.  Perrysburg,  91,  92 


Fosdick  V.  Sturges,  29,  40,  41,  351 

Foss  i:  Harbottle,  645,  652,  676,  694 

Foster  v.  Essex  Bk.,  574,  634 

Foster  ik  Mackinnon,  55 

Foster  v.  Potter,  464,  480,  483,  491,  532 

Foster  ;:.  Praj',  506 

Foster  v.  Seymour,  40 

Fothergill's  Case,  18,  35 

Fountaine  v.  Tyler,  302 

Fountain  Ferry  T.  R.  Co.   ?•.  Jewell,   189, 

6S1,  677 
Four  Mile  V.  R.  R.  Co.  v.  Baily,  47,  190 
Foushee  v.  Grigsby,  215 
Fowle  V.  Ward,  475,  477,  579,  582 
Fowler  v.  Ludwig,  262 
Fowler  v.  New  York  Gold  Ex.  Bk.,  452, 

581,  586 
Fowler  v.  Robinson,  226 
Fowler's  Case,  620 
Fox  V.   AUensville   C.  S.  &  V.  Turnpike 

Co.,  115,  119,  176,  604 
Fox  V.  Clifton,  65,  179,  253 
Fox,  Ex  parte,  595,  636,  670 
Fox  V.  Harah,  638 
Fox's  Case,  153,  266 
France  v.  Clark,  416,  471 
Francis  v.  New  York  <fe  B.  El.  R.  B.  Co., 

308,  356 
Franco-Texan  Land  Co.  v.  Laigle,  591 
Frank  v.  Morrison,  208 
Franklin  v.  Bk.  of  Eng.,  330,  557 
Franklin  Bk.  v.  Commercial  Bk.,  316 
Franklin  Bk.  v.  Cooper,  634 
Franklin  Co.  v.  Lewiston  Bk.,  60,  316 
Franklin  Glass  Co.  v.  Alexander,  54,  124 
Franklin,  <fec.,  Co.  v.  White,  68,   122,  125 
Franklin  Telegraph  Co.,  Iti  re,  634 
Frank's  Oil  Co.  v.  McCleary,  255,  266 
Fraser  v.  Charleston,  375,  414,  462,  487 
Eraser  V.  Ritchie,  311,  312 
Fraylor  v.  Sonora  Co.,  657 
Frazier  v.  Seibern,  566,  567,  571 
Frazer  v.  Wh alley,  613 
Fredenhall  r.  Taylor,  508 
Frederick  v.  Augusta,  91 
Freeland  v.  Hastings,  91 
Freeland  v.   McCullough,   200,    214,  218 

260,  263 

xli 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Freeman  v.  Harwood,  134,  479,  576,  581, 

584 
Freeman  v.  Mack,  87 
Freeman    v.    Mahias  Water  Power,   &c., 

Co.,  591,  592 
Freeman  v.  Winchester,  124,  208 
Freeman's  Natl.  Bk.  v.  Smith,  596,  598 
Friedlander  v.  Slaughter  House  Co.,  359, 

488 
Fremont  v.  Stone,  348,  618 
French  v.  Currier,  322 
French  v.  Peschemaker,  217,  241 
Freon  v.  Carriage  Co.,  390,  574,  581 
Fromm  v.  Sierra  Nevada  Silver  Min.  Co., 

583,  584,  587 
Frost  V.  Clarkson,  342,  344 
Frost  V.  Walker,  504,  508 
Frothingham    v.    Barney,  317,   509,   510, 

632,  636,  638,  667 
Frowd,  Ex  parte,  141 
Frue  V.  Houghton,  338 
Fry,  In  re,  509 
Fry  V.  Lexington,  &c.,  E.  R.  Co.,  52,  65, 

69.  70,  499,  500 
Fulgam  V.  Macon  &  B.  R.  R.  Co.,  192 
Fuller  V.  Dame,  650 
Fuller  V.  Ledden,  224 
Fuller  V.  Rowe,  234,  235 
Furdoonjee's  Case,  252 
Furley  v.  Hydes,  552 
Fyfe's  Case,  262 


G 


McLister^ 


309 


Gadsden  v.  Lance,  339 
Gaff  V.  Flesher,  56,  197,  265,  523 
Gainsford  v.  Carroll,  581 
Gale  V.  Eastman,  218 
Gallery  v.  Nat.  Ex.  Bk.,  687 
Gallini  v.  Noble,  305 
Gait's  Ex'rs  v.  Swain,  84 
Galvanized  Iron  Co.  v.  Westoby,  179 
Galveston  City  Co.  v.  Sibley.  370 
Galveston  Hotel  Co.  v.  Balton,  52,  177 
Galveston  Railroad  v.  Cowdery,  591 
Galway    v.  United    States,    &.c.    Refining 
Co.,  631 

xlii 


Games  v.  Robb,  91 
Ganse  v.  Clarksville,  93 

Garden  Gully  U.  Q.  M.  Co.  v. 
110,  128,  129 

Gardiner  v.  Pollard,  679,  688 

Gardiner  Victoria  Estates  Co. 

Gardner  v.  Butler,  657 

Gardner  v.  Freematle,  626 

Gardner  v.  Frunatte,  504 

Gardner  v.  Hamilton,  (fee.  Ins.  Co.,  497 

Gardner  v.  Hope  Ins.  Co.,  242,  497 

Garnett  v.  Richardson,  234 

Garnett  &  M.  G.  Min.  Co.  v.  Sutton,  198 

Garrett  ?;.  Dillsburg  &  M.  R.  R.  Co.,    56,, 
67,  175,  197 

Garrett  v.  May,  269.  272 

Garrett  v.  Sayles,  226 

Garrick  v.  Taylor,  320 

Garrison  v.  Howe,  194,  227,  228 

Gartside  Coal  Co.  v.  Maxwell,  234 

Garwood  v.  Ede,  240 

Gas  Light  Co.  v.  Haynes,  208 

Gashwiler  v.  Willis,  625, 

Gaskell  v.  Chambers,  650 

Gaskill  V.  Dudley,  222 

Gaston  v.  American  Ex.  Nat.  Bk..  325 

Gates  V.  Boston,  Ac.  R.  R.  Co.,  654,  669 

Gauch  V.  Harrison,  227 

Gavenstine's  Appeal,  659,  689 

Gayv.  Keys,  215 

Gee  V.  Mors,  355 

Gelpcke  v.  Blake,  137,  138,  169 

Gelpcke  v.  Dubuque,  90,  91 

General  Ex.  Bk.  v.  Horner,  650 

General  Exchange  Bk.,  In  re,  526 

Genet  v.  Howland,  475,  477,  478 

Genin  v.  Isaaesen,  340,  448 

George  v.  Oxford,  93 

Georgia  R.  R.  Co.  v.  Hart,  4 

Gerhard  v.  Bates,  149,  350,  352,  363 

German,  <fec.  Bk.  v.  Jefferson,  527,  530 

German  Land  Assoc,  v.  Sch oiler,  504 

German  Sav.  Bk.  v.  Wulfekuhler,  311 

German  Union  B.    Assn.    v.    Sendmeyer, 

377,  380 
German  town,  (fee.  Ry.  Co.  v.  Filler,  108, 

127,  129,  134,  199,  204,  207,  208 
Getty  V.  Devlin,  652 


TABLE   OF   CASES. 


[The  references  are  to  tcetions,'] 


Geyert).  Western  Ins.  Co.,  522,  527 

Gheen  v.  Johnson,  346,  452 

Gibbons  v.  Malion,  537,  555 

Git)bons  v.  Mobile,  (fee.  R.  R.  Co.,  91 

Gibson  v.  Columbia  <fe  1^.  R.  T.  &  B.  Co., 
189 

Gibson  v.  Crick,  456,  462 

Gibson  v.  Mason,  91 

Gibson's  Case,  139 

Giildings  v.  Sears,  588 

Gifford  V.  Carliill,  355 

Giflford  V.  Livino^ston,  505 

Gifford  V.  New  Jersey  R.  R.  Co.,  508, 607, 
624,  686 

Gifford  V.  Thompson,  543,  552,  556 
Gilbert  v.  Gouger,  344 
Gilbert  v.  Manchester  Iron  Mfg.  Co.,  4,  378 
Gilbert  v.  Sykes,  341 
Gilbert's  Case,  266,  320,  332,  559 
Giles  V.  Hutt,  125,  129 
Gill  V.  Balis,  138,  99,  282 
Gill  V.  Burley,  556 

Gill  V.  Ky.  <fe  C.  G.  <fe  S.  Min.  Co.,  52,  67, 
68,  185 

Gill's  Case,  193 

Gillett  V.  Moody,  199,  312.  813,  505,  550 

Gillett  V.  Peppercorne,  450 

Gillett  V.  Phillips,  505 

Gilman  v.  Greenpoint  Sugar  Co.,  631 

Gilman,  Clinton  <fe  Springfield  R.  R.  Co.  v. 

Kelly,  26,  29,  41,  649,  685 
Gilman  v.  Sheboygan,  91 
Gilmore  v.  Woodcock,  341 
Gilpin  V.  Howell,  469,  477 
Ginz  V.  .Stumph,  465 
Glass  V.  Hope,  134 

Glamorganshire  Iron,  (fee.   Co.  v.  Irvine, 

148 
Gleaves  v.  Brick  Church,  <fec.  Co.,  68 
Glen  V.  Breard,  231 
Glenn  v.  Clabaugh,  8 
Glenn?;.  Dodge,  108 
Glenn  v.  Dorslieimer,  108 
Glenn  v.  Howiird,  105 
Glenn  v.  Sample,  108,  207 
Glenn  v.  Saxton,  108,  207 
Glenn  v.  Springs,  209 
Glenn  v.  Williams,  108,  195,  206,  207 
Glen  Iron  Works,  In  re,  38,  42,  2ol 


Goddard  v.  Stockman,  94 

Godden  v.  Kimmel,  686 

Goddin  v.  Crump,  91 

Godfrey  v.  Terry,  227 

Godin  V.  Cincinnati  &  W.  Canal   Co.,  658 

Goesele  v.  Bumler,  504 

Goff  v.  Hawkeye  Pump  <fe  W.  M.  Co.,  39,. 
138 

Goff  V.  Winchester  College,  67 

Gold  Co.,  Be,  39,  40,  45 

Gold  Mining  Co.  v.  Nat.  Bank,  285,  313 

Goldschmidt  v.  Jones,  462 

Goldsmith  «.  Swift,  534,  652,  554,  659 

Gompertz  «.  Bartlett,  296 

Gooch's  Case,  250 

Good  V.  Elliott,  341 

Goodin  v.  Cincinnati,  <fec.  R.  R.  Co.,  686 

Goodin  ■».  Evans,  15,  500,  503 

Goodlad  ■».  Burnett,  304 

Goodrich  V.  Reynolds,  15,  120 

Goodson's  Claim.  317 

Goodwin  V.  American  Nat.  Bk.,  829,  330, 
474 

Goodwin  v.  Hardy,  634,  542,  543 

Goodwin  v.  McGehee,  193,  199,  228 

Goodwin  v.  Ottawa  &.  P.  Ry.  Co.,  382,  390 

Goodwin  v.  Roberts,  5 

Gordon  v.  Appeal  Tax  Court,  497,  568 

Gordons.  Duff,  301,302 

Gordon  v.  Jennings,  216 

Gordon  v.  Parker,  336 

Gordon  v.  Sea  Fire  &  Life  Assurance  So- 
ciety, 199 

Gordon's  Ex'rs  v.  Mayor,  Ac,  564,  566, 
668 

Gordon's  Ex'rs  v.  Richmond,  &c.  R.  R. 
Co.,  269,  534,  537,  539 

Gorham  v.  Campbell,  621 

Gorham  v.  Gilson,  662 

Gorman  v.  Guardian  Sav.  Bk.,  677 

Gorresen's  Case,  C7 

Gosden  v.  Dotti'rill,  306 

Goshen,  <fcc.  Co.  v.  Hurtin,  67,  70,  124 

Goshorn  v.  County,  91 

Goss  V.  Hampton,  471,  473 

Goss  V.  Phillips,  (fee.  Co.,  480 

Goss,  (fee.  MTg,  Co.  v.  People,  482 

(Jontd  V.  Fnrmerd'  Loan  &  Trust  Co.,  471, 
473,476 


illU 


TABLE   OF   CASES. 


[The  references  are  to  sections.'] 


Gould  v.  Oneoiita,  112,  125 

Gould  V.  Town  of  Sterling,  94 

Goulding  ■».  Clark,  593 

Goulhwaite,  Ex  parte,  248 

Gouthwaite's  Case.  52 

Gover's  Case,  127,  128,  129, 147,  253,  262, 

651 
Government  S.  Ins.  Co.  v.  Dempsey,  193 
Gowen's  Appeal,  601,  P07 
Grady's  Case,  251,309 
Graff  V.  Pittsburgh,  «fec.  R.   R.   Co.,   73, 

138,  253,  255 
Graham  «.  Birkenhead,  686 
Graham  v.  Boston,  H.  &  E.  R.  R.  Co.,  209, 

592,  623,  678,  686 
Graham  v.  First  Nat.  Bk.,  542 
Graham  v.  Railroad  Co.,  629 
Graham  v.  Van  Dieman's  Land   Co.,  129, 

130,  595 
Gram  v.  Stebbins,  342 
Grand  Rapids  Sav.  Bk.  v.    Warren,    127, 

222,  224, 227 
Grand  Trunk,  &c.  Ry.  Co.  v.  Brodie,    76, 

240 
Granger  v.  Bassett,  534,  558,  559 
Granger  v.  Grubb,  601,  623,  624.  625 
Grangers"  Ins.  Co.  ».  Turner,  159 
Grangers'  Life,  <fec.  Ins.   Co.   v.  Kamper, 

281,  288 
Grangers'  Market  Co.  v.  Vinson,  64,  66, 

249 
Granite  Roofing,  Ac.  Co.  v.  Michael,  38, 

105,  117 
Grant  v.  Attrill,  851 
Grant  ®.  Coorter,  9 1 
Grant  v.  Hami.ton,  341 
Grant  v.  Mechanics'  Bank,  528,526,527,530 
Gratwick's  Trusts,  Re.  305 
Gratz  V.  Penn.  R.  R.  Co.,  636 
Gratz    V.    RedJ,  124,  545,  ^48,  549,  550 
Graw  V.  Prussia  Emigrated,  &c.,  Society, 

623 
Gray  v.  Bennett,  220 
Gray  v.  Choplin,  683,  686 
Gray  v.    Coffin,  211,  214,  229,  241.  248, 

499 
Gray  v.  Fox,  322 
Gray  v.  Lewie,  645 

xliv 


Gray  v.  Lynch,  322 

Gray  v.  Monongahela  Nav.  Co.,  117,  500 

Gray  v.  N.  Y.  (fee,  Steamship  Co.,  667, 


698 
Gray  v.  Portland  Bk.,  281,  286,  544.  574, 

'575 
Gray  i;.  State,  99 
Gray's  Case,  246 

Great  Barrington  v.  County  Comrs,  565 
Great  Eastern  Ry.  Co.  v.  Turner,  309 
Great  Falls  &  C.  R.  R.  Co.  v.  Copp,  241. 

286 
Great  Luxembourg  Ry.  Co.    v.    Maguay, 

652 
Great  Northern,  <fec..  Mining  Co.,  Re,  631, 

632 
Great  Northern  Ry.  Co.  v.  Eastern  Coun- 
ties Ry.  Co.,  315 
Great  North  of  Eng.  Ry.  Co.  v.  Biddulph, 

115 
Great  North,  <fec.,  Ry.  Co.  v.  Kennedy,  125 
Great  Oceanic  Tel.  Co.,  In  Re,  620 
Great  Western  Ry.  Co.  v.    Metropolitan 

Ry.  Co.  315 
Great  Western  Ry.  Co.  v.  Oxford, <fec.,  Ry. 

Co.,  686 
Great  Western  Ry.  Co.  v.  Rushout,  665, 

671,  689 
Greaves  v.  Gouge,  694 
Greeley  v.  Smith,  638 
Green,  In  Re,  344,  346 
Green  v.  African  M.  E.  Society,  626 
Green  v.  Bassett,  76,  240 
Green  v.  Beekman,  227,  241 
Green  v.  Biddle,  497 
Green  v.  Brookens,  339 
Green  v.  Mayor  of  Durham,  594 
Green  t;.  Miller,  607 
Green  Mount  &  S.  L.  T.  Co.  v.    BuUer, 

382,  390 
Green  v.  Weaver,  452 
Greenleaf  v.  Ludington,  359 
Greenleaf  V.  Moody,  462 
Greenville,  Ac,  R.  R.  Co.  v.  Cathcart,  124 
Greenville,  &c.,  R.  R.  Co.  v.  Coleman,  160, 

180,  499,  611 
Greenville,  Ac,  R.  R.  Co.  v.  Johnson,  499 
Greenville  &  C.  R.  R.  Co.  i'.  Woodsides, 
173 


TABLE   OF   CASES. 


[The  references  are  to  seelion!>.'\ 


Greenwood  ".  Freight  Co.,  494,  496,  562 

Greer  v.  Charliers  R.  R.  Co.,  52,  73 

Gregg  V.  Mass.  Medical  Society,  626 

Gregory  v.  German  Bk.,  499 

Gregory  v.  Lamb,  168 

Gregory  v.  N.  Y.  <fec.,  R.  R.  Co.  688 

Gregory  v.  Patchett,  686,  692,  694 

Gregory  v.  Wendell,  341,  344,  347,  458 

Grenada  Co.  v.  Brogden,  92,  592 

Grew  V.  Breed,  245,  246,  247,  248,  262 

Gridley  v.  Barnes,  227 

Gridley  v.  L.  B.  C.  M.  R.  R.  Co.,  657 

Griffith  V.  Pearce,  341 

Griffith  V.  Jewett,  348,  332,  504,  614,  618 

Griffith  V.  Mangam,  201,  204,  206 

Griffith  v.  Paget,  278 

Griffith  V.  Sears,  347 

Griffith  ?'.  Watson,  564 

Grindle  v.  Stone,  210 

Grindley  v.  Barker,  607 

Grissell  v.  Bristowe,  259,  260,  261,  264, 
454,  462 

Grissell'8  Case,  105,  193,  227 

Grissvold  v.  Seligman,  4,  62,  65,  210,  246, 
247,  253 

Griswold  v.  Trustees,  <fec.,  67,  68 

Grizewood  v.  Blane,  342,  347 

Grogan  v.  Cooke,  481 

Grose  v.  Hilt,  194,  214,  224 

Grosse  Isle  Hotel  Co.  v.  L' Anson's    Exrs. 
105,  120 

Grosvenor  v.  Magill,  92 

Grover's  Case,  143 

Grub  V.  Mahoning  Nav.  Co.,  177 

Grubbe  v.  Vicksburg  &  Brunswick  R.  R. 

Co.,  117 
Gruraan  v.  Smith,  460,  461,  581,  587 
Grunds  v.  Tucker,  209,  222,  224,  226 
Grymesv.  Home,  414 
Grymea  v.  Hone,  Exr.,  308 
Gue  V.  Tidewater  Canal  Co.,  480 
Guernsey  v.  Cook,  348 
Guest  V.  Worcester  R.  R.  Co.,  32,  247 
Guinness  v.  Land  Corp.  of  Ireland,  268 
Gulf  C.  &c.,  Ry.  Co.  v.  Neeley,  56 
Gnlick  V.  Markham,  321 
Gunn's  Case,  57,  58 
Gurney  v.  Atlantic,  Ac,  Ry.  Co.,  215 
Gustard's  Case.  383 


H 


Habertson's  Case,  113 

Habicht  v.  Pemberton,  509 

Hackett  v.  Ottawa,  93 

Hadden  v.  Spader,  340,  481 

Hadley  v.  Russell,  204,  206,  208,  211,  228, 

229 
Hafer  v.  New  York,  <fec.,  R.  R.  Co.,  614 
Hagar  v.  King,  339 
Hagar  v.  Union  Nat.  Bk.,    525,  526,  53S, 

546 
Hager  v.  Bassett,  185 
Hager  v.  Cleveland,  181,  215,  255,  261 
Hager  v.  McCoUough,  224 
Hager  v.  Thompson,  351 
Hagg  V.  Snaith,  462 
Hague  V.  Dandeson,  526 
Haig  V.  Seviney,  305 
Haight  V.  Railroad  Co.,  566 
Hain  v.  No-lh  W.  G.  R.  Co.,  176 
Hakim's  Case,  266 
Haldeman  v.  Ainslie,  211 
Hakleman  v.  Penn.  R.  R.  Co.,  638 
Hale  V.  Republican  River  Bridge  Co.,  544 
Hale  V.  Sanborn,  176 
Haley  v.  Reid,  483 
Halkett  v.  Merchant  Traders'  Association, 

199,217 
Hall,  Ex  parte,  65,  248,  262 
Hall  V.  Connell,  519 
Hall  V.  Old.  T.  L.  Min.  Co.,  163 
Hall  V.  Railroad  Co.,  657 
Hall  V.  Rose  Hill  &  E.  Road  Co.,  360,  546 
Hall  V.   UnitL'd  States    Ins.  Co.,  70,  116, 
119.  208.  255.  256,  378,  527,  531 

Hall's  Case,  57,  128,  310 

Hall  v.  Selma  &  Tenn.  R.  R.  Co.,  173,  191 

Hill  V.  Walker,  247 

Hallam  v.  Indianola  Hotel  Co.,  660 

Halleday  v.  Holgate,  471 

Ualleiibeck  v.  Hahn,  91 

Ilallis  V.  Allan,  657 

Hallows  V.  Firmie,  143,  145, 160, 156,  166, 
240 

Halsey  v.  Ackerman,  679 

Ilalsey  v.  McLean,  218 

Halsted  v.  Meekers,  Exrs.,  322 

xlv 


TABLE   OF   CASES. 


[7%e  references  are  to  sections. '\ 


Halurrson  V.  Cole,  462 

Hambleton  v.  Central  0.  R.  R.  Co.  864 

Hamer  v.  Hathaway,  •'iSV 

Hamer's  Case,  248 

Earner's  Devisees  Case,  248 

Hamilton  v.  Accessory  Transit  Co  ,  638, 

639 
Hamilton  v.  Grand  Rapids  &  Ind.  R.  R. 

Co.,  110 
Hamilton  v.  Grangers'  L.   &  H.  Ins.   Co., 

159,  198 
Hamilton,  (fee,  Ins.  Co.  v.  nobart,497,  503 
Hamilton,  <fec.,  R.  R.  Co.  v.  Rice,  4,  52, 

53,  54,  58,  70,  73,  177 
Hamilton  College  v.  Stewart,  70 
Hamilton  Co.  v.  Massachusetts,  56S 
Hamley's  Case,  620 
Hamlin  v.  Meadville,  93 
Hammett  v.  Little  Rock  &  N.  R.  R.  Co., 

187,  189 
Hammond  v.  Hudson  River,  &c.,  Co.,  204 
Hampshire  v.  Franklin,  629 
Hampson  v.  Weare,  222 
Hancock  v.  Holbrook,  629,  630 
Haiidrahan  v.  Cheshire  Iron  Works,  222 
Handy  v.  Draper,  200,  221,  224,  227,  263 
Hanks  v.  Drake,  458,  477 
Hann  v.  Mulberry  &,  Jeffer.  G.  R.  Co.,  115 
Hanna  v.  Cin..  &c.,  R.  R.  Co.,  499 
Hannah  v.  Moberley  Bank,  201 
Hannibal  v.  Founlleroy,  94 
Hannibal  R.  C.  &  P.  P.  R.  Co.  v.  Menifee, 

187 
Hannibal  &  St.  J.  R.   R.  Co.  v.  Shacklett, 

3,  567,  568 
Hanover  Junction  &  Susquehanna  R.  R. 
Co.   V.    Haldeman,  82,  83,  88,    175, 
177,  185 
Hanson  v.  Donkersley,  216,*224,  227 
Hanson  v.  Vernon,  91 
Happer  v.  Sage,  462 
Harben  v.  Phillips,  610 
Harcum  v.  Hudnall,  542 
Hardcastle  v.  Commercial  Bk.,  529 
Hardenburgh  v.  Bacon,  469 
Hardenburgh  v.  Farmer's,  <fec.,  Bank,  69, 

591',  621 
Harding  v.  Rockford,  <fec.,  R.  R.  Co.,  93 
Harding  v.  Vande water,  596 
Harden  v.  Newton,  631,  632,  661 

xlvi 


Hardy  v.  Merriweather,  16,  149,  189 

Hardy  v.  Norfolk  Mfg.  Co.,  612 

Hare  v.  London,  &c.,  Ry.  Co.,  673,  692 

Hare  v.  Waring,  334 

Hare's  Case,  IS-*?,  288 

Harger  v.  McCuUough,  260,  610 

Harkness  ».  Manhattan  Ry.  Co.,  658,  670 

Harlem,  <fec..  Co.  v.  Seixas,  67,  130,  180 

Harlem  Canal  Co.  v.  Spear,  180 

Harmon  v.  Page,  204,  208 

Harmstead  v.  Washington  Fire,  <fec.,  Co. , 

626 
Harpending  v.  Munson,  654,  659,  660, 698 
Harper  v.  Raymond,  507 
Harper  v.  Union  Mfg.  Co.,  221,  224 
Harrenburgh  v.  Bacon,  350 
Harrington  v.  Plainview,  94 
Harris  v.  First  Parish,  <fec.,  204,  224 
Harris  v.  McGregoi',  58,  234 
Harris  v.  Miss.  Valley,  Ac,  R.  R.  Co.,  683 
Harris  v.  Muskingum  Mfg.  Co.,  629 
Harris  v.  Nesbit,  633 
Harris  v.  Norvell,  215 
Harris  v.  Pullman,  200 
Harris  v.  San  Francisco   Sugar  Refining 

Co.,  545 
Hariis  v.  Stevens,  543 
Harris  v.  Pumbridge,  S42,  S44,  445,  448, 
458,  576,581,  583,587 

Harris'  Case,  57 

Harrisburg  Bk.  v.  The  Commonwealth,  218 

Harrison  v.  Harrison,  324 

Harrison  v.  Heathorn,  52,  160 

Harrison  v.  Mexican,  <tc.,  R.  R.  Co.,  268, 
269,  544 

Harrison  v.  Pryse,  387 

Harrison  v.  Vines,  5 

Harrison's  Case,  266 

Harrod  v.  Hamer,  215,  234 

Har.-hman  V.  Bates  Co.,  94,  103 

Hart  V.  Frontine.  Ac,  Co.,  359,  360,  $87; 

Hart,  Re,  345 

Haiti).  Robertson,  545 

Hart  «.  St.  Charles  St.  R.  R.  Co.,  286,  546 

Hart  V.  Stephens,  542 

Hart  V.  Ten  Eyck,  324,  476 

Hart's  Case,  63,  250 

Harter  v.  Kernochan,  92,  93,  103 


TABLE   OF   CASES. 


[  The  references  are  to  sections.'\ 


Hartford,  &c.,  R.  R.  Co.  v.  Boorman,  70, 

255,  256 
Hartford  A  X.  H.  K.   R.  Co.  v.  Croswell, 

500,  666,  672 
Hartford,  <fec.,  R.  R.  Co.  v.  Kennedy,  54, 

67,  124,  125 
Hartford,  &c.,  R.  R.  Co.  v  New  York,  &c., 

R.  R.  Co.,  673 
Hartga  v   Bank  of  Eng.,  330 
Hartley  v.  Allen,  557,  558 
Hartley's  Case,  168 

Hartman  v.  Ins.  Co.  of  Valley  of  Va.,  229 
Hartridge  v.  Rockwell,  282,  311 
Harts  V.  Brown,  653 
Harvard  College  v.  Amory,  322,  555 
Harvey  v.  CoUett,  240 
Harwood  v.  Railroad  Co.,  686 
Haebrouck  v.  Vandervoort,  464,  468,  475 
Hasell  V.  Merchant  Traders'  Association, 

199 
Hasking  /•.  Nicholls,  302 
Haskins  v.  Harding,  224 
Haskins  v.  Warren,  462 
Haslett  V.  Wotherspoon,  65,  248 
Hassler  v.  Phila.  Musical  Ass.,  626 
Hastelow  v.  Jackson,  298 
Ha&tings  v.  Drew,  222,  263,  548,  549,  638 
Hat,  B.  Co.  V.  Eickmeyer,  &c.,  667 
Hatch  w.  Burroughs,  218,  221,  224 
Hatch  V.  City  Bk.  of  New  Orl.,  515 
Hatch  V.  Chicago,  <fec.,  R.  R.  Co.,  688,  699 
Hatch  V.  Dana,    99,   108,  202,  204,    205, 

206,  207,  226 
Hatch  V.  Douglas,  341,  344,451,457 
Hatton,  Ex  parte,  266 
Havemeyer  v.  Havemeyer,  315,  348,  618 
Havemeyer  v.  Iowa  Co.,  91 
Hawes  o.  Anglo-Saxon  &  Co.,  215,  222 
Hawes  v.  Oakland,  645,  688,  690 
Hawes  v.  Petroleum  Co.,  209 
Hawkins  v.  Carroll  Co.,  94 
Hawkins  v.  Furnace  Co.,  227 
Hawkins  v.  Maltby,  246,  259,  264,  455 
H^iwkitis  V.  Manf^ficld,  <fec.,  Co.,  75 
Hawkins  v.  Miss.  Ac,  R.  R.  Co.,  502 
Hawley  v.  Bibb,  344 
Hawley  v.  Brnmngini,  10 
Hawley  v.  Cramer,  450 
Hawley  w.  Fairbanks,  93 


Hawley  v.   Upton,   42,   52,  54,  64,  69,  78, 

75,  192 
Hawthorne  i;.  Calef,  218,  497 
Hay  V.  Palmer,  558 
Hay's  Case,  52,  650 
Haydel  v.  Hurck,  560 
Hayden  v.  Atlantic  Cotton  Factory,    13, 

191 
Hayden  v.  Middlesex  Turnpike  Co,,  574 
Hayes  v.  Hayes,  302,  306 
Hayes  v.  Holly  Springs.  92 
Hayne  v.  Beauchamp,  175 
Haynes  v.  Brown,  4,  52,  221 
Haynes  v.  Palmer,  247,  255 
Hays  V.  Commonwealth,  608,  609 
Hays  V.  Dawes,  91 
Hays'  Case,  620 

Hays  y.  Lycoming,  <fec.,  Co,  201 
Hays  V.  Ottawa,  <fec.,  R.  R.  Co.,  187,  502 
Hays  V.   Pittsburgh,   <fec.,   R.  R.  Co.,  7S, 

115,  116 
Hayward  v.  Natl.  Bk.,  478 
Hayward  v.  Pilgrim  Society,  285 
Hayward's  Case,  620 
Haywood  v.  Lincoln  Lumber  Co.,  653 
Haywood  <fe  Pittsboro'  Plank  Road  Co.  v. 

Bryan,  15,  19 
Haywood  <fec..  Plank  Road  Co.  v.  Bryan, 

173,  610 
Hayworth  v.  Junction  R.  R.  Co.,  503 
Hazard  v.  Durant,  687 
Hazard  v.  Natl.  Ex.  Bk.,  488 
Hazlehurst  v.   Savannah.    &c.,  R.  R.  Co., 

268,  315 
Heacock  v.  Sherman,  220 
Head  v.  Providence  Ins.  Co. ,  95 
Head's  Case,  262 
llealy  v.  Root,  218 
Heard  v.  Eldridge,  540,  655,  557 
Heart  v.  State  Bk.,  331,  521,  622 
Ilenston  v.  Cincinnati,  «fec.,  R.  R.  Co.,  67, 

192 
Heath  v.  Barmore,  638 
Ilcath  V.  Erie  Ry.  Co.,  283,  689.  692,  695 
Heath  v.  GriswoUi,  466 
Heath  v.  Mahoney,  4-16 
Heath  v.  Silverlhorn  Lead  Min.,  Ac,  Co., 
591,  692,  612 

xlvii 


TABLE   OF   CASES. 


[The  references  are  to  scctlonn.^ 


Heathcote  v.  North  Staffordshire  Ry.  Co., 

Hebb's  Case,  57 

Hedge  &  Home's  Appeal,  504,  507 

Hedges  v.  Harper,   305 

Heebner  v.  Chave,  215 

Heinman  v.  Hardie,  842 

Helm  V.  Swiggett,  332,  391,  414,  527,  528 

Heman  v.  Britton,  320,  548 

Hemenway  v.  Hemeaway,  555 

Hemming  v.  Maddick,  245,  246 

Hemphill's  Appeal,  322 

Hemppling  ;;.  Bm-r,  351,477 

Henderson,  Ex  parte,  251,  262 

Henderson  v.  Jackson  Co.,  93,  102 

Henderson  v.  Lacon,  74,  140,  143,  145, 
157,  295 

Henderson  v.  R.  R.  Co.,  148  155,  295 

Henderson  v.  Royal  British  Bk.,  163,  383 

Henderson  &,  Nashville  R.  R.  Co.  v.  Lea- 
veil,  78,  86 

Hendi-ickson  v.  Decow,  3S7 

Hendrix  v.  Academy  of  Music,  137,  176 

Henkle  v.  Salem  Mfg.  Co.,  246,  247 

Hemiessy's  Case,  65,  260,  262 

Henning  v.  United  States  Ins.  Co.,  95 

Henry  v.  Great  Northern,  <fec.,  Ry.  Co., 
267,  269,  269,  272,  276 

Henry  v.  Jackson,  504,  681 

Henry  v.  Railroad  Co.,  657 

Henry  v.  Vermillion  <fe  Ashland  R.  R.  Co., 
13,  108,  138,  173,  204,  207,  209 

Hepburn  v.  School  Directors,  571 

Hepburne  v.  Exchange,  <fec.,  Co.,  289 

Hepburn  v.  Skerving,  304 

Hereford,  <fec.,  Co.,  Inre,  651 

Heritage  v.  Paioe,  446 

Heritage's  Case,  262 

Herkimer  Co.  Bk.  v.  Furman,  216 

Herkimer,  die,  Co.  v.  Small,  124,  125 

Herries  v.  Piatt,  227,  258 

Herron  ?).  Vance,  67,  634 

Hersey  v.  Veazie,  689,  694 

Hervey  v.  Illinois,  <fec.,  R.  R.,  Co.,  686 

Hess  V.  Rau,  344,  445,  459 

Hess  V.  Werts,  199,  508 

Heseltine  v.  Siggers,  339 

Hester  V.  Memphis,  <fec.,R.  R.  Co.,  499, 500 

Hestonville,  <fec.,R.  R.  Co.  v.  Shields,  479 

Hewett  V.  Price,  342 

xlviii 


Hewitt  V.  Swift,  681 

Heymann   v.   European  Central  Ry.  Co. 

147,  149,  157,  161 
Heyward  v.  City  of  New  York,  638 
Hiatt  V.  Griswold,  247,  466 
Hibblewhite  v.  McMorine,  339,  342,  377 
Hibernia  Turnpike  Co.  v.  Henderson,  175 
Hichens  i\  Congreve,  650,  651 
Hicklingi).  Wilson,  42,  184,  226 
Hickory  v.  Ellery,  91 
Hicks  V.  Burns,  214 
Higg's  Case,  266 
Higgs  V.  Assam  Tea  Co.,  529,  531 
Highland,   &c.,  Co.  v.  McKean,  67,  124, 

174 
Hightower  v.  Mustian,  204 
Hightowerv.  Thornton,  3,  124,  127,  195, 

199,  204,  208,  638 
Hildgard  v.   South  Sea  Co.,  134,  364 
Hill,  Ex  parte,  660 
Hill  V.  Beach,  218,  238 
Hill  V.  Beebe,  477 

Hill  V.  Commissioners  of  Forsyth  Co.,  91 
Hillt>.  Frazier,  218,  550 
Hill  V.  Lane,  155,  356 
Hill  V.  Newic  Lawanick,  468,  543,  545,  546 
Hill  V.  Pine  River  Bk.,   8,  319,  383,  523, 

631,  574 
Hill  V.  Reid,  111 
Hill  V.  Rockingham,  307 
Hill  V.  Spencer,  215 
Hill's  Case,  262,  320 
Hills  V.  Exchange  Bk.,  571 
miles  «.  Parrish,  591,  592,  614 
Hilliard  v.  Goold,  285 
Hillier  v.  Allegheny  Mutual  Ins.  Co.,  193, 

227 
Hinds  V.  Canandaigua,   Ac,   R.   R.  Co., 

226 
Hixou  V.  Pixley,  447 
Hoagland  ®.  Bell,  73 
Hoagland  v.  Cin.  &  F.  W.  R.  R.  Co.,  17*7 
Hoard  v.  Wilcox,  224,  225,  226 
Hoare's  Case,  52,  54, 73,  245,  246,  248,  251 
Hobart  v.  Johnson,  224 
Hobart  v.  Supervisors,  94 
Hobokon    Building,  &c..    Association   v. 

Martin,  633 
Hodges  Distillery  Co.,  In  re,  638 


TABLE   OF   CASES. 


[  'J' he  references  are  to  sections^] 


Hodges  V.  New  Eng.  Screw  Co.,  316,  636, 

667,  680 
Hodges  V.  Paquett,  657 
Hodges  V.  Planters  Bk.,  522,  529,  531 
Hodges  V.  Railroad  Co.,  657 
Hodges  V.  Silver  Hill  Min.  Co.,  200,  204, 

211 
Hodgkinson  v.  Kelly,  455,  462 
Hodgkinson  v.  Xatl.  Co.,  169,  188 
Hodgmani^.  St.  Paul,  <fee.,  R.  R.  Co.,  97 
Hodgson  V.  Cheever,  218 
Hodgson  I'.  Earl  Powis,  673 
Hodsdon  v.  Copeland,  629,  662 
Hoey  V.  Henderson,  500 
Hoff  «.  Jasper  Co.,  93 
Hoffman  v.  Livingston,  451 
Hoffman  Steam  Coal  Co.  v.   Cumberland 

Coal,  <fec.,  Co.,  523,  531,  649,  653,  685 

Hogg's  Appeal,  205 

Holbrook  v.  Farquier,  <fec.,  Co.,  10, 95,  294 

Holbrook  v.    New  Jersey   Zinc  Co.,   359, 
361,  362,  380,  414 

Holbrook  v.  St.  Paul  Fire  &  M.Ins.  Co. ,  232 

Holden  v.  Metropolitan  iSIatl.  Bk.,  317 

Holder  v.  LaFayette,  <fec.,  Ry.  Co.,  657 

Holladay  v.  Elliot,  60 

Holladay  v.  Patterson,  83 

Holland  v.  Bank,  657 

HoUingshead  v.  Woodward,  168,  200,  221 

Hoir.ster  v.  HoUister  Bk.,  548 

Hollister  Bk,  Matter  of  the,  226 

Holman  v.  State,  <fec.,  37 

HoUman  v.  Williamsport,  <fec.,  Co.,  59 

Hollwey's  Case,  251 

Holmes,  Ex  parte,  314,  612,  613 

Holmes  v.  Mead,  504 

Holmes  y.  Newcastle,  dec,  Co.,   281,  548. 
685 

Holmes  v.  Sherwood,  203,  204,  205,  206 
211,  226 

Holt  V.  Winfield  Bk.,  56 

Holton  V.  Bangor,  565 

Holt's  Case,  139,  245 

Holyoke  Bk.  v.  Burnham,  245,  246,  260, 
261,  202,  266 

Holyoke  Bk.  v.  Goodman,  <fec.,  Mfg.  Co 
222,  378 

Home  Stock  Ins.  Co.  v.   Sherwood,   173 
185,  378,  383 


Hon  old  V.  Meyer,  321 

Hoole  V.  Great  Western  Ry.  Co.,  271,  537, 

539,  690,  691 
Hooper  V.  Rossiter,  556,  557 
Hope  V.  Lawrence,  448,  586 
Hope  V.  Salt,  653,  660 
Hope  Ins.  Co.  v.  Beckman,  500 
Hope  Ins.  Co.  v.  Koeller,  500 
Hopkins  v.  Gallatin  Turnpike  Co.,  228 
Hopkins  v.  Roseclare  Lead  Co.,  624,  633 
Hopkins  v.  Whitesides,  638 
i  Hopkin's  Trust,  In  re,  556,  557 
Hopinldnson  v.   Marquis  of  Exeter,  504, 

626 
Hopkinson  v.  Rolt,  532 
Hopper  V.  Sage,  542 
Hoppin  V.  Buffum,  611,  612,  014 
Horn  V.  Horn,  481 
Hornaday  ».  Ind.  &  111.  Central  R.  R.  Co., 

149,  188 
Horton  v.  Baptist  Church,  387 
Horton  v.  Morgan,  457,  466,  469 
Horton  v.  Thompson,  91,  93 
Hotel  Co.  V.  Wade,  285,  660 
liotham  V.  Sutton,  6,  304,  305 
Houldsworth  v.  City  of  Glasgow  Bk.,  159, 

263 
Houldsworth  v.  Evans,  124,  129,  686 
House  V.  Cooper,  694 
Household,  <fec.,  Co.  v.  Grant,  57 
Houston  V.  Jefferson  College,  503,  629 
Houston  &  T.  C.  Ry.  Co.  v.  Van  Alstyne, 

360 

Hovey  v.  Ten  Broeck,  215 

Howard  v.  Bank  of  Eng.,  319 

Howard  v.  Kay,  305 

Howard's  Case,  52,  66 

Howard  Co.  v.  Boonesville,  <fec.,  Bk.,  93 

Howard  County  v.  Paddock,  92 

Howbeach,  Ac,  Co.  v.  Peague,  129,  t79 

Howe  V.  Bemis,  477 

Howe  V.  Boston  Carpet  Co.,  317 

Howe  V.  Deuel,  631 

Howe  V.  Freeman,  592 

Howe  V.  Starkweather,  6,  342,  480,  482 

Howell  V.  Cassopolis,  566,  570 

Howell  V.  Chicago  <fe  Northw.  Ry.  Co.,  61, 
282,  237,  637,  541,  544,  688 

[D]  xlix 


TABLE   OF   CASES. 


[The  references  are  to  sectionn.^ 


Howell  V.  Manglesdorf,  218  " 
Howland  v.  Myer,  625 
Hoylake  Ry.  Co.,  In  re,  531,  625 
Hoyle  V.  Plattsburgh.  (fee,  R.  R.  Co.,  648, 
653 

Hoyt  V.  Thompson,  625,  626 

Hubbard  v.  Johnson  County,  571 

Hubbard  v.  New  York,  &c.,  Co.,  65 7 

Hubbell  V.  Drexel,  10,  466,  469 

Hubbell  V.  Meigs,  50,  355,  587 

.Hubbersty  v.  Manchester,  <fec.,  Ry.  Co., 
526 

Huddersfield   Canal   Co.  v.  Buckley,  70, 

255,  256,  261 

Hudson  V.  Carman,  209 

Hugh  V.  McRae,  632 

Hughes  V.  Antietam.  <fec.,  Co.,  56,  68,  69, 
117,  118,  119,  124.  130,  149,  168, 176, 
280 

Hughes  V.  Indian  Mammoth,  (fee.,  Co.,  245 

Hughes  V.  Oregonian  Ry.  Co.,  201 

Hughes  V.  Parker,  621 

Hughes  V.  Turner,  305 

Hughes  V.  Vermont  Copper  Min.  Co.,  387, 
539,  576 

Huidekoper  v.  Dallas  County,  101 

Hull  V.  Burtis,  224 

Humber  Iron  Works  Co.,  Re,  1 1 1 

Humberstone  v.  Chase,  330 

Humble  v.  Langston,  258,  259,  264 

Humble  v.  Mitchell,  6,  339 

Humby's  Case,  262 

Hume  V.  Commercial  Bk.,  52,  65 

Hume  V.  Winyah  &  W.  Canal  Co.,  242 

Humphreys  v.  Humphreys,  306 

Humphreys  v.  Mooney,  234 

Huu  V.  Cary,  681 

Hundleston  v.  Gouldsbury,  305 

Hunt  V.  Gunn,  75 

Hunt  V.  Hamilton,  94,  102 

Hunt?'.  Hunt,  218 

Hunt,  In  re,  341 

Hunt  V.  Kansas  &  M.  B.  Co.,  177,  185 

Hunt's  Case,  650 

Hunterdon  Bk.  v.  Nassau  Bk.,  487 

Huntington  v.  Mather,  464 

Huntington  v.  Palmer,  562 

.Huntington,  <fec..  Coal  Co.  v.  English,  576, 

581,  583,  584 

1 


Hurbert  V.  Carter,  111 

Hurbert  v.  Mechanics'  Bldg..   &c,  Assn., 
475 

Hurd  V.  Tallman,  209,  216 

Hurlbert  v.  Root,  111 

Hurl  but  V.  Taylor,  549 

Hurt  V.  Salisbury,  234 

Hussey  v.  Crickitt,   341 

Hussey   v.    Manufacturer.?'  &   Mechanics' 
Bk.,  391,  521 

Hutchins  v.  New  England  Coal  M.  Co.,  218 

Hutchins  v.  Smith,  56,  67 

Hutchins  v.  State  Bank,  6,  330 

Hutchinson  v.  Green,  667 

Hutton  V.  Scarborough,  Ac,  Co.,  268 

Hutton  V.  Thompson,  240 

Hutzler  v.  Lord,  259,  264 

Hyam's  Case,  266 

Hyatt  V.  Allen,  274,  534,  543,  554,  558 

Hyatt  V.  Argenti,  477 

Hyatt  V.  Swivel,  340 

Huyler  v.  Cragin  Cattle  Co.,  511,  515,  518 

Hyman  ?'.  Am,  Powder  Co.,  13 


lasigi  V.  Chicago,  B.  &  Q.  R.  R.  Co.,  391, 

579 
Ihmsen's  Appeal,  322 
Illinois,  (fee,  R.  R.  Co.  v.  Barnett,  103 
111.  Grand  T.  R.  R.  Co.  v.  Cook,  187,  500 
111.  Ins.  Co.  V.  Marseilles  Mfg.  Co.,  4 
111.  Mid.  Ry.  Co.  v.  Supervisors,  <fec.,  187 
111.  River  R.  R.  Co.  v.  Beers,  500 
111.  River,  (fee,  R.  R.  Co.  v.   Zimmer,  70, 

117,  172,  177,  280,  499,  500 
Imperial,  (fee,  Assn.  v.  Coleman,  650,  652 
Imperial  Gas  Co.  v.  Clarke,  519 
Imperial,  (fee..  Hotel  Co.  v.  Hampson,  627 
Ince  Hall  Rolling  Mills  Co.,  Re,  32,  43 
Inchbald  v.  The  Western  Coffee  Co.,  449, 

451 
Ind's  Case,  245,  247,  251,  383 
Independent  Assurance   Co.,   hi  re,     Ex 

parte  Cope,  199 
Independent  Ins.  Co,  Re,  684 
Inderwick  v.  Snell,  627 


TABLE   OF   CASES. 


yThe  referi7ices  are  to  i^ections.] 


Indiana,  <fec.,  R.  R.  Co.  v.  Attica,  91 

Indianapolis  F.  <fe  M.  Co.  v.  Herkimer,  186 

Ingalls  V.  Cole,  214,  228 

Ingraham  v.  Perry,  638 

Inhabitants  of  Xorton  v.  Hodges,  241 

Innis  V.  Mitchell,  305 

Innis  V.  Sayer,  305 

Instone  v.  Frankfort  Bridge  Co.,  56,  124, 
125 

Insurance  Co.  v.  Crane,  657 

Inter.  Mountain  P.  Co.  v.  Jack,  198 

International,  <fec.,  R.  R.  Co.  v.  Bremond, 

668,  686 

Iowa,  Ac,  R.   R.  Co.  v.  Perkins,  53,  73, 

116,  178 
Iowa  Lumber  Co.  v.  Foster,  311 

Ireland  v.  Palestine,  <fec.,   Turnpike  Co., 

497,  503 
Irish  Peat  Co.  v.  Phillips,  57 
Irrigation  Co.  of  France,  595 
Iron  R.  R.  Co.  v.  Fink,  391,  392 

Irons   V.    Manufacturers   Natl.    Bk.,   224, 
228,  246.  262 

Irvin  V.  Turnpike  Co.,  499 

Irvine  v.  Forbes,  508 

Irvine  v.  Union  Bk.  of  Australia,  687 

Irving  V.  Houstoun,  556 

Irwin  V.  McKean,  218 

Irwin  V.  Williar,  340,  344,  346 

Isaac  V.  Clarke,  468 

Isham  V.  Buckingham,  255,  258,  262,  383 

Isle  of  Wight  Ry.  Co.  v.  Tahourdin,  627 

Ithaca  Gas  Light  Co.  v.  Treman,  659.  690 

Ives  V.  Sterling,  67 


Jack  V.  Naher,  137 

Jackson  v.  Crocker,  75 

Jackson  v.  Daggett,  2 1 6 

Jackson  v.  Foote,  34S 

Jackson  v.  Hampden,  594,  596 

Jackson  v.  Hayner,  55 

Jackson,  In  re,  6 

Jackson  v.  Leggett,  73 

Jackson  ;;.  Ludeling,  653 

Jackson  Marino  Ins.  Co.,  Ee,  633 

Jackson  v.  New  York,  Ac,,  R.  R.  Co.,  625 


Jackson  v.  Railroad  Co.,  667 

.Jackson  r.  Sligo,  &c  ,  Co.,  50,  255,  262 

Jackson  v.  Traer,  17,  47,  199 

Jackson  v.  Turquand,  145,  248 

Jackson  v.  Twenty-third  St.  Ry.  Co.,  308 

Jackson  v.  Watson,  91 

Jackson  Co.  v.  Brush,  95 

Jackson's  Admr.  v.  Newark   Plank  Road 

Co.,  541,  544,  545 
Jacksonville,  Ac,  R.  R.  Co.  r.  Virden,  93 
Jacobs  V.  Miller,  348 
Jacobson  v.  Allen,  216,  221,  224 
Jacques  v.  Chambers,  300  . 
Jagger  Iron  Co.  v.  Walker,  227 
James  V.  Cincinnati,  Ac,   R.   R.  Co.,  59, 

192 
James  v.  May.  246,  259 
James  v.  Milwaukee,  91 
James  v.  Woodruff,  638,  639 
Jarrett  v.  Kennedy,  159,  165 
Jarrolt  v.  Moberly,  92 
Jarvis  v.  Rogers,  465,  471,  473,  576 
Jaudon  v.  National  City  Bk.,  323, 325, 326 
Jaycox  V.  Camerdn,  456 
JeafFreson,  ^x  parte,  199 
Jefferson  v.  Hale,  587 
Jefferys  v.  JeflFerys,  248,  302 
Jeffries  v.  Lawrence,  92 
Jenkins  v.  Andover,  91 
Jenkins  v.  Ciiarleston,  566 
Jenkins  v.  Fowler,  305 
Jenkins  v.  Union  Turnpike  Co.,  174 
Jenks  V.  Cent.  R.  R.  Co.,  283 
Jennings  v.  Braughton,  150,  166 
.Jennings,  Re,  179 
Jermain  v.  Lake  Shore,  Ac,  R.  R.  Co.,  5, 

6,  274,  545,  552 
Jerman's  Admr.  v.  Benton,  497 
Jersey  City  G.  L.  Co.  v.  Dwight,  37 
Jersey  City  Gas,  Ac,  Co.  v.  Jersey  City, 

565,  567 

Jessopp  V.  Lutwyche,  345 

Jessopp's  Case,  266 

Jessup  V.  Carnegie,  218 

Jewell  V.  Rock  River,  Ac,  Co.,  52,  71,  73 
191 

Jewett  V.  Lawrenceburgli  A  N.  M.  R.  R 

Co.,  86,  87,  88 

li 


TABLE   OF   CASES. 


[  The  references  are  to  section8.'\ 


Jewett  V.  Valley  Ry.  Co.,   140,   111,  168, 

191 
John  V.  Cincinnati,  <fec.,  R.  R.  Co.,  91,  92 
Johns  y.  Johns,  6 
Johnson  v.  Albany  &  Susquehanna  R.  R. 

Co.,  195 

Johnson  v.  Albany,  <fec.,  R.  R.  Co.,  4,  10, 
129 

Johnson  v.   Bridg^ewater  Iron   Mfg.  Co., 
643,  552 

Johnson  v.  (''onamonwealth,  568 

Johnson  v.  Consol.  Silv.  Min.  Co.,  519 

Johnson  v.  Crawfordsville,  Fk.  &  Ft.  W. 

R.  R.  Co.,. 110, 117,  138 
Johnson  v.  Cumining,  4V3 
Johnson  ;;.  Dextei",  476 
Johnson  v.  Fall,  341 
Johnson  v.  Gallagher,  251 
Johnson  v.  Goslett,  179 
Johnson  v.  Hudson  River  R.  R.  Co.,  497 
Johnson  v.  Johnson,  303,  556,  557 
Johnson  v.  Kirby,  351,  356,  581 
Johnson  v.  Laflin.  208,  251,  255,  262,  265, 

309,  312, 3l3,  320, 331,  332,  378,  384, 

548,  582 

Johnson  v.  Lyttle's  Iron  Agency,  129,130 

Johnson  v.  Mulry,  339,  449 

Johnson  v.  N.  Y.  &  Erie  R.  R.  Co.,  15 

Johnson  v.  Pensacola  &  Ga.  R.  R.  Co.,  137, 
499 

Johnson  v.  Russel,  341 

Johnson  v.  Somerville  Dyeing,  tfec,  Co., 
247 

Johnson  v.  Southwestern  Railroad  Bank, 
365 

Johnson  v.  Stark,  93 

Johnson  v.  Sullivan,  50,  170 

Johnson  v.  Underbill,  264,  262,  258,  259, 
260,  379,  414 

Johnson  v.  Wabash,  «fec.,  Co.,  73,  169 

Johnston  v.  Jones,  593,  596,  611,  616,  621 

Johnston  v.  Renton,  134,  364,  365,  366 

Johnston  v.  Talley,  639 

Joint  Stock  Co.,  In  re,  595,  631,  632 

Joint  Stock  Co.'s  Act,  1866,  In  re,  599 

Joint  Stock,  &c.,  Co.  v.  Brown,  60,  317, 
680,  681 

Jones,  Ex  parte,  128 

Jones'  Case,  15,  18 

Jones  V.  Alley,  320 

lii 


Jones  i\  Arkansas,  <fec.,  Co.,  228,  653 

Jones  V.  Barlow,  218,  224.  227 

Jones  V.  BoUes,  356 

Jones  V.  Brinley,  6,  578 

Jones  V.  Davis,  3,  5,  565 

Jones  V.  Harrison,  240 

Jones  V.  Hurlburt,  93 

Jones  V.  Jarman,  204,  226,  241 

Jones  V.  Littledale,  454 

Jones  V.  Marks,  448,  452 

Jones  V.  Milton,  <fec.,  Co.,  65,  599 

Jones  V.  Morrison,  286,  537 

Jones  i;.  Newhall,  338 

Jones  V.  Ogle,  552,  557,  558 

Jones  V.  Peppercorn,  452 

Jones  V.  Scudder,  348 

Jones  V.  Sisson,  119 

Jones  V.  Terre  Haute,  <fec.,  R.  R.  Co.,  10, 
283,  534,  544,  546 

Jones  V.  WLltburger,  226,  227,  228 

Jones,  (fee,  Co.  v.  Commonwealth,  567 

Jordan  v.  Hayne,  91 

Joslyn  V.  Pacific  Mail,  <fec.,  Co.,  280,  501 

Joy  V.  Jackson,  &c.,  Co.,  499 

Judah   V.   American,    <fec.,    Co.,   66,    113, 
593,  599 

Judson  V.  Rossie  Galena  Co.,  204,  260 

Juker  V.  Commonwealth,  623 

Junction  R.  R.  Co.  v.  Reeve,  15,  84,  344, 

347 
Justh  V.  Holliday,  344,  347 


K 

Kahn  v.  Bank  of  St.  Joseph,  527 
Kaiser  v.  Lawrence  S.  Bank,  234 
Kamp  V.  Jones,  302 
Kane  v.  Bloodgood,  542,  543,  546 
Kankakee  v.  ^tna  Life  Ins.  Co.  95 
Kansas  City  Hotel  Co.  v.  Harris,  281,  288 

Kansas  City  Hotel  Co.  v.  Hunt,  185,  281, 

288 

Kansas  City  Hotel  Co.  v.  Sauer,  633 

Kansas,  <$sc.,  R.  R.  Co.  v.  Hunt,  55 

Karnes  v.  Rochester,  &c.,  R.  R.  Co.,  540, 
541 

Karuth's  Case.  620 


TABLE   OF  CASES. 


\^The  references  are  to  sections.] 


Katama,  <fcc.,  Co.  v.  Jernegon,  69 

Katowa  Land  Co.  v.  Holley,  68,  185 

Kean  v.  Johnson,  500,  6S0.  636,  667,  668 

Keane  v.  Robarts,  329 

Kearney  v.  Andrews,  623 

Keasley  v.  Codd,  504 

Keeney  v.  Globe  Mill  Co.,  329,  560 

Kelk'sCase,  123,  127,  129 

Keller  v.  Johnson,  88 

Kelle}'  V.  MunsoD,  455 

Kelley  v.  Xewburyport  Horse  R.  R.  Co., 

649,  685 
Kelley  v.  Upton,  333 
Kelly  V.  Mariposa  Land,  <fec.,,Co.,  636 
Kellock  V.  Enthoven,  259,  264 
Kellogg  Bridge  Co.  v.  United  States,  508 
Kellogg  V.  Stockweli,  6,   246,  258.   259, 

264,  414 

Kelner  v.  Baxter,  67 

Kelsej-  V.  Sargent,  695 

Kelsey  v.  Northern  Light  Oil  Co.,  138, 
141 

Kelsey  v.  Pfandler,  <fee.,  Co.,  518 

Kelsey  v.  Sargent,  657 

Kempson  v.  Saunders,  75,  76,  296 

Kendall  v.  Kendall,  305 

Kendall  v.  Stone,  296 

Kenfield  v.  Latham,  458,  459 

Kenicott  v.  Supervisors,  90 

Kenkel  v.  Macgill,  300 

Kennebec  &  P.  R.   R.  Co.  v.  Jarvis,  177, 
192 

Kennebec,  <fec.,  R.  R.  Co.  v.  Palmer,  70 

Kennebec  <k  Portland   R.   R.  Co.  v.  Ken- 
daU,  68,  69,  123,  129,  242,  659 

Kennebec  <fe  Portland  K.  R.  Co.  v. Waters, 

137 
Kennedy  v,  Gibson,  634 
Kennedy  v.  Palmer,  92 

Kennedy  v.  Panama,  N.  J.  <t  A.  R.  M.Co., 
148 

Kenosha,  <fec.,  R.  R.  Co.  v.  Marsh,  501 

Kent  V.  Freehold,  L.  <fe  B.  M.  Co.,  163 

Kent  V.  Ginter,  587 

Kent  I).  Jackson,  630,  679 

Kent  V.  Miltenberger,  341,  346 

Kent  V.  New  York,  <fec.,  R.  R.  Co.,  215 

Kent  V.  Quicksilver  Mining  Co.,  5,  288, 

268,  269,  297,  683,  684 


Kenton  Co.  Court  v.  Bank  Lick  Tump. 
Co.,  500 

Kenton  Furnace  R.  R.  &  Mfg.  Co.  v.  Mc- 
AJpin,  537,  599,  612 

Kerchner  v.  Gettys,  333,  336,  591,  620 

Kermode  v.  Macdonald,  305,  306 

Kerr  v.  Middlesex  Hospital,  305 

Keyling's  Case,  329 

Keystone  Bridge  Co.  v.  Barstow,  210 

Keystone  Bridge  Co.  v.  McCurey,  50 

Keppel's  Admr.  v.  Petersburg  R.  R.  Co., 
371,  546,  550 

Kickalls  v.  Eaton,  259 

Kid  V.  Mitchell,  583,  587 

Kidwelly,  (fee,  Co.  v.  Raby,  56,  67,  169 

Killer  v.  Johnson,  138,  149 

Kimball  v.  Reding,  322 

Kimball  v.  Union  Water  Co.,  390 

Kimber  v.  Bank  of  Fulton,  200 

Kimber  v.  Barber,  321 

Kincaid's  Case,  145,  161 

Kincaid  v.  Dwindle,  200,  215,  221,  222 

King  V.  Amery,  629 

King  V.  Atwood,  594 

King  V.  Bank  of  England,  390,  513,  541, 
574 

King  V.  Beestan,  607 

King  V.  Bird,  594 

King  V.  Capper,  5,  6 

King's  Case,  65,  124,  125,  129,  245.  246. 
253,  266 

King  V.  Chetwynd,  599 

King  V.  Chui ciiwaidens,  <fec.,  of  the  Par- 
ish of  St.  John  Maddermarket,  578 

King  V.  City  of  Madison,  568 

King  V.  Clear,  513,  516 

King  V.  Duncan,  227 

King  V.  Dupine,  481 

King  V.  Elliott,  15 

King  V.  Follett,  543 

King  V.  Gray,  629 

King  V.  Hill,  595 

King  V.  Katherine  Dock  Co.,  108,  202 

King  V.  London,  &c.,  Co.,  390,  513 

King  V.  Marshall,  1 1 1 

King  V.  Merchant  Tailors'  Co.,  615 

King  V.  Ohio,  itc,  R.  R.  Co  ,  271 

King  V.  Pasmore,  638 

liii 


TABLE   OF   CASES. 


[The  references  are  to  sections.'\ 


King  V.  Paterson,  Ac,  R.  R.  Co.,  545,546, 

547 
King  V.  Prop,  of  the  Wilts  &  Burks  Can- 
al Nav.,  516 
King  V.  Talbot,  322 
King  V.  Theodorick,  595,  599 
Kino-  V.  Travannion,  519 
King  V.  Trevenen,  621 
King  V.  Westwood,  594 
King  V.  Wilson,  91 
King  V.  Winstanley,  6 
King  V.  Witaker,  607 
Kingsbury  v.  Kirwan,  342,  462 
Kinmouth  v.  Brigham,  322 
Kintrea's  Case,  266 
Kirbey  v.  Potter,  302 
Kirkii.  No  will,  123,  124,  129 
Kirkpatrick  v.  Bonsall,  341,  344 
Kirkpatrick  v.  Penrose  Ferry  Co.,  657 
Kirksev  v.  Florida  &  G.   R.  R.  Co.,  <57, 
124,  182 

Kirk  stall  Brewery  Co.,  In  re,  281 

Kisch   V.  Central  Ry.  of  Venezuela,  145, 
150 

Kishacoquillas  <fe  Centre  T.  R.  Co.  v.  Mc- 
Canahy,  138,  160 

Kitchen  v.   St.  Louis,  &e.,  Ry.  Co.,  653, 
654,  686 

Klein  v.  Alton  &  S.  R.  R.  Co.,  67,  124, 173 

Klopp  V.  Lebanon  Bank,  526,  529 

Kluth's  Case,  62,  251 

Knapp  V.  R.  R.  Co.,  654 

Knapp  V.  Williams,  6 

Knight's  Case,  124,  125,  129,  130,  131 

Knight  V.  Chambers,  345 

Knight  V.  Fitch,  345 

Knight  V.  N orris,  215 

Knight  V.  Old  National  Bank,  522,  533 

Knightley,  Ex  parte,  168 

Knowles  v.  Duffy,  34 

Knowlton  v.  Ackley,  204,  214,  224,  606, 
619,  633 

Knowlton  v.  Congress  &   Empire  Spring- 
Co.,  27,  39,  281,  289,  298 

Knowlton  v.  Fitch,  344,  445,  450 

Knox  County  v.  Aspinwall,  91 

Knox  V.  Baldwin,  218,  227 

Koehler  v.  Black,  cfec,  Co.,  648,  659 

Koehler  v.  Brown,  504 

liv 


Kohn  V.  Lucas,  201 

Kollman's  Carriage  Co.  v.  Beresford,  168 

Koons  V.  First  Natl.  Bk.  of  Jeffersonville, 
247 

Kortright  v.  Buffalo  Commercial  Bk.,  380, 
532,  574, 575 

Kramer  v.  Arthurs,  508 

Krause  v.  Setley,  342 

Kraiiser  v.  Ruckel,  215 

Krebs  v.  Carlisle  Bk.,  638,  639 

Kreiger  v.  Shelby  R.  R.  Co.,  608 

Kritzer  v.  Woodson,  218 

Kruse  v.  Dusenbury,  238 

Krutz  V.  Paola  Town  Co.,  232 

Kuhn  V.  McAllister,  576,'580,  581,  585 

Kuhns  V.  Westmoreland  Bk.,  529 

Kunkelman  v.  Reutchler,  210,  227 

Kyle  V.  Fayetteville,  570 

Kyle  V.  Montgomery,  484 

Kynaston  v.  Mayor  of  Shrewsbury,  598 


Lacey  «.  Hill,  469,  588 

Lacharme  v.  Quartz  Rock  Mariposa  Gold 

Min.  Co.,  519 
Ladd  V.  Cartwright,  228 
Lady  Bryan's  Case,  4 
LaFarge  v.  La  Farge  Fire  Ins.  Co.,  52(k 
La  Fayette  v.  Cox,  90 
Lafayette  Co.  v.  Neely,  690,  695 
LaFayette  Ins.  Co.  v.  French,  591 
Lafayette,  <fec.,  R.  R.  Co.  v.  Geiger,  92 
La  Grange  v.  State  Treas.,  688 
La  Grange  &  M.  P.  R.  Co.  v.  Mays,  1 33 
La  Grange,  Ac,  R.  R.  Co.  v.  Rainey,  629 
Lail  V.  Mt.  Sterling  C.  R.  Co.,  176 
Laing  v.  Burley,  263 
Lake  v.  Duke  of  Argyle,  240 
Lake  Ontario,  &c,  R.  R.  Co.  v.  Curtiss,  67, 

82 
Lake  Ontario,  <fec..  R.  R.  Co.  v.  Mason,  67, 

68,  69.  70,  107,  117,  119, 124,  130,169, 

174 
Lake  Superior  Iron  Co.  v.  Drexel,  34,  311 
Lamar  v.  Micou,  322,  328 
Lamar  Ins.  Co.  v.  Gulick,  206 


TABLE   OF   CASES 


[The  references  are  to  sectionf.'\ 


Lamb  v.  Burlington,  <fec.,  R.  R.  Co.,  93 
Lambert  c.  Lambert,  303,  557 
Lambert  v.  Neuchatel  Aspbalt  Co.,  541 

Lancaster  Canal  Navigation  Co.,  Exparte, 

6 
Lancaster,  <fee.,  Ry.  Co.  v.  Northwestern 

Ry.  Co.,  673 
Land  Credit  Co.  of  Ireland  v.  Fermoy,  309, 

6(il,681 

Land  Grant  Rv.,  «fcc.,  Co.  v.  Coffey  Co., 

218,  237 
Landes  v.  Globe,  tfec,  Co..  689 
Lane  v.  Baker,  220 
Lane  v.  Brainerd,  54,  78,  88, 180,  600 
Lane  v.  Harris,  200,  221,  224,  227 
Lane  v.  Loughran,  557 
Lane  i'.  Morris,  214,  215,  216,  224,  227 
Lane  v.  Weymouth  School  Dist.,  678 
Lane's  Case,  251,  285 

Langan  v.  Iowa  &  Minn.  Con.  Co.,  234,  236 
Langdon  v.  Fogg,  40,  48 
Langford  v.  OltumwaWater  Power  Co.,201 
Langley  v.  Little,  499 
Langton  v.  Waite,  455, 469,  471 
Lanier  v.  Gayoso  Savings  Institution,  227 
Lankester's  Case,  266 
Lapeyre  v.  United  States,  92 
Larking,  Exparte,  660 
Larrabee  v.  Badger,  581 
Larrabee  v.  Baldwin,  209,  222,  224,  260 
Lathrop  v.  Kneeland,  72,  210, 281 
Latlirop  y.  McBurney,  481 
Lathrop  v.  Singer,  220 
Latimer  v.  Eddy,  631,  697 
Lauderdale  Co.  v.  Ferguson,  91 
Lauferty  v.  Wheeler,  233 

Lauman  v.  Lebanon  Valley   R.   R.   Co., 
497,  500,  502,  607,  629,  630,  636,  667 
Lawe's  Case,  251 
Lawnds  v.  Lawnds,  305 
Lawler  v.  Burt,  218,  227 
Lawrence,  Exparte,  161 

Lawrence  v.  Greenwich  Fire  Ins.  Co.  619, 
632,  677 

Lawrence  v.  Maxwell,  457,  471,  475,  587, 
612 

Lawrence  v.  Nelson,  193,  227 

Lawrence's  Case,  145 

Lawson  w.  Milwaukee,  <fec.  II.  R.  Co.,  91 

Lawton  v.  Kittredge,  350 


Lea  V.  American  Atlantic,  «fcc.,  Canal  Co 

633,^638 
Le  Blanc,  Matter  of,  545 
Leach  v.  Fobes,  338 
LeCray  v.  Eastman,  469 
Lean  v.  Lean,  557 
Learned  v.  Burlington,  92 
LeRoy  v.  Globe  Ins.  Co.,  645,  546 
Leavenwoi'th  v.  Norton,  92 
Leavenworth  Co.  v.  Miller,  90,  91,  92 
Leavenworth,  <fec.,  R.  R.  Co.  v.    DouglasFi 

Co.,  91,  93 
Leavitt  v.  Blatchford,  505 
Leavitt  v.  Fisher,  375,  380,  387 
Leavitt  v.  Pell,  15 
Leavitt  v.  Tyler,  505 
Leavitt  v.  Yates,  505 
Lee  V.  Citizens  Natl.  Bk.,  476,  484,  522', 

525 

Leech  v.  Harris,  504,  626 
Lee  County  v.  Rogers,  91 
Leed,  <fec.  Turnpike  R.  Co.  v.  Phillips,  50«.» 
Leeds,  <fec.  Ry.  Co.  ;■.  Fearnley,  63 
Lee's  Bk.  of  Buffalo,  Re,  496,  497 
Leggett®.  Bk.  of  Sing  Sing,  522,  527 
Leggett  V.  New  Jer.sey  Mfg.  &  Bk.  Co.,  625- 
Lehman  v.  Strassberger,  344,  346 
Lehigh  Bridge  Co.  v.   Lehigh  Coal,  ifec.,. 

Co.,  633 
Leifchild's  Case,  245,  246 

Leighty   v.  Susquehanna  &  Waterford  T. 

Co.,  15,  175 
Leitch  V.   Wells,  319,  329,  361,  362,  412, 

414,  465,  534 
Leland  v.  Hayden,  311,  537,  555,  557 
Leland  v.  Marsh,  200 
Lenmon  v.  People,  218 
Leo  V.    Union    Pacific  Rj^.  Co.,  624,  690,. 

694,  696 
Leonardsvillc  Bk.  v.  Willard,  185 
Leslie  v.  Lorillard,  675 
Lessee  of  Frost  v.  Frostbury  Coal  Co.,  232: 
Lesseps  v.  Architects'  Co.,  123,  129 
Levick's  Case,  57 
Levisee  v.  Railroad  Co.,  657 
Levita's  Case,  57 
Levy  V.  Loeb,  449,  586 
Lewey's  Island  R.  R.  Co.  v.    Bolton,  12(*. 

130,  131,  176,  180 

Iv 


TABLE   OF  CASES. 


[The  references  are  to  sections.] 


Lewis  V.  Brainerd,  511,  512,  518 

Lewis  V.  City  of  Shreveport,  90 

Lewis  0.  Clarendon,  93,  103 

Lewis  V.  Graham,  464,  475,  477,  479 

Lewis  V.  Molt,  471 

Lewis  V.  Muir,  45 

Lewis  V.  Robertson,  199 

Lewis  V.  St.  Albans,  &c.,  Works,  663,  692 

Lewis  V.  St.  Charles  Co.,  215 

Lewis  V.  Tilton,  508 

Lex  V.  Potters,  483 

Lexington,  Ac,  Ins.   Co.    v.    Page,    228, 

540,  548, 549 
Lexington  &  West  Cambridge  R.  R.  Co.  v. 

Chandler,  119,  130,  177,  182 
Ley  V.  Citizens  Natl.  Bk.,  359 
Liberty,  *fec.,  Association  v.  Watkins,  216 
Liebke  v.  Knapp,  13,  15 
Life  Association  v.  Levy,  228 
Life  Association  of  Anaerica   v.    Fassett, 

638 
Ligonier  VaUey  R.  R.  Co.  v.  Williams,  80 
Lightfootv.  Creed,  354 
Lightners'  Appeal,  465 
Lincoln  v.  Cambria  Iron  Co.,  93 
Lincoln  v.  State,  56 
Lincoln  v.  Wright,  1 1 9 
Lincoln,  «fec.,  Bk.  v.  Richardson,  634 
Linder  v.  Carpenter,  650 
Lindsay  v.  Hyatt,  227 
Lindsay  Petroleum  Co.  v.  Hurd,  651 
Lindsley  v.  Simonds,  200,  221 
Linen  Co.  v.  Hough,  657 
Linger,  Ex  parte,  140 
Linnard,  Appeal  of,  321 
Lionberger  v.  Broadway  Sav.  Bk. ,  228 
Lionberger  v.  Rowse,  566,  570,  571 
Lippett  V.  American,  &c.,  Paper  Co.,  482, 

485 
Lippincott  v.  Parra,  92 
Liquidators,  &c.  v.  Coleman,  650 
Liquidators,  &c.  v.  Douglas,  681 
Liquidators  of  the  British,    (fee,   Life  As 

surance  Assn.,  He,  317 
Lishman's  Claim,  HI 
List  V.  Wheeling,  92 
Litchfield  V.  White,  681 
Litchfield's  Case,  250 

Ivi 


Litchfield  Bk.  v.  Church,   138,    160,  168, 

173,  180 
Litchfield  Bk.  v.  Peck,  164 
Littell  V.  Scranton  Gas,  <fec.,  Co.,  488 
Little  V.  Barker,  472 
Little  V.  O'Brien,  197 
Littleton  Mfg.  Co.  v.  Parker,  176 
Livermore  v.  Bushnell,  348 
Liverpool  Ins.  Co.  v.  Massachusetts,  241, 

505 
Livesey  v.  Omaha  Hotel,  176,  181 
Livingston  v.  Lynch,  508,  607,  666 
Lloyd  V.  Loaring,  508,  C07 
Loan  Association  v.  Stonemetz,  657 
Loan  Association  v.  Topeka,  91 
Locke  V.  Venables.  552,  556,  557 
Lockhart  w.  Van   Alstyne,  268,   270,  271, 

272,  277,  534,  539 
Lockwood  V.   Mechanics  Natl.  Bk.,  414, 

522,  533 
Lohman  v.  New  York,  <fec.,  R.  R.  Co.,  28S, 

537 
LoUande  v.  Ingram,  465 

Lombardo  v.  Case,  462 

London  v.  City  of  Wilmington,  562 

Londesborough  v.  Somerville,  559 

London,    &c.,   Association    v.    Wrexham, 

268 
London  Assurance  Co.'s  Case,  686 
London,  <fec.,  Co.,  In  re,  57 
London,  &c.,  Fire  Ins.  Co.,  In  re,  598 
London  India  Rubber  Co.,  In  re,  635 
London,  «&c.,  Ins.  Co.  V.  Redgrave,  179 
London   &  Mercantile  Discount  Co.,  Re, 

636 
London  &  North  West  Ry.   Co.  v.   Mc- 

Michael,  116 
London  &  Prov.  Consol.  Coal  Co.,  He,  168 
London  Rubber  Co.,  In  re,  271,  278 
London,  <fec.,  Ry.   Co.   v.  Fairclough,  58, 

129,  255,  258 
London,  <fec.,  Ry.  Co.  v.  Freeman,  58 
London  &  Staffordshire  Fire  Ins.  Co.,  Be, 

161,  162 
London  Suburban  Bk.,  In  re,  631,  632 
London,  Ac,  Tel.  Co.,  Re,  329 
Long  V.  New  London,  91 
Long  V.  Penn.  Ins.  Co.,  193,  228 
Lung  V.  Stewart,  324 


TABLE   OF  CASES 


[The  references  are  to  seetiovs.] 


Long  Island  R.  R.  Co.,  Matter  of  the,  123, 
129,  522,  597,  599,  611,  616,  623 

Longdale's  Settlement  Trusts,  305 

Longley  i'.  Little,  22*7,  260 

Loomis  V.  Tifft,  200 

Lord  V.  Brooks,  537,  654 

Lord  v.  Governor,  <fec.,  of  Copper  Mines, 
645 

Lord  V.  Hutzler,  259 

Lord  Belhaven's  Case,  128,  168.  171 

Lord  Llaud  Hamilton's  Case,  620 

Lord  Talbott's  Case,  199 

Lordell  v.  Stowell,  587 

Lorillard  v.  Clyde,  23 

Loring  v.  Brodie,  325,  326,  579 

Loring  v.  Salisbury'  Mills,  325,  327 

Loring  v.  Woodward,  301,  302 

Losse  V.  Bullard,  218,  220 

Lothrop  V.  Stedman,  495,  496.  634,  638, 
639.  689 

Loubat  V.  Le  Roy,  504 

Louisiana  v.  Taylor,  92,  101 

Louisiana  Paper  Co.  v.  Waples,  204 

Louisville  v.  Savings  Bk.,  92,  101 

Louisville  &  E.  T.  R.  R.  Co.  v.  Merri- 
weather,  119,  130 

Louisville  <fe  Nash.  R.  R.  Co.  w.  Thompson, 
13 

Louisville,  <fec.,  R.  R.  Co.  v.  County  Court, 

91- 

Louisville,  <fec.,  R.  R.  Co.  v.  Fairfield,  90 

Louisville,  <fec.,  R.  R.  Co.  v.  Letson,  209 

Louisville,  <fec.,  R.  R.  Co.  v.  State,  561 

Louisville,  (fee,  R.  R.  Co.  v.  Tennessee,  94 

Love  V.  Harvey,  341 

Lovell  V.  Minot,  322,  555 

Lovett  V.  Comwell,  200 

Low  »'.  Buchanan,  224,  226 

Low  V.  Connecticut,  <fec.,  11.  R.  Co.,  67 

Lowbcr  V.  Mayor,  228 

Lowe  V.  Edgefield  &  K.  R.  U.  Co.,  77,  84 

Lowe  V.  Tiiomas,  6,  305 

Lowell  V.  Boston,  91 

Lowell  V.  Street  Commission,  220 

Lowne  v.  American  Fire  Ins.  Co.,  546 

Lowry  v.  Bourdien,  298 

Lowry  v.  Commercial,  Ac,  Bk.,  134,  329, 
330,  414,465 

Lowry  v.  Dillman,  347 


Lowry  v.  Inman,  214,  218,  219,  224,  242 

Luard's  Case,  62,  251 

Luce  ;•.  Manchester,  «fec.,  R.  R.  Co.,  320 

Ludlam's  Estate,  302,  306 

Luffman  v.  Hay,  448 

Luke's  Case,  52 

Luling  V.  Atlantic  Mutual  Ins.   Co.,  541, 

54  i 

Lum  V.  Robertson,  638 

Lumsden's  Case,  63,  250,  318 

Lund's  Case,  266 

Lycoming  County  v.  Gamble,  565 

Lydney,  &c.,  Co.  v.  Bird,  651 

Lynch  v.  Eastern,  Ac,  R.  R.  Co.,  103 

Lyon  V.  Culbertson,  341,  344 

Lyon  V.  Ewings,  15 

Lyons  v.  Chamberlain,  91 

Lyons  v.  Munson,  93 

Lyons  v.  Orange,  Ac,  R.  R.  Co.,  500 

Lyne  v.  Siesfield,  345 

Lyster's  Case,  124,  129 


M 

Macauly  I'.  Robinson,  125,  127 
MacDougali  ?'.    Gardiner,   594,   595,  621, 
645,  676,  678 

Macdougall  v.  Jersey  Imperial  Hotel  Co., 

179,  270,  277,  539,  548 

Macedon  A  B.  P.  R.  Co.  v.  Lapham,  187 

Macedon   A  Bristol  Plauk  Road    Co.   v. 

Snediker,  82,  115 
M:ichant  v.  Xew  Orleans,  101 
Machinists  Natl.  Bk.  v.  Field,  284,  364,  367 
MacKay  v.  Com.  Bk.  of  New  Brunswick, 

157 
Mackley's  Case,  57,  72,  210 
Maclaren  ?•.  Stainton,  557 
MacNaughton  v.  Osgood,  657 
Macon  R.  R.  Co.  v.  Vason,    ilO,  115,  117, 

119,  120,  125,  131. 197 
Maddox  v.  Graham,  91 
Madison  Avenue,    Ac,  Church  v.  Baptist 

Church,  624 
Madison  Co.  v.  People,  91 
Madrid  Bk.  ii.  Pelly,  650 
Magdaluua,  Ac,  Co.,  In  re,  686 
Magee  v.  Atkinson,  454,  687 

Ivii 


TABLE   OF   CASES. 


[Tfie  references  are  to  sections.] 


Magee «'.  Badger,  15 

Magruder  v.  Colston,  247,  262,  265 

Maguire's  Case,  52,  63,  378 

Magwood  V.  B.  E.  Bk.,  327 

Mahan  v.  Wood,  75,  138,  500 

Mahey  v.  Adams,  157,  168 

Main  v.  Mills,  539,  548,  550 

Maitland's  Case,  250,  253,  620 

Mallorie's  Case,  248 

Malloyi^.  Mallett,.638 

Maltby  v.  Northwestern,  &e.,  R.  R.  Co., 

61,  185 
Maltby  v.  Reading  R.  R.  Co.,  566 
Manchester  Financial  Corp.  Co.'s  Case,  247 
Mandelbaum  r.  North,  &c..  R.  R.  Co.,  293, 

369,  412 
Mandeville  v.  Riggs,  508 
Mandion  v.  Fireman's  Ins.  Co.,  265 
Mangles  v.  Grand  Collier  Dock  Co.,  138 
Manhattan  Beach  Co.  v.  Harned,  294,  363 
Manhattan,  &c.,  Co.  v.  Metropolitan,  <tc., 

Co.,  658 
Manhattan  Ry.Co.  v.  N.  Y.  El.  Co.,  658 
Manheim,  <fec.  Co.  v.  Arndt,  500 
Mauisty's  Case,  128 
Mann  v.  Butler,  510 
Mann  r.  Cook,  42,  124,  125,  138 
Mann  v.  Currie,  50, 125, 127,  245,256,  263 
Manny.  Pentz,  108,  204,  205,  206,  207,208 
Mann's  Case,  250,  266 
Manning  v.    Quicksilver,    (fee,  Co.,   274, 

542,  546 
Manns  v.  Brook ville    National   Bank,   6, 

46-1,  484 
Mannuell  v.  Midland,  <fec.,  Rj'.  Co.,  672 
Manserge  v.  Campbell,  305 
Mansfield,  Coldwater  &  Lake  Mich.  R.  R. 

Co.  V.  Stout,  84 
Mansfield  Iron  Works  v.  Willcox,  225, 226 
Mansfield,  (fee,  R.  R.  Co.  v.  Brown,  83 
Mansfield,  (fee,  R.  R.  Co.  v.  Smith,  84 
Manville  v.  Edgar,  218 
Manville  v.  Karst,  227 
Manx  Ferry  Gravel  Co.  v.  Branegan,    657 
Mappier  v.  Mortimer,  227 
March  v.  Enstern  R.  R.  Co.,  350,  503,  540, 

542,543,  663,  671,  674,691 
Marcyj;.  Clark,  200,  224,  261,265 
Maria  Anna,  <fec.,Coal  &  Coke  Co.,  Re,  252 

Iviii 


Marine  Bk.  of  Baltimore  i'.  Biay.s,  546 

Marine  M.  Co.,  He,  111 

Mariners  Bk.  v.  Sewall,  634 

Marino's  Case,  262 

Marion  Co.  v.  Harvey  Co.,  102 

Markham  v.  Jaudon,   457,   458,  459,  467, 

476,  477,  583,  587 
Markoe  v.  Hartranft,  564 
Marlborough,  <fec.,  R.  R.   Co.  v.   Arnold, 

67,  73,  180 
Marlborough  Mfg.  Co.  v.  Smith,  382,  414, 

499,  625 
Marquis  of  Abercorn's  Case,  620 
Marr  v.  Bank  of  West  Tenn.,  228 
Marr  v.  Union  Bank,  629,  631 
Marrietta,  (fee,  R.  R.  Co.  v.  Elliott,  500 
Marryatt  v.  Bk.  of  Eng.,  330 
Marseilles  Extension  R.y.  Co.,  309 


Marsh  V.  Burroughs,   106,   108,   115,119, 

204,  205,  206,  207,  209,  211,  226 
Marsd  v.  Fulton  Co.,  90,  103 
Marsh  v.  Keating,  364,  578,  587 
Marsh  v.  Stone,  364 
Marsh  v.  Whitmore,  639 
Marshall   v.   Glamorgan   Iron  &  Coal  Co., 

169 
Marshall  I'.  Golden  Fleece,  (fee.  Co.,  134 
Marshall  v.  Loveless,  508 
Marshall  v.  Thurston,  346,  347 
Marshall  v.  Western  N.  C.  R.  R.  Co.,  655 
Marston  v.  Durgin,  504 
Marten  v.  Gibbon,  451,  545 
Martin  v.  Continental  Pass.  Ry.  Co.,  625 
Martin  v.  Fewell,  234,  243 
Martin  v.  Mobile  &  O.  R.  R.  Co.,  485 
Martin  v.  Pensacola  &  Geo.  R.  R.  Co.,  86, 

503 
Martin  v.  Sedgwick,  321 
Martinius  v.  Helmuth.  387 

Maryez).  Strouse,  450,  451 

Maryland,   (fee,   Co.    v.   Dalrymple,  477, 
'478,  479,  576 

Marzette's  Case,  309 

Mason  v.  Alexander,  226,  263 

Mason  v.  Atlantic  De  Laine  Co.,  598 

Mason  v.  Daval  Mills,  286 

Mason  v.  Decker,  339 

Mason  v.  Harris,  645,  652,  692,  694 


TABLE   OF  CASES. 


[The  references  art  to  sectioHsJ] 


Maeon  v.  New   York   Silk,  <fec..  Co,  216, 

221 
Masoa  v.  Pewabic  Min.  Co.,  656 
Massachusetts  Iron  Co.  v.  Hooper,  521 
Massell  v.  Cooke,  6 
Master's  Case,  255,  266 
Master  Stevedores  Association  v.  Walsh, 

123 
Masters  v.    Electric    Life  Ins.   Co.,   631, 

532 

Ma.'iters  v.  Rossie  Lead  Mining  Co.,  205, 
211,  226,  229 

Mathewmaa's  Case,  62,  251 
Mathez  v.  Neidig,  204,  224,  22Y 
Matthews  v.   Albert,   193,  211,  215,  224, 

227,   229,   247 
Matthews  v.  Coe,  583 

Matthews  v.  Great  Northern,  <fec.  Ry.  Co., 
268,  269,  272 

Matthews  v.  Mass.  Natl.  Bk.,    363,   364, 

377,  380,  416 
Matthews  v.  Murchison,  654 
Maugiiam  v.  Hersey,  92 

Maunsell  v.  Midland,  Great  Western  Ry. 
Co.,  60,  315 

Maxted  v.  N  orris,  454 

Maxted  v.  Paine,  446,  453,  463 

Maxtoni).  Gheen,  344 

Maxwell's  Trusts,  lit  re,  558 

May  V.  Grave,  305 

May  V.  Memphis  B.  R.  R.  Co.,"  181,  198 

Maybin  v.  Kirby,  359,  468 

Mayer «;.  Child,  339 

Mayer,  <fec.  v.  Inman,  658 

Mayhew's  Case,  261 

Maynard  v.  Eaton,  266 

Maynard's  Case,  15,  18,  35 

Mayor  w.  Baltimore  <fe  0.  R.  R.  Co.,  315, 
666,   568 

Mayor,  <fec.,  of  Baltimore  v.  Ketchum,  365 

Mayor,  Ac,  of  Baltimore   v.  Pittsburgh, 
Ac.  R.  R.  Co.,  496 

Mayor,  Ac,  of  Knoxvilley.  Knoxville,  Ac. 
R.  R.  Co.,  671 

Mayor,  Ac.   of  Macon   ti.  First  Natl.  Bk., 
569 

Mayor  of  Southampton  v.  Graves,  515,  519 
Mayor.  Ac.  of  Worcester  v.  Norwich,  Ac. 
R.  R.Co..  501 

McAleer  v.  McMurry,  40 


McAllen  v.  Woodcock,  653 

McAllister  v.    Indianapolis  A  Cin.   R.  R. 

Co.,  138 

McAllister!'.  Kuhn,  581,  585 

McArthurt'.  Seaforth,  581,  586 

McAuley  v.  Billenger,  70 

McAuley  v.  Yorke  Min.  Co.,  224 

McBride  v.  Farmers  Bk.  228 
McBride  v.  Hardin  Co.,  102 

McBride  v.  Porter,  624 

McBurney »'.  Martin,  457 

McCall  V.  Byram  Mfg.  Co.,  591 

McCall  V.  Town  of  Hancock,  94 

McCallie  v.  Chattanooga,  94 

McCalmont  v.  Phil.,  Ac.  R.  R.  Co.,  675 

McCanahj'  v.  Centre  A  Kish  Turnpike  R. 

Co.,  13 
McCarthy  V.  Gould,  481 
McCarthy  v.  Lavasche,   185.  203,  224,  288 
McCarty  v.  Selinsgrove  A  N.  B.R.  R.  Co., 

137 
McClaren  v.  Franciscus,    200,  221,    260, 

261,  265 

McClean  v.  Stuve,  346 

McClellan  v.  Scott,  145,  150,  161 

McClelland  v.  Whiteley,  52,  53,  65,  73 

McClinch  v.  Sturgis,  234 

McClure  v.  Peoples'  R.  R.  Co.,  19,  90,  137 

McCIure  v.  Township  of  Oxford,  90 

McCluskey  v.  Cromwell,  215 

McComb  V.  Credit  Mobilier,  Ac.  Co.,  56, 
113 

McConnell  v.  Hamm,  91 

McCord  V.  Ohio  A  Miss.  R.  R.  Co.,  192 

McCourry  v.  Suydam,  414 

McCoy  V.  Farmer,  638 

McCoy's  Case,  52 

McCracken  v.  Mclntyre,  50 

McCray  v.  Junction  R.  R.  Co.,  500 

McCready  w.  Rumsey,  256,  522,  523,  527 
530,  531 

McCullen  v.  Maysville  A  Lex.  R.  R.Co., 
189 

McCulloch  V.  State  of  Maryland,  569 

McCullough  V.  Moss,  222,  224,  260,  625 

McCuUy  V.  Pittsburgh,  Ac,  R.  R.  Co.,  65, 
70,  160,  185,  189,  191,  195.  198 

McCurdy  v.  Meyers,  636 

McCurry  v.  Suydam.  882 


TABLE   OF   OASES. 


[7%e  references  are  to  sections.\ 


McDaniels  v.  Flower  Brook  Mfg.  Co.,  468, 

591,  594,  596,  600,  612 

McDermott  v.  Dongan,  197 

McDonnell  v.  Grand  Canal  Co..  668,  671, 
690 

McDonough  v.  Phelps,  124,  208,  218 

McDonough  v.  Webster,  341 

McDowell  V.   Bk.  of  Wilmington  &  Bran- 

dywine,  522,  527 

McElhenny's  Appeal,  651 

McElroy  w.  Carmichael,  341 

McEwen  v.  West.   L.  W.  &,  W.  Co.,  173, 
258,  262 

McEwen  v.  Woods,  452,  588 

McFerraii  y.  Jones,  481 

McGoon  V.  Scales,  634 

McGregor  v.  Birdsall,  91 

McGregor  i'.  Home  Ins.  Co.,  270,  278 

McGuffey  v.  Humes,  583 

McGuire  v.  Evans,  302 

McHahon  v.  Macy,  209 

McHenry  v.  Jewett,  612 

McHenry  v.  N.  .Y.,  &c.  R.  R.  Co.,  694 

McHose  V.   Wheeler,  52,  54,  65,  73,  185, 
225,  226 

McTntyre  v.  McLane,  186 

Mclntire  Poor  School  y.  Zanesville  Canal, 
<fec.,  Co  ,  629 

Mclver  v.  Robinson,  570,  571 

McKay's  Case,  620,  650,  652 

McKeen  v.  County  of  Northampton,  565 

McKenney  v.  Haines,  574,  576,  581,  584 

McKelvey  v.  Crockett,  201 

McKenzie  v.  Kittridge,  255 

McKim  V.  Odon,  1 

McLaren  v.  Pennington,  193,  629 

McLaughlin  v.  Chadwell,  570,  571 

McLean  v.  Eastman,  549 

McLean  v.  LaFayette  Bk.,  527 

McLoughlin  v.  Detroit,  Ac.  R.  R.  Co.,  54, 

268,  277,  285,  686 
McLime  v.  Benceni,  200,  221 
McMahon,  In  re,  571 
McMahon  v.  Macy,  209,  222,  247,  465 
McMalion  v.  Morrison,  633,  636,  668 

McMillan  v.  Maysville  &  Lexington  R.  R. 

Co.,  78,  82 

McMillen  v.  Boyles,  91 
McMillen  v.  Lee  Co  ,  91 

Ix 


McMill's  Case,  163 

McMurray  v.  Northern,  (fee,  Ry.  Co.,  695 

McMurrich  v.  Bond  H.  H.  Co.,  382,  521, 

576,  581,584 
McNeal  v.  Mechanics,  Ac,  Ass'n,  566,  572 
McNeely  v.  Woodruff,  593,  613,  616 
McNiel  V.  Tenth  Natl.  Bk.,  377,  379,  414, 

416,  457,  465,  473,  476,  -542,  611 
McRea  v.  Russell,  173 
McVicker  v.  Ross,  509,  632,  636 
Mead  v.  Buun,  150 
Mead  t'.  Keeler,  185 
Meadow  Dam  Co.  v.  Gray,  242 
Meadow  v.  Gray,  185 
Mean's  Appeal,  208,  214,  221 
Meason's  Estate,  6 
Measure  v.  Carleton,  302 
Mechanics'    Banking    Ass'n  v.   Mariposa 

Co.,  382 
Mechanics,   cfec,   Association  v.  Conover, 

464.  484 
Mechanics,   &c.   Co.  v.  Hall,  68,  69,  124, 

125 
Mechanics  Bk.  v.  Heard,  629 
Mechanics  Bk.  v.  Merchants  Bk.   522,  530 
Mechanics'  Bk.  v.  Meriden  Agency,  60 
Mechanics'  Bank  v.  New  York,  <fec.  R.  R. 

Co.,  6,  281,  284,  292,  412,  414 
Mechanics  Bk.  v.  Thomas,  567 
Mechanics  Bank  of  Alex.  v.   Seton,  327, 

338, 383, 391 
Mechanics  Natl.  Bk.  of  Newark  v.  Burnet 

Mfg.  Co.,  616 
Merchants'  Natl.  Bk.  v.  Richards,  378, 379, 

387,  414,  465 
Meckles  v.  Rochester  City  Bk.  615 
Medder  v.  Norton,  686 
Medical,  <fec.,  Society  v.   Weatherly,  600, 

626 
Medill  V.  Collier.  235 
Meeker  w.  Winthrop  Iron  Co.,  624,  662 
Meintsv.  East  St.  Louis,  <fcc.  Co.,  201 
Meisser  v.  Thompson,  211 
Melchert  v.   American   U.  Tel.  Co.,  341, 

346 
Melhado  v.  Hamilton,  268 
Melhado  v.  The  Porto  Alegre,  Ac,  Ry. 

Co.,  67 
Melendy  v.  Keen,  145 
Mellen  v.  Town  of  Lansing,  97 


TABLE   OF  CASES. 


[  The  references  are  to  .'iectin7ix.'\ 


Melvin  v.   Lamar  Ins.  Co.,   138.  168,  169, 
247,  265,  465 

Melvin  v.  Lisenby,  94 
Memphis,  &c.,  Co.  v.  Williamson.  678 
Memphis,  Kan.  <fe  Col.  R.  R.  Co.  v.  Thomp- 
son, 85,  86,  87,   97 
Memphis  Branch  R.   R.  Co.   v.  Sullivan, 

176,  181,  191,499,  500,  503 
Memphis  City  )'.  Dean,  678,  694 
Menasha  v.  Hazard,  93,  101 
Mendenhall,  Be,  506 
Menier  v.  Hooper's  Tel.  Works,  662 
Mercantile  Trading  Co.  In  re,  539 
Merchants'  Bk.  ?■.  Chandler,  209,  222 
Merchants'  Bk.  v.  Cook,  464,  468 
Merchants'  Bk.  v.  Livingstoo,  532 
Merchants,  &c.,  Bk.  v.  Stone,  234 

Merchants'  Bk.  of  Canada  v.  Livingston, 
321,  326 

Merchants'  Bk.  of  Easton  v.  Shouse,  521, 
522,  526,  547 

Merchants'  Bk.  of  New  Haven  v.  Bliss,  218, 
227 

Merchants,  &c..  Line    v.    Waganer,    693, 
694 

Merchants'  Mut.  Ins.  Co.   v.   Brower,  480, 
483 

Merchants'  Natl.  Bk.  v.  Hall,  464, 476 

Merchants'  Natl.  Bk.  v.  Richards,  334,  360, 
489 

Mercer  Co.  v.  Hackett,  91 

Mercer  Co.  v.  Pittsburgh,  &c.,  R.  R.  Co.,  95 

Merrick  v.  Brainard,  591,  592 

Merrick  v.  Peru  Co.,  657 

Merrick  v.  Van  Santvoord,  218,  239,  591, 
592 

Merrill  v.  Beaver,  281,  298 

Merrill  v  Call,  332 

Merrill  v.  Cole,  522 

Merrillv.  Gamble,  281,  298 

Merrill  v.  Reaver,  187,  188,  298 

Merrill  v.  Suffolk  Bk.,  209,  222,  638 

Merrimac  Mining  Co.  v.  Bagley,    125,  256 

Merrimac,  (fee,  Co.  v.  Levy,  69,  75,  256 

Merriman  v.  Magiveimis,  234 

Merritt  v.  Farris,  595 

Merritt  v.  Portchester,  93 

Merritt  v.  Reid.  227 

Merry  v.  Nickalls,  416 

Merwin  v.  Hamilton,  461 


Messersmith  r.  Sharon  Sav.  Bk,  255,  256 

Metcalf  /'.  First  Parish,  302 

Methodist  E.  U.  Ch.  v.  Pickett,   185,  288 

Methodist  Episcopal  Church  v.  Sherman, 

625 

Metropolitan  Bk.  r.  Hieron,  686 

Metropolitan  Elevated  Ry.  Co.  v.  Manhat- 
tan Ry.  Co.,  625,  652,  658,  670 

Metropolitan   Sav.   Bk.   v.  Mayor,  &c.  of 
Baltimore,  364 

Metz  V.  Buffalo,  <tc.  R.  R.  Co.,  655 

Meyer  v.  Blair,  S33 

Meyer  v.  Johnston,  668 

Meyer  v.  Muscatine,  91,  98 

Mexican  Gulf,  dec.  R.  R.  Co.  v.  Vivant,  52, 
53,   58,  124 

Miami,  &c.  Co.  v.  Gano,  638 

Michaud  v.  Girod,  649,   652 

Micliener  v.  Payson,  164 

Michigan  Air  Line  Ry.  Co.  v.  Barnes,  4 

Michigan  State  Bk.  v.  Gardner,  634 

Mickles  v.  Rochester  City  Bk.,  534,  633 

Middlcbrook  v.  Merchants  Bank,  329,  391, 
579,   612 

Middleport  v.  .(Etna  Ins.  Co.,  92 

Middlesex  Bk.  v.  Minot,  479 

Middlesex  R.  R.  Co.  v.  Boston,  ifec.  R.  R, 
Co.,  636,  667,   669 

Middlesex  Turnpike  Corp.  v.  Locke,  500 

Middlesex    Turnpike    Co.  v.   Swan,   198, 

241,  500 
Middletown  Bk.  v.  Magill,  211,  224,  225. 

229,  260,    261 

Midland,  <fec.  Ry.  Co.  v.  Gordon,   67,  255, 
258,  262,  268 

Midland  Ry.  Co.  v.  Great   Western  Ry. 

Co.,  636 
Midland  Ry.  Co.  v.  Taylor,  363,  365 

Miers  v.  Zaiiesville  <fe  Maysville  Turnpike 
Co.,  204,  205,  228 

Miles  V.  Bough,  119 

Miles  V.  New  Zealand,  <fec.  Co.,  527,  532 

Mill  Dam  Foundry  v.  Hovey,  78,  220,  260 

Millard  v.  Bailey,  .301 

Millaudon  v.  New  Orleans,  «fec.,  R.  R.  Co., 
211 

Millen  v.  Guerrard,  555,  5.'\7 

Milliken  r.  Dchon,  459,  477 

Milliken  v.  Whituhduse,  209,  222,  260 

Miller  v.  Barber,  157,  165,  350,  365,  587 

Ixi 


TABLE   OF   CASES. 


[77)c  referenees  are  to  sections.^ 


Miller  v.  Eno-lish,  591 

Miller  v.  Ewer,  591 

Miller  v.  Great  Republic  Ins.  Co.,  '255,  '261, 

265 
Miller  ti.  Hanover  June.  <fe  Sus.  R.  R.  Co., 

137, 138 
Miller  v.  Heilbron,  571 
Miller  v.  Illinois,  <fec.,  R.  R.  Co.,  '286,  544 
Miller  v.  Little,  302 
Miller  v.  Maloney,  1 1 1 
Miller  v.  Miller,  304 
Miller  v.  Pittsburgh  &  Cornellsville  R.  R.  j 

Co.,  1i,  189,  277 
Miller  v.  Second  J.  B.  Assn.,  169 
Miller  v.  State,  501 
Miller  v.  White,  209,  222,  227 
Miller?^.   Wild  Cat,   (fee,  Co.,  67,  68,   69, 

70,  110,  141,  192 

Miller's  Appeal,  253 

Miller's  Case,  108 

Miller's  Dale,  Ac,  Co.,  In  re,  288 

Mills  V.  Central  R.  R.  Co.,  501,  503,  671, 

686 
Mills  V.  Hoffman,  322 

Mills  V.  North,  <fec.,  Ry.  Co.,  269,  537,  539, 

540,  689 
Mills  V.  Scott,  205,  208,  226 
Mills  V.  Stewart,  125,  127,  128,  199 
Milner  v.  Pensacola,  94 
Milroy  v.  Spurr  Mountain  Iron  Min.  Co., 

226 
Mil  vain  v.  Mather,  205 

Milwaukee  &  Northern  111.  R.  R.   Co.  v. 

Field,  83,  277 
Mining  Co.  v.  Anglo  Californian  Bk.,285 
Minn.  C.  Ry.  Co.  v.  Morgan,  462 
Minnesota  Harvester  Works  v.  Libby,  192 
Minnesota  &  St.  L.  Ry.  Co.  v.  Bassett,  17S 

Minor  v.  Mechanics  Bk.    of  Alexandria, 
138,  168,  177 

Minot  V.  Paine,  537,  543.  555,  556,  557 

Minot  V.  Railroad  Co.,  566 

Mintzer  v.  County  of  Montgomery,  570 

Miss.,  0.  &  R.  R.  Co.  V.  Cross,  137,  138, 

187,  188,500 
Mississippi,  <fec.,  R.  R.  Co.  v.  Camden,  91 
Miss.,  Ouachita  &  Red  River  R.  R.  Co.  v. 

Gaster,  119,  130 
Mississippi,  <fec.,  R.  R.  Co.  ?/.Harri8,65, 198 
Missouri  Pacific  Ry.  Co.  v.  Taggard,  83 

Ixii 


Mitchell  V.  Beckman,  10,  52,   56,  69,  224, 

263 
Mitchell  V.  Burlington,  91 
Mitchell  V.  Newhall,  462 
Mitchell  V.  Reed,  660 
Mitchell  V.  Rome  R.  R.  Co.,  173 
Mitchell  t).  Vermont  Cooper  M.  Co.,  129, 

130,  132, 134 
Mitchell's  Case,  63,  245,  246,  250,  266 
Mixer's  Case,  139,  157,  160,  163 
Mobile  Mutual  Ins.  Co.   v.    CuUum.   331, 

527, 532. 
Mobile,  (fee,  R.  R.  Co.  v.  State,  629,  630 
Mobile,  (fee,  R.  R.  Co.  v.  Yandal,  66 
Moers  v.  Reading,  91 
Moffatt  V.  Farquhar,  332,  386 
Moffat  V.  Winslow,  350,  356 
Mohawk  v.  Hudson  R.  R.  Co.,  Matter  of, 

612 
Moir  V.  Sprague,  218,  224 
Mokelumne  Hill  Min.  Co.  v.  Woodbury, 

214,  224,  234,  260 
Mollett  V.  Robinson,  588 
Mommoth  Copperopolis  of  Utah,  In  re,  580 
Monadnock  R.  R.  Co.  v.  Felt,  85,  86 
Monadnock  R.  R.  Co.  v.  Peterboro",  94 
Monk  V.  Graham,  364 
Monroe  v.  Fort  W.  J.  &  S.  R.R.Co., 176,185 
Monroe  v.  Peck,  451 
Monroe  v.  Smeiley,  341 
Monterey,  cfec,  R.  R.  Co.  v.  Hildreth,  67 
Montgomery  S.  Ry.  Co.  v.  Matthews,  140, 

145,  165 
Montpelier  cfe  Wells  River   R.  R.   Co.  v. 

Langdon,  86 
Mooar  v.  Walker,  491 
Moodie  V.  Seventh  Natl  Bk..  321,  416 
Moody  V.  Caulk,  587 
Mooiiey  v.  British,  (fee..  Life  Ins.  Co.,  684 
Moore  v.  Bk.  of  Commerce,  332,  531 
Moore  v.  Brink,  504 
Moore  v.  Garwood,  240 
Moore  v.  Gennett,  484 
Moore  v.  Hammond,  594,  599 
Moore  v.  Hudson  River  R.  R.  Co.,  17,334 
Moore  v.  Jones,  247,  256    . 
Moore  v.  Metropolitan  Natl.  Bk.,  340,416 
Moore  v.  Moore,  308 
Moorehouse  v.  Cranglc,  340 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Moores  t'.  Citizeus  Natl.  Bk.,  359,  363,  387 

Morelock  f.  Westminster  Water  Co.,  625 

Morelyr.  ISird,  302 

Mores  v.  Conham.  ill,  473  | 

Morgan  v.  Bk.  of  North  America,  524,  527  j 

Morgan  v.  Great  Eastern  Uy.  Co.,  546 

Morgan  v.  GroflF,  298 

Morgan  7j.  Morgan,  519 

Morgan  v.  New  York,  «tc.  R.  R.  Co.,   199, 
205,  226 

Morgan  v.  Pebrer,  341 

Morgan  v.  R.  R.  Co.,  694 

Morgan  v.  Skiddy,  349.  353,  355 

Morgan  ;■.  Thames  Bank,  482 

Morgan  County  v.  Thomas,  99,  190 

Morgan,  Ex  parte,  309 

Morgan's  Case,  251,  309,  508,  316 

Morley  v.  Thayer,  213,  221,  224,  241 

Morrice  v.  Hunter,  462 

Morrill  /•.  Boston,  (fee.,  R.  R.  Co.,  673 

Morris  v.  Cannan,  246,  259,  378 

Morris  v.  Cheney,  111 

Morris  v.  Conn.,  <fec.,  R.  R.  Co.,  482 

Morris  v.  Morris  Co.,  91 

Morris  Canal  <fe  Banking  Co.  v.  Nathan, 

82,  83,  87 

Morris  Run  Coal  Co.  v.  Barclay  Coal  Co., 

348 
Morrison  v.  Dorsey,  181 

Morrison  v.  Globe  Panorama  Co.,  650 

Morrison  v.  Gold  Mountain,  <fec.,  Co.,  75 

Morrison,  In  re,  530 

Mnrii-ssey  «'.  Weed,  508 

Morrow  v.  Superior  Court,  221 

Morse  v.  Swits,  353 

Mortimer  v.  McCuUon,  342,  455 

Morton  v.  Preston,  576 

Morton's  Case,  173 

Moseby  v.  Burrow,  633 

Moses  V.  Ocoee  Bank,  15,  65,  200,  281 

Moss  V.  Avorell,  209,  222,  224 

Moss  V.  McCullough,  209,  222 

Moss  V.  Oakley,  209,  222.  224,  260,  261 

Moss  V.  Steam  Gondola  Co.,  227 

Moss  V.  Syers,  268 

Moss"  Appeal,  537,  554,  659 

Mt.  Holly  Paper  Co.'s  Appeal,  293,  526 

Mt.  Holly  \..  &  M.  T.  Co.  V.   Ferrie,  360, 
380,  387,416,465,473,  476 


Mt.  Sterling,  tfec,  Co.  v.  Little,  67,  69 
Mt.  Vernon  v.  Hovey,  91 
Mousseaux  v.  Urquhart,  611,  613,  616 
Mowatt  V.  Londesborough,  240 
Mower  v.  Staples,  499 

Mowrey  v.  Indianapolis,  &q.,  R.    R.   Co., 

497,  500,  501,  502 
Mowrey  v.  Indiana,  (fee,  R.  R.  Co.,  636 
Moyer  v.  Pennsylvania  Slate  Co.,  214,215 
Mozley  v.  Alston,  645 
Mudford's  Case,  193 
Mudgett  V.  Horrell,  73 

Muhlenberg  v.  Philadelphia,   <fec.,   R.   R. 
Co.,  273 

Muir  V.  City  of  Glasgow  Bank,  245,  246 

Mulligan  v.  Mulligan,  215 

Mullins  V.  Smith,  300,  302,  304,  305 

Mumford  v.  American  Life  Insurance  Co. 
591 

Mumma  v.  Potomac  Co.,  199,  629,  638 

Munas  v.  Isle  of  Wight  Ry.  Co.,  268 

MuDcie,  (fee,  R.  R.  Co.  v.  Geiger,  91 

Munger  v.  Jacobson,  200,  221,  227 

Munn  V.  Barnum,  331 

Munson  v.  Lyons,  93 

Munson  v.  Syracuse,  (fee,  R.  R.  Co.,  653 

Munt  V.  Shrewsbury,  <fec.,  Ry.  Co.  672 

Munster's  Case,  145 

Munt's  Case,  251,  266,  809 

Murphy,  Ex  parte,  616 

Murphy,  Re,  489 

Murray  v.  Bush,  258 

Murray  v.  Charleston,  99 

Murray  v.  Feinour,  323 

Murray  v.  Glasse,  552,  536 

Murray  v.  Stevens,  390 

Murray  v.  Vanderbilt,  200,  631,  638 

Murvah,  (fee,  Co.,  A'e,  651 

Muscatine,  (fee,  R.  R.  Co.  v.  Horton,  91 

Muscatine   Turn    Veroin    r.    Fuuck,    63S, 

634 
Musgrave  v.  Beckendorff,  583 
Musgrave  v.  Morrison,  52,  64,  65 
Musgravc  v.  Nevinson,  621 
Musgrave  &  Hart's  Case,  262 
Muskingum  Valley  T.  Co.  v.  Ward,  119. 

253 
Mussell  V.  Cooke,  339 
Mussina  v.  Goldthwaito,  636,  639,  6»S 

Ixiii 


TABLE   OF   CASE^:. 


Y'The  references  are  io  secfion.s.'^ 


Mustard  v.  Hopper,  93 

Mutual  Benefit  Insurance  Co.  v.  Rowood, 

215 
Mutual  Insurance  Co.  v.  Supervisors,  <fec., 

3 
Mutual  Savings  Bank,  <fec..  Association  v. 

Meridan  Agency  Co.,  317 

Myers  v.  Irwin,  241 
Myers  v.  Johnson,  91 
Myers  v.  Perrigal,  6 
Myers  v.  Seeley,  42,  50,  108,  204,  207 
Myers  v.  Valley  National  Bank,  533 
Myers  v.  York  and  Cumberland  R.  R.  Co., 
17 


N 


Nabob  of  Carnatic  v.  East  India  Co.,  218 
Nabring  v.  Bank  of  Mobile,  464,  477,  478, 

480,  484,  575,  576, 581 
Nagle  V.  Pacific  Wharf  Co.,  489 
Nannock  v.  Horton,  305 
Nantes  V.  Corrock,  481 
Nant-y-Glo,  &c.,  Co.  v.  Gtave,  650 
Napa  Valley  R.  R.  Co.  v.  Napa  County, 

91 
Napier  v.  Central,  <fec..  Bank,  475 
Napier  v.  Foe,  173 
Nashville  Bank  v.  Petway,  633 
Nashville  Bank  v.  Ragsdale,  480 
Nassau,  &c.,  Co.  v.  City  of  Brooklyn.  565 
Nassau  Bank  v.  Jones,  60,  316,  664 
Nathan®.  Whitlock,  208,   211,  251,   261, 

638 
National  Albany  Exchange  Bank  «. Wells, 

571 
National  Bank  v.  Burkhardt,  462 
National  Bank  v.  Case,  247,  253,  316 
National  Bank  v.  Chase,  99,  265 
National   Bank    v.    Commonwealth,    563, 

566,  569,  570,  571 
National  Bank  of  St.  Johnsbury  v.  Con- 
cord, 91 
National  Bk.  v.  Douglass,  271 
National  Bk.  v.  Insurance  Co.,  633 
National  Bk.  v.  Landon,  2b3,  506 
National  Trust  Co.  v.  Miller,  548 
National  Com.  Bk.  v.  Mobile,  566 


National  Bk.  of  New  London  v.  Lake  S.  & 
M.  S.  R.  R.  Co.,  359,  484,  485.  488, 
576 

National  Exchange  Bk.  v.  Sibley,  295 

National  Exchange  Bk.  v.  Silliman,  529 

National  Bk.  of  Xenia  v.  Stewart,  313,  533 

National  Bk.  v.  Van  Derwerker,  507 

National  Bk.  v.  Watsontown  Bk.,  10,  382, 

522,  528,  531,  532 
National  Albany  Exchange  Bk.  v.  Wells, 

560 
National  Exchange  Co.  v.  Drew,  140, 144, 

354 
National  Financial  Co.,  In  re,  246,  261 
National  Pemberton  Bk.  v.  Porter,  664 
National  Union  Bk.  of  Watertown  v.  Lan- 
don, 243 
National,  Ac,  Co..  In  re,  268.  277 
Nation's  Case,  262 
Natusch  V.  Irving,  493,  624,  666 
Nauman  v.  Caldwell,  587 
Naylor  v.  South,  &c.,  Ry.  Co.,  129,  134 
Neal  V.  Hill,  631,  680,  681,  700 
Neale  v.  Janney,  521,  522 
Neilson,  Ux  parte,  451 
Neilson  v.  Crawford,  210,  222 
Neiler  v.  Kelley,  5,  6,  475,  477,   576.  581, 

583 
Nellis  V.  Clarke,  298 
Nellis  V.  Coleman,  56 
Nelson  v.  Blakey,  186 
Nelson  v.  Cowing,  140 
Nelson  v.  Luling,  234,  350,  355 
Ness  V.  Angas,  62,  227 
Ness  t).  Armstrong,  227,  248 
Nesmith  v.  Wash.  Bk.,  378,  522,  532 
Neuse  River  Nav.  Co.   v.  Com'rs  of  New- 

bern,  13,  98 
Nevitt  V.  Bank  of  Port  Gibson,  634 
New  Albany  v.  Burke,  170,  199 
New  Albany  <fe  S.  R.  R.  Co.  v.  Fields,  70, 

138,  196 
New  Albany,  kc,  R.  R.  Co.  v.  McCormick, 

4,  52,  56,  82,  84,  117,  130,  192 
New  Albany  &  Salem  R.  R.  Co.  v.  Pickens, 

106 
New  Albany*  Salem  R.R.  Co.  v.  Slaughter, 

138 
New  Bedford,  tfec,  Co.  v.  Adams,  68,  124 


Ixiv 


TABLE   OF   CASES. 


[The  references  are  to  section-i.^ 


New  Brunswick.  &c.,  Rj*.  Co.   v.  Cony- 

beare,  144,  145 
New  Brunswick,  Ac,  Co.  v.  Muggeridge, 

52,  64,  67,  147,  150 
New  Buffalo  v.  Iron  Co.,  103 
New  Castle  &  A.  T.  Co.  v.  Bell,  176 
New  Castle  R.  R.  Co.  v.  Simpson,  26 
New  Eng.  Commercial  Bk.  v.  Stockhold- 
ers of  the  Newport  Steam  Factory, 
200,  224,  241,  248 
New  Eng.  Mutual,  <tc.,  Ins.  Co.  v.  Phillips, 

613,  615,  617 
N.  E.  R,  R.  Co.  V.  Rodriques,  146 

New    England   Trust  Co.    v.  Eaton,  555, 
559 

New  Hampshire,  <fec.,  R.   R.  Co.  v.  John- 
son, 68,  69,  72,  73,  124,  181 

New  Haven,  &c.,  R.  R.  Co.  v.  Chatham, 
93 

New  Haven  &  D.  R.  R.  Co.  v.  Chapman, 
177 

New  Haven,  tfec,  Co.  v.  Linden  Spring  Co., 
34,  218 

New  Hope,  <fec.,  Co.  v.  The  Phoenix  Bk., 

285 

New  Jersey  v.  Yard,  500 

New  Jersey  Midland  Ry.   Co.    v.   Strait, 
110,  111,  116,  119,  500 

New  Jersey  Zinc  Cc.  v.  New  Jersey  Frank- 
linite'Co.,  636 

New  London,  <fec.,  Bk.   v.  Brockleebank, 

526,  632 

New  Orleans,  &c.,  Co.  v.  Briggs,  124 
New  Orleans  v.  Graihle,  92 
New  Orleans  v.  Saving,  <fec.,  Co.,  566 
New  Orleans,  <fec.,  R.  R.  Co.  v.  Harris,  500, 
607,  024 

New  Orleans,  tfec,  R.  R.   Co.  v.  Bank  of 
Assessors,  563 

New  Orleans,  <fec.,  R.  R.  Co.  v.  McDonald, 
91 

New  Orleans  F.  &  H.  S.  Co.  v.  Ocean  Dry 
Dock  Co.,  60,  ;>17 

New  Orleans  Natl.  Bk.  Assn.  v.  Wiltz,  6, 
465,  522,  532,  533 

New  Soujbrero  P.  Co.  v.  Erlander,  65] 
New  York,  &c.,  R.  R.  Co.  v.  Cook,  209 
New  York  El.  R.  R.  Co.  v.  Manhattan  Ry. 
Co.,  658 

New  York  Elevated  R.  R.  Co.,  Matter  of, 
497.  501 


[E] 


New  York  Exchange  Co.  v.  De  Wolf,  87, 

140, 191 
New  York,  <fec..  Derrick  Co.  v.  New  Jersey 

Oil  Co.,  591 
New  York,  Housatonic  &  Northern  R.  R. 

Co.  V.  Hunt,  14,  176,  180 
New  York,  L.  E.  &  W.  R.  R.  Co.  v.  Davies, 

475 
New  y  ork  Marbled  Iron  Works  v.  Smith, 

629 
New  York  &  O.  M.  R.  R.  Co.  v.  Van  Horn, 

174 
New  York,  <fec.,  R.  R.  Co.  v.  Parmalee,  496 
New  York  &  N.  H.  R.  R.  Co.  v.  Schuyler, 

281,  290,  292,  297,  358,  359,  414,  596 

Newall  V.  Williston,  489,  490 

Newark  City  Bk.  v.  Assessor,  565 

Newberry  v.  Detroit,  489 

Newberry  v.  Garland,  355 

Newbury  v.  Detroit,  &c.,  R.  R.  Co.,  530 

Newby  v.  Oregon  Central  R.  R.  Co  ,  694 

Newfoundland  Ry.,    &c.,  Co.  v.    Schack, 
638 

Newlands  v.  National,  <fec  ,  Assn.,  350 

Newling  v.  Francis,  023 

Newry,  (fee,  Ry.  Co.  v.  Coombe,  63,  250, 

318 
Newry  &  Enniskillen  Ry.  Co.  v.  Edmunds, 

104,  120,  527 
Newry,  <fec.,  R.  R.  Co.  v.  Moss,  245,   246, 

470 
Newton  Mfg.  Co.  v.  White,  633 
Newton  v.  Fay,  464,  465 
Niagara  Ins.  Co.,  Matter  of  the,  630 
Nichols  V.   Burlington  &  Louisa  County 

Plank  Road  Co.,  87,  89 
Nichols  V.  Nashville,  91 
Nicholson  v.  Mounsey,  681 
Nickols  V.  New  York,  &c.,  R.  R.  Co.,  270, 

272,  274,  540,  543 

Nickalls  v.  Eaton,  446 
Nickalls  v.  Merry,  250,  266,  318,  446,  462 
Nickersou  v.  Englisli,  191,  308 
Nicol's  Case,  145,  251 
NicoU's  Case,  35,  57,  309 
Nicolay  v.  St.  Clair  County,  101 
Nightingale  v.  Devisme,  6,  578 
Nimick  v.  Mingo  Iron  Works,  218,  219 
Nimmons  v.  Tappan,  629,  633 
Nippenose   Mfg.    Co.   v.   Stadon     13,    14, 
141 

Ixv 


TABLE   OF   CASES. 


[77ie  references  are  to  sections.'\ 


Nixon  V.  Brownlaw,  .'502 
Nixon  V.  Green,  260,  261 
Noble  V.  Callender,  138 
Noble  V.  Vincennes,  94 
Nockles  V.  Crosby,  76,  240,  296 
Noesen  v.  Port  Washington,  97,  500 
Nolan  V.  Arabella,  &c.  Co.,   129 
Noonan  v.  Ilsley,  576,  581,  584 
Norman  v.  Mitchell,  134,  502 
N  orris  «.  Crocker,  218 
Norris  v.  Harrison,  552,  556 
Norris  v.  Irish  Land  Co.,  383,  390 
Norris  v.  Johnson,  215,  224,  226 
Norris  v.  Mayor  of  Smithville,  629 
Norris  v.  Wallace,  322 
Norris  t).  Wrenschall,  218,   227,  497 
North  V.  Forrest,  339 

North  ».  Phillips,  576,  581,  583,  584, 
587 

North  American  Building  Ass'n  v.  Sut- 
ton, 575,  576,  584,  585 

North  American  Colonial  Ass'n  v.  Bent- 
ley,  255    • 

North  Car.  R.  R.  Co.  v.  Leach.  138,  141 

North  Hempstead  v.  Hempstead,  534 

North  Mo.  R.  R.  Co.  v.  Wenkler,  78,  83 

North  Shore  Staten  Island  Ferry  Co., 
Matter  of.  Oil,  612 

North  State,  <fec.  Co.  v.  Field,  134 

North  Ward  Natl.  Bk.  v.  City  of  Newark, 
563,  566,    572 

Northeastern    Ry.    Co.    v.  Jackson,  652, 

657 
Northeastern  R.  R.  Co.  v.  Rodriques,  66 
Northern    Assam    Tea    Co.,    In  re,  529, 

531 

Northern  Bank  v.  Porter  Township,  93 
Northern  Bk.  of  Kentucky  v.  Keizer,  530 
Northern,  (fee.  R.  R.  Co.  v.  Miller,  67,  68, 
70,   124,   125,  492,   501 

Northrop  v.  Bushnell,  42 

Northrop  v.  Curtis,  382,  546 

Northrop  v.  Newtown  B.  &  T.  Co.,  378, 
414,  541,546 

Norton  v.  Blinn,  346,  347 

Norton  v.  Norton,  484 

Norton  v.  Peck,  90 

Norwich  &  L.  Navigation  v.  Theobold, 
179 

Nott  V.  Clews,  40,  48 

Ixvi 


Nourse  v.  Prince,  469 
Noyes    v.     Spaulding,    8,  334,  338,  344, 
348,  379,  414,  469 

Nugent  V.  Cin.,  &c.  R.  R.  Co.,  148 

Nugent  V.  Putman  Co.,  636 

Nugent  V.  Supervisors,  50,  103 

Nulton  V.  Clayton,  53,  67,  69 

Nutbrown  v.  Thornton,  338 

Nutter  V.  Lexington,  &c.  R.  R.  Co.,  288 

Nutting  V.  Boardman,  329 

Nutting  V.  Thomason,  329 

Nutting  V.  Thompson,  329 

Nyce's  Appeal,  322 


o 


Oakes  v.  Oakes,  305 

Oakes  v.  Turquand,  52,    143,    147,    151, 

163,  263,  502 

Oakland  Oil  Co.  v.  Crum,  5,  544 
O'Brien  v.  Breitenbach,  315,  348 
O'Brien  v.  Chicago,  Rock  Island,  <fec.  R. 

R.  Co.,  281 
O'Brien  v.  Mechanics,   <fec.    T.  Ins.   Co., 

483 
Occidental,  <fec.  Assoc,  v.  Sullivan,  129 
Ochiltree  v.  Railroad  Co.  215 
Odd  Fellows,  &c.  Co.  v.  Glazier,  69 
0 'Donald  v.  EvansviUe,   <fec.   R.  R.  Co., 

88 
Oelrichs  v.  Ford,  462 
Ogden  V.  County  of  Daviess,  90,  92 
Ogden  V.  Folliot,  218 
Ogden  V.  Lathrop,  469,  478 
Ogden  V.  Murray,  657 
Ogdensburgh  R.  <fe  C.  R.  R.  Co.   v.  Frost, 

61,  124,  125,  174 
Ogdensburgh,  <fec.   R.  R.   Co.  v.  Wooley, 

15,  174 
Ogilvie  V.  Currie,  145,  155,  162,  356 

Ogilvie  V.   Knox  Ins.    Co.,  46,  108,  160, 

164,  199,   201,    204,   206,   207,   226, 
288 

Ogle  V.  Knipe,  6,  305 

Oglesby  v.  Attrill,  678 

O'Hare  v.  Second  Natl.  Bk.,  313 

Ohio,  &c.  College  v.  Higgins,  70 

Ohio  Life  Ins.  Co.  v.   Merchants  Ins.  Co., 
215 


TABLE   OF   CASES. 


[7%e  references  are  to  sections.'\ 


Ohio,  Ind.  <fe  111.  R.  R.  Co.  v.  Cramer,  15, 
19,  105 

Ohio,  (fee.  R.  R.   Co.    V.  McPherson,  591, 

592 
Ohio  &  M.  R.  R.  Co.  v.  Weber,  3 
Olcott  V.  Supervisors,  91 
Oldham  v.  Brown,  240 
Oldtown  <fe  Lincoln   R.   R.  Co.  v.  Veazie, 

180,  181,  497,  500 
Olery  v.  Brown,  504 

Oler  V.  Baltimore,  <fec.  R.  R.  Co.,  52,  72, 

173 
Oliphant  v.  Woodhaven,  &c.  Co.,  23,  679 

Oliver  v.  Liverpool  <fe  L.  L.  &  F.  Ins.  Co., 

241,  505 
Oliver  v.  Washington  Mills,  5C6 

O'Meara  v.  North  Am.  Min.  Nev.,  74,  581, 
584 

Oraraaney  v.  Butcher,  305 

O'Neal  V.  King,  86 

Oneida  Bank  v.  Ontario  Bank,  93 

O'Neill  t^.Whigham,  475,  476 

Onondaga  Trust,  &c.  Co.  v.  Price,  305,  307 

Opdyke  w.  Marble,  519 

Opelika  v.  Daniel,  91 

Orange,  &c.  R.  R.  Go.  v.  Fulvey,  587 

Oregon,    <fec.   R.  R.  Co.   v.  Scroggiu,  67, 
165,  176 

O'Reilly  v.  Bard,  214,  229 

Oriental  Co.  v.  Briggs,  338 

Orietital  Commercial  ^k. ,  Ex  parte,  245, 
246 

Orleans  v.  Piatt,  93 

Ormerod's  Case,  650 

Ormsby  v.  Vermont,   <fec.  Co.,  134,  581, 
584,  591,    592 

Ornamental  R.  W.  Co.  v.  Browne,  179 

Orpen,  Re,  309 

Orr  V.  Bigelow,  64,  249,  332 

Orr  V.  Bracken  County,  (fee,  501 

Ortigo.sa  v.  Brown,    377,  380,  382,  416, 
473 

Osage  Valley,   «fec.  R.  R.  Co.  v.  Morgan 
Co.  91 

Osborn  v.  Crosby,  70 

Osborne  v.   Adams  Co.,  91 

Osborne  v.  McAlpine,  302 

Osgood  V.  King,  23,  34,  48,  199 

Osgood  V.  Lay  tin,  199,  548,  549 

Osgood  V.  Ogden,  193,  228, 

Oekaloosa  Agri,  Works  v,  Parkhurst,  180 


Ossipee  Co.  v.  Canney,  184,   185 

Otis«.  Gardner,  247,  321,  380,  414,  465, 
473 

Otoe  County  v.  Baldwin,  94 
Ottawa  V.  Carey,  90 

Ottawa  Glass  Co.   v.  McCaleb,  561,  565, 
566 

Ottawa,  &c.  R.  R.  Co.  v.  Black,  67,  187, 

670 
Ottawa,  &.C.  R.  R.  Co.  v.  Hall,  71 
Otter  V.  Brevoort,  &c.  Co.,  23,  314 
Oubre  v.  Donaldsonvilie,  92 
Owen  V.  Challis,  240 
Owen  V.  Purdy,  497,  500,  503 
Owen  V.  Routh,  582 
Owen  V.   Smith,  634,  638 
Owen  V.  Whitaker,  615 
Owens  V.  Missionary   Soc.   of  the  M.  E. 

Church,  504 

Oxford  Turnpike  Co.  v.  Brund,  465 

Oxford  Turnpike  Co.  v.  Bunnell,  414,  489, 
546 


Pacific  National  Bk.  Cases,   1 99 

Pacific  R.  R.  Co.  v.  Cutting,  639,  649 

Pacific  R.  R.  Co.  v.  Hughes,  502 

Pacific  R.  R.  Co.  v.  Renshaw,  499,  500 

Pacific  R.  R.  Co.  v.  Seeley,  650 

Pacific  R.  R.  Co.  v.  Thomas,  286 

Pacific  Trust  Co.  v.  Dorsej',   650 

Packard  v.  Jefferson  Co.,  93 

Paddock  v.  Fletcher,  157 

Page  V.  Austin,  298 

Page  V.  Contocook  Valley  R.  R.  Co.,  4 

Page  V.  Fowler,  587 

Page  V.  Leapingwell,  305,  3u6 

Paine  v.  Central  Vt.  R.  R.  Co.,  193 

Paine,  Ex  parte,  627 

Paine    v.  Hutchinson,  264,  338,  383,  453 

Paine  v.  Lake  Erie,  Ac.  R.  R.  Co.,  649 

Paine  t).  Stewart,  218,  221,  226,  265 

Paine  v.  Wriglit,  562 

Paincsville,   &c.    R.   R.  Co.  v.  King,  277, 

546 
Palfrey  v.  I'auUling,  280,  289,  500 

Ixvii 


TABLE   OF   CASES. 


[The  references  are  to  sections.'] 


Palmer  v.  Lawrence,  52,  67,  70 

Palmer  v.  Ridge,  &c.  Co.,  70,  256 

Pana  v.  Bowler,  93 

Pana  v.  Lippiccott,  93 

Panama,  (fee,  Tel.   Co.  v.  Indian  Rubber, 

Ac.,  Tel.  Works  Co.,  649 
Paper  Co.  v.  Waples,  108,  207 
Parbiiry's  Case,  161 
Paris  V.  Paris,  556,  557 
Parish  v.  Parish,  338 
Parish  of  Bellport  v.  Tooker,  623 
Park  V.   Grant  Locomotive  Works,  540 

541,  625 
Park  V.  Petroleum  Co.,  678 
Park  V.  Spaulding,  504 
Parkers.  Bernal,  317 
Parker  v.  Crol,  452 
Parker,  Ex  parte,  266 
Parker  v.  Mason,  540,  555 
Parker  v.  McKenna,  652,  653 
Parker  v.  Nickerson,  652,  653 
Parker  v.  Northern,   Ac,   R.  R.  Co.,  55, 

59,  70. 
Parker  v.  Scroggin,  91 
Parker  v.  Thomas,  146 
Parks   V.    Evansville,    Ind.    &   Cleveland 

S.  L.  R.  R.  Co.,  88 
Parks  «.  Heman,  108 
Parmly  v.  Tenth  Ward  Hk.,  505 
Parrott  v.  Byers,  689,  695 
■Parrott  v.  Colby.  227 
Parrott  v.  Thatcher,  462 
Parrott  v.  Worsfold,  302,  303 
Parson's  Case,  63 
Parsons  v.  Hays,  40 
Parsons  v.  Martin,  448,  462,  575 
Parsons  v.  Wiuslow,  555 
Partridge  v.  Forsythe,  462 
Partridge  v.  Partridge,  302 
Paschall  v.  Whitsett,  548 
Patent  Paper  Mfg.  Co.,  In  re,  251 
Paton  v.  Slieppard,  545,  558 
Patterson  v.  Baker,  218 
Patterson  «.  Lynde,  200,  203,  205,  219, 

221,  226,  228 
Patterson  v.  Wyomissig  Mfg.  Co.,   221, 

226 
Patterson's  Appeal,  344 
Pattison  v.  Supervisors,  92 
Pawle's  Case,  163 

Ixviii 


Paxton  V.  Talmage,  201 

Payne  v.  Billiard,  56,  124,  195 

Payne  v.  Elliot,  4,  5,  6,  10,  576 

Payn's  Case,  266 

Payson  v.  Stoever,  199,  208,  209,  285 

Payson  v.   Withers,  138,  196,    218,    285, 
499 

Peabody   v.   Eastern   Methodist,    <fec.,   in 

Lynn,  504 
Veabody  v.  Flint,  625,  662,  686 
Peake  v.  Wabash  R.  R.  Co.,  118,  120 
Pearly  v.  Smith,  558    • 
Pearce  v.  Billings,  303 
Pearce  v.  Madison,  &c.,  R.  R.  Co.,  60,  500 
Pearson  v.  Concord  R.  R.  Co.,  315,  317, 


658 

Pearson  v.  Bk.  of  Fng.,  330 
Pearson  v.  London,  <fec..  R}'.  Co.,  273 
Pearson  v.  Scott,  452 
Pearson's  Case,  52,  171,  620,  650 
Peck  ®.  Coalfield  Coal  Co.,  15 
Peck  V.  Ellis,  703 
Peck  V.  Miller,  215 
Peckham  v.  Ketcham,  451,  462 
Peckham®.  Smith,  281 
Peckham  v.  Van  Wagenen,  546 
Pedell  V.  Gwynn,  199 
Peebles,  In  re,  527 
Peebles  v.  Patapsco  Guano  Co.,  157 
Peed  V.  Millikan,  91 
Peek  V.  Gurney,  161,  352,  355,  356 

Peel's  Case,  145,  161 

Peik  V.  Chicago,  Ac,  R.  R.  Co.,  218 

Peirce  v.  Burroughs,  554 

Peirce  v.  Jersey  W.  Co.,  179 

Peirce  v.  New  Orleans  Building  Co.,  622 

l-eirce  v.  Partridge,  4 

Pellatt's  Case,  18,  57 

Pell's  Case,  15,  35 

Pelton  V.  Natl.  Bk.,  571,  572 

Pender  v.  Lushington,  611,  612,  618 

Pendergast  v.  Bk.  of  Stockton,  522,  525 

Pendergast  v.  Turton,  129 

Pendleton  Co.  v.  Amy,  93 

Peniield  v.  Skinner,  504 

Peninsular,  Ac,  R.  R.  Co.   v.  Duncan,  54, 
58,  59,  67 

Peninsular  Ry.  Co.  v.  Howard,  4 

Penniman  v.  Briggs,  200,  221 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Penn.  Ins.  Co.  v.  Murphy,  508 

Penii.  R.   R.  Co.  v.  St.  Louis,  &c.,  R.  R. 

Co.,  668 
Pennsylvania,  &c.,  R.  R.  Co.  v.  Leuffler, 

215 

Pennsylvania,  (fee,  R.  R.  Co.  v.  Philadel- 
phia, 90,  91,  92 

Pennsylvania  R.  R.  Co.'s  Appeal,  380 

Penny,  Ex  parte,  332 

Penobscot  &  Boom  Corp.  v.  Lamson,  629 

Penobscot,  <fec.,  R.  R.  Co.  v.  Bartlett,  52, 

69,  177,  182 
Penobscot,  &c.,  R.  R.  Co.  v.  Dummer,  67, 

68,  115,  120,  180 
Penobscot  &  Kennebec  R.  R.  Co.  v.  Dunn, 

83,  86,  207 

Penobscot  R.  R,  Co.  v.  White,  180 

Pentz  V.  Citizens'  Fire,  <fec.,  Co.,  124 

Pentz  V.  Hawley,  208,  211 

People  V.  Albany  &  Susquehanna  R.  R. 
Co.,  122,  590,594,  595,  604,  605,  607, 
615,  617,  618,  620,  621,  624,  625,  632, 
668 

People  V.  Albertson,  615 
People  V.  Assessors,  571 
People  V.  Bk.  of  Hudson,  632 
People  V.  Bradley,  565,  571 
People  V.  Barrett,  93,  188,  200 
People  V.  Batchellor,  91,  94,  590,  594,  601 
People  V.  Board  of  Assessors,  536 
People  V.  Board  of  Governors  of  Albany 
Hospital,  593,  606 

People  V.  Central  City  Bk.,  634 

People  V.  Chambers,  173 

People  V.  Chapman,  94 

People  V.  Chicago  Board  of  Trade,  626 

People  V.  Clark,  92 

People  V.  Commissioners,  &c.,  3,  569,  571 

People  V.  Commissioners  of  Taxes,  534 

People  V.  Cook,  624 

People  V.  Coon,  91 

People  V.  Crissey,  609 

People  V.  Crockett,  390,  521,  522,  524 

People  V.  Crossley,  610,  623 

People  V.  Cummings,  606 

People  V.  Davenport,  565 

People  V.  Detroit,  91 

People  V.  Devin,  611,  616 

People  V.  Deyoe,  94 

People  V.  Dolan,  569 


People  V.  Dutcher,  93 

People  V.  Elmore,  489 

People  V.  Erie  Ry.  Co.,  283,  632 

People  V.  Ferguson,  565 

People  V.  Fire  Underwriters,  626 

People  V.  Fort  Edward,  92 

People  V.  Franklin,  91,  94 

People  V.  Goss  Mfg.  Co.,  390,  492 

People  V.  Griffin,  368 

People  V.  Hatch,  94 

People  V.  Hektograph  Co.,  636,  637 

People  V.  Henshaw,  91 

People  V.  Hitchcock,  95 

People  V.  Holden,  67,  86,  87 

People  V.  Home  Ins.  Co.,  561,  665 

People  V.  Hoop,  94 

People  V.  Hugbitt,  94 

People  V.  Hurlburt,  90,  93,  94 

People  V.  Hutton,  93 

People  V.  Kenney,  609 

People  V.  Kip,  608,  611,  618,  623 

People  V.  Lake  Shore  &  M.  S.  R.  R.  Co., 

514,  515,  518 
People  V.  Logan  County,  93,  101, 188 
People  V.  McLean,  565 
People  V.  Medical,  &c.,  of  Erie  Co.,  626 
People  V.  Merchants  &  Mechanics  Bank, 

545 
People  V.  Metropolitan  Ry.  Co.,  625,  670 
People  V.  Miller,  332 
People  V.  Mitchell,  91 
People  V.  Moore,  571 
People  V.  Morris,  90 
People  IP.  New  York  Benevolent  Society, 

626 
People  V.  New  York  Commercial  Associa- 

tion,  626 
People   V.  New  York  Cotton  Exchange, 

626 
People  »i.  New  York,  &c.,  R.  R.  Co.,  95, 

505 
People  v.  Niagara,  505 
People  P.  Northern  R.  R.  Co.,  620 
People  V.  Oldtown,  93 
People  V.  Oliver,  94 
Peoi)le    V.    Pacific    Mail    Steamship   Co., 

518 
People  )'.  Parker  Vein  Coal  Co.,  281,  285, 

292.  390 
People  V.  Peck,  94,  594,  599,  621 

Ixix 


TABLE   OF    CASES. 


yihe  references  are  to  sections.'] 


People  V.  Pendleton,  699 

People  V.  Phillips,  616,  623 

People  V.  President,  <fec.,  of  the  College  of 

California,  634 
People  V.  Pueblo  Co.,  91,  96 
People  V.  Robinson,  611 
People  V.  Pvunkle,  633 
People  V.  Saint  Francisco's,  Ac,  Society, 

626 
People  V.  Saiem,  91 
People  V.  Smith,  93,  94 
People  V.  Spencer,  91 
People  V.  Sterling  Mfg.  Co.,  38 
People  V.  Stockton,  Ac,  B.  R.  Co.,  15,  58, 

173 
People  V.  Sturtevant,  699 
People  V.  Suffern,  93 
People  V.  Supervisor  of  Niagai-a,  546 
People  V.  Town  of  Laenna,  93 
People  V.  Town  of  Santa  Anna,  93 
People  V.  Throop,  516 
People  V.  Tuthill,  616 
People  V.  Twaddell,  285,  604,  610,  619, 

633 
People  V.  Van  Valkenburg,  94 
People  V.  Wagner,  94 
People  V.  Walker,  515,  516,  624 
People  V.  Washington  Bank,  632 
People  V.  Watertown,  505 
People  V.  Weaver,  569,  571 
People  V.  Webster,  520 
People  V.  Williamsburgh  Gas  Light  Co., 

565 
People  V.  Wren,  633 
People  ex  rel.  Content  v.  Metropolitan  Ry. 

Co.,  658 
People  ez  rel.  Field  v.  Northern  Pac.  R.  R. 

Co.,  514,  518 
People  ex  rel.  Krohn  v.  Miller,  524,  532 
People,  Ac,  Co.  v.  Balch,  67.  85,  178 
People's  Bank  v.  Gridley,  378,  414,  489 
People's  Bank  v.  Kurtz,  6,  10,  292,  293, 

294,  296 
People's  Ins.  Co.  v.  Westcott,   110,   595, 

598,  599 
Peoria,  (fee,  R.  R.  Co.  v.  Elling,  124,  280, 

499,  500 
Peoria  <fe  R.  L  R-  K-  Co.  v.  Preston,  176, 
499 

Ixx 


Peoria  &  Springfield  R.  R.  Co.  v.  Thomp- 
son, 26 
Peppercorne  v.  Clinch,  446 
Perdicaris    v.    Charleston   Gaslight   Co. 

297,  371 
Percy  v.  Millaudon,  285,  681 
Perkins  v.  Church,  200,  221 
Perkins  v.  Port  Washington,  97 
Perkins  v.  Sanders,  226,  590 
Perkins  v.  Savage,  59,  72 
Perkins  v.  Union  Button  Hole,  «fec.,  Co., 

67,  169 
Perrett's  Case,  636 
Perrin  v.  Granger,  123,  124,  129 
Perrine  v.  Fireman's  Ins.  Co.,  531 
Perry  v.  Barnett,  462 
Perry  v.  Keane,  91 
Pei-ry  v.  Maxwell,  301 
Perry  v.  Simpson,  <fec..  Mfg.  Co.,  285 
Perry  v.  Turner,  205,  215,  221,  226 
Persch  v.  Quiggle,  321 
Peters  v.  Heywoud,  577 
Peters  v.  Lincoln  <fe  N.  W.  R.  Co.,  138 
Petersborouo-h  R.  R.  Co.  v.  Nashua,  tfec, 

R.  R.,  Co.,  134 
Petersburo;  Savings,  <fec.,  Co.  v.  Lumsden, 

526,  527,  529 
Peterson  v.  Illinois  Land  &  Loan  Co.,  312, 

548 
Peterson  v,  Sinclair,  201 
Peterson  v.  The  Mayor,  285 
Petot  V.  Johnson,  522 
Petrie  v.  Hannay,  347 
Petre  v.  Petre,  306 
Pettibone  v.  McGraw,  226 
Pettillon  V.  Hippie,  341 
Pettis  V.  Atkins,  234,  507 
Petty  V.  Tooker,  623 
Peruvian  Ry.  Co.,  In  re,  57 
Pevchaud  v.  Love,  197 
Pfohl  V.  Simpson,  204,  216,  226,  228 
Phelan  v.  Hazard,  43,  47 
Phelps  V.  Farmers  &  Mechanics'  Bank,  542 
Philadelphia,  Ac,  R.  R.  Co.  v.  Corvell,  52, 

160,  546 
Philadelphia  &  West  Chester  R.  R.  Co.  v. 
Hickman,   14,   15,  83,   86,  115,  171, 
207, 318 
Philadelphia,  W.  <fe  B.  R.  R.  Co.  v.  Quig- 
ley,  165 


TABLE   OF   CASES. 


\The  re/eretices  are  to  sections.] 


Philadelphia  &  Wilmington  R.  R.  Co.  v. 

State,  568 
Philippi  V.  Philippi,  686 
Phillips  V.  Albany,  91,  93 
Phillips  V.  Campbell,  285 
Phillips  V.  Covington  <fe  Cincinnati  Bridge 

Co.,  14,  15,  180 
Phillips  V.  Eastern  R.  R.  Co.,  269,  540 
Phillips  V.  Ives,  341 

Phillips  V.  Knox  County  Insurance  Co.,  4 
Phillips  V.  Noir,  452,  462 
Phillips  V.  Therasson,  227 
Phillips  V.  Wickham,  605,  610,  621,  633 
Phipps  V.  Jones,  508 
Phoenix,  <fec.,  Co.  v.  Badger,  52,  53,  54, 

106,  107,  137,  138,  185,  189,  262 
Phosphate,  &c.,  Co.  v.  Green,  129,  599, 

685 
Phosphate  Sewage  Co.  v.  Hartmont,  650, 

651 
Pickering  v.  Appleby,  6,  339 
Pickering  v.  Cease,  342 
Pickering  v.  Demeritt,  449,  537 
Pickering  v.  Ilfracombe  Ry.  Co.,  Ill 
Pickering  v.  Stevenson,  666 
Pickering  v.  Templeton,  t2,  149,  168,  189 
Pid<reon  v.  Burslem,  345 
Pier  V.  George,  218 
Pier  i'.  Hanmore,  218 
Pierce  v.  Milwaukee,  <fec.,  Co.,  205,  206, 

226,  228 
Pierson  v.  Bank  of  Washington,  527,  530 
Pike  V.  Shore  Line,   105,   110,  113,  114, 

120,  182 
Pitot  V.  Johnson,  4  65,  487 
Pim's  Case,  65,  340 
Pinedo  v.  Germania,  «fec.,  Co.,  355 
Pine  River  Bank  v.  Hadsdon,  173 
Pinkerton  v.  Manchester  &  London  R.  R. 

Co.,  382,  465,  489,  574,  576,  581,  584 

Pinkett  v.  Wright,  324,  521 

Pinto  Silver  Mining  Co.,  In  re,  686 

Pioneer  Gold,  &c.,  Co.  v.  Baker,  692 

Pipe  V.  Bateman,  508,  509 

Piscataqua  Ferry  Co.  v.  Jones,  124,  137, 

138, 173 
Pitchford  v.  Davis,  179,  181,  508 
Pitts  V.  Temple,  600 
Pittsburgh   A  Conncllsville  R.   R.  Co.   c 

Stewart,  13,  14,  19,  82,  84,  88 


Pittsburgh  &  C.  M.  Co.  v.  Byers,  189,  195 
Pittsburgh  &  C,  R.  R.  Co.  v.  Graham,  195 
Pittsburgh  &.  C.  R.  R.  Co.  v.  Plummer, 

195 
Pittsburgh,  <fec..  Iron  Co.  v.  Otterson,  255, 

256 
Pittsburgh,  <fec.,  R.  R.  Co.  v.  County  of 

Allegheny,  100,  270,  277,  539 
Pittsburgh,  <fec.,  R.  R.  Co.  v.  Clarke,  73, 

105,  255,  256,  522,  523,  532 
Pittsburgh,  <fec.,  R.  R.  Co.  v.  Gazzam,  52, 

68,  73 
Pittsburgh,  Ac, R.R.  Co.  v.  Rothschild, 659 
Pittsburgh  <fe  Steubenvilie  R.  R.  Co.  v. 

Biggar,  78,  80 
Pittsburgh  <fe  Steubenvilie  v.  Woodrow, 

80 
Pittsburgh,  <fec.,  R.  R.  Co.  v.  Applegate, 

54,  73,  173 
Pitzman  v.  Freeburgh,  92 
Pixley  V.  Boynton,  342,  344 
Planters   Bk.,   <fec.    v.    Bivingsville,    Ac, 

Mfg.  Co.,  224 
Planters  A  M.  Bk.  v.  Leavens,  491 
Planters,  <fec.  Bk.  v.  Padgett,  234 
Planters  Bk.,  <tc."«.  State,  632 
Planters  k  M.  M.  Ins.  Co.  v.  Selma  Sav. 

Bk.,  382,414,  5  22,  527,528 
Plate  Glass  Ins.  Co.  v.  Sunley,  168,   187 
Piatt  V.  Bermingham  Axle  Co.,  360,  527, 

528,  532 
Piatt  V.  Hawkins,  319 
Piatt,  Receiver,  In  re,  634 
Plimpton  V.  Bigelow,  5,  297,  480,  485 
Plitt  V.  Cox,  638 
Plumbe  V.  Neild,  556,  557 
Plympton  Min.  Co.   v.  Wilkins,  143,  487, 

489,  522 
Pneumatic  Gass  Co.  v.  Berry,  285,  686 
Pochelu  V.  Kemper,  243 
Pocock  V.  Reddington,  324 
Polar   Star  Lodge  v.   Polar  Star  Lodge, 

629,  630,  632, 674 
Police  Jury  v.  McDonough,  91 
Pollard  V.  Bailey,  204,  205,  224,  226 
(Pollard  V.  State,  571 
Pollock  V.  National  Bank,  134,  365,  579 
Pollock  V.  Pollock,  5r,8 
I'oUock  V.  Stables,  451,  452,  588 
Pond  V.  Vermont,  Ac,  R.  R.  Co.,  695,  688 

Ixxi 


TABLE   OF   CASES. 


[The  references  are  to  sections.'] 


Pontchartrain  R.  R.  Co.  v.  Paulding,  680 

Poole  V.  Middleton,  331,  332,  338 

Poole's  Case,  106,  194 

Price  V.  Price,  6 

Price  V.  Whitney,  262 

Price  &  Brown's  Case,  247,  253,  262 

Price's  Appeal,  242 

Priest  V.  Essex  Mfg.  Co.,  200,  214,  550 

Priest  V.  White,  40 

Prince  v.  Lynch,  227 

Princess  of  Reuss  v.  Bos,  635 

Princeton  Bk.  v.  Crozer,  482 

Printing  House  v.  Trustees,  500 

Prop,  of  City  Hotel  v.  Dickinson,  187 

Prop,  of  N.  Bridget.  Story,  176 

Prop.,  (fee,  Union  Lock  &  Canals  v.  Towne, 

500,  603 
Proprietors,  &c.  v.  Dickinson,  67 
Protection  Life  Ins.  Co.  v.    Osgood,   50, 

252,  465,  575 
Prouty  V.  Lake  Shore,  &c.,  R.  R.  Co.,  270, 
271,  633,  668 

Prouty  V.  Michigan,  <fec.,  R.  R.  Co.,  272, 
546 

Prov.  Bk.  V.  Billings,  668 

Provident  Savings  Institution  v.  Jackson 
Place,  Ac,  Rink,  265,  497 

Provincial  Ins.  Co.  v.  Shaw,  255 

Prov.  Inst.  V.  City  of  Boston,  570,  571 

Prov.  Inst,  for  Sav.  v.  Gardiner,  567 

Prov.,  Ac,  R.  R.  Co.  t;.  Wright,  567 

Psychaud  v.  Hood,  138 

Pugh  &  Sharman's  Case,  62,  63,  65,  253, 
°  266 

Pullman  ?).  Upton,  42,  247,  256,  281,  288 

Pulsford  V.  Richards,  137,  147 

Purchase  v.  N.  Y.  Exchange  Bk.,  320,  382, 
388,  414,  579 

Pope  V.  Brandon,  228 

Pope  V.  Capital  Bk.,  232 

Pope  V.  Leonard,  206,  226 

Port  V.  Russell,  649 

Porter  v.  Buckfield  Branch  R.  R.  Co.,  17 

Porter  v.  Parks,  452,  472 

Porter  v.  Raymond,  86,  87 

Porter  v.  Robinson,  596,  600 

Porter  v.  Roekford  R.  I.,  <fec.,  R.  R.  Co., 
563,  564,  565 

Porter  v.  Sawyer,  341 

Ixxii 


Porter  v.  Viets,  344 

Porter  v.  Worsmer,  339,  448,  450 

Portland  Dry  Dock,  &c.,  Co.  v.  Trustees 

of  Portland,  627 
Portland,  &c.,  R.  R.Co.  v.  Graham,  129 
Portland  &  Oxford  Central  R.  R.  Co.  v. 

Inhabitants  of  Hartford,  87,  97 
Post  V.  Supervisors,  90 
Pott  V.  Flather,  681 
Pott  V.  Turner,  445 
Potter  V.  Baker,  305 
Potter  V.  Stevens  Machine  Co.,  214,  224, 

226 
Potteries,  &c.,  Ry.  Co.  Re,  268 
Pottei-'s  Appeal,  50 

Poughkeepsie,  &c.,  Co.  v.  GrifRn,  67,  499 
Powell  V.  Jessopp,  340 
Powell  V.  North  Mo.  R.  R.  Co.,  633,  638 
Power  V.  Conner,  703 
Powers  V.  Harding,  383 
Powers  V.  Superior  Court  of  Dougherty 

Co.,  91 
Powles  V.  Harding,  163 
Prall  V.  Hamil,  329 
Prall  V.  Tilt,  329,  380 
Pratt   V.  American  Bell  Telephone   Co-., 

283,  286,  342 
Pratt  V.  Boston  &  Albany  R.  R.  Co.,  365 
Pratt  V.  Jewett,  632,  657 
Pratt  V.  Machinists  Natl.  Bk.,  284 
Pratt  V.  Munson,  655 
Pratt  V.  Pratt,  541,  555,  672 
Pratt  V.  Taunton,  Ac,  Co.,  134,  365 
Pray  v.  Mitchell,  339 
Pray's  Appeal,  322 
Presbyterian  Con.    v.    Carlisle  Bk.,  383 

5*22,  531 
Preston  v.   Grand  Colliery,  Ac,  Co.,  60, 

113,  114,438,691 
Preston  v.  Melville,  552,  556 
Preston  v.  Preston,  686 
Prettyman  v.  Supervisors,  621 
Prettyman  v.  Tazewell  Co.,  91,  92 
President.  Ac,  of  Port  Gibson  v.   Moore, 

638 
President   A  Trustees,  Ac,  v.  Thompson, 

633 
Price  V.  Anderson.  552,  556 
Price  V.  Grand  Rapids,  Ac,  R.  R.  Co.,  67, 
110. 


TABLE  OF  CASES. 


[The  references  are  to  sections.l 


Price  V.  Grover,  469 

Price  V.  Minot,  342 

Price  V.  Pittsbursh,  ic,  R.  R.  Co.,  71 

Purdy's  Case,  173 

Purton  V.  New  Orleans,  <fec.,R.  R.  Co.,  639 

Putnam  v.  City  of  New  Albany,  65,  80, 
199 

Putnam  v.  Sweet,  615,  636 

Pyrolusite  Manganese  Co.,  Matter  of,  631, 
634 


Q 


Quarl  V.  Abbett,  361 

Queen  v.  Carnatic  R.  Co.,  250 

Queen  v.  General  Cemetery  Co.,  382 

Queen  v.  Grimshaw,  601 

Queen  v.  Ledyard,  108,  202 

Queen  v.  Liverpool  M.  &  C.  Ry.  Co.,  390, 
548 

Queen  v.  Londonderry  &  Coleraine  Ry. 
Co.,  104 

Queen  v.  Mariquinta  Mining  Co.,  517 

Queen  v.  Victoria  Park  Co.,  108,  202 

Queen  v.  Undertakers  of  the  Grand  Canal, 
518 

Queen's  College  v.  Sutton,  302 

Queensburg  v.  Culver,  91 

Quecnan  v.  Palmer,  218,  22G 

Quick  V,  Lernon,  67,  227 

Quincey  v.  White,  348 

Quincey  v.  Young,  348 

Quincy,  <fec.,  R.  R.  Co.  v.  Morris,  91 

Quincy  Bridge  Co,  v.  Adams  Co.,  563 

Quiner  v.  Marblehead  Insurance  Co.,  320, 
332, 377 


R 


liacine  County  Bank  v.  Ayers,  83,  277 

Racine,  <fec.,  R.  R.  Co.  v.  Farmers,  ifec. 
Trust  Co.,  603,  608 

Riieder  v.  Bensberg,  215 
Ragland  v.  Broadnax,  269 
Railway  Co.  v.    Allenlon,   280,   285,   500, 
625 


Railroad  Co.  v.  County  of  Otoe,  91 

Railroad  Co.  v.  Falconer,  91,  101 

Railroad  Co.  v.  Georgia,  633 

Railroad  Co.  v.  Harris,  591 

Railroad  Co.   v.  Howard,  271,  548.  654 

Railroad  Co.  v.  Ketchum,  657 

Railroad  Co.  v.  Miles,  657 

Railroad  Co.  v.  Pennsylvania,  568 

Railroad  Co.  v.  Sage,  657 

Railroad  Co.  v.  White,  52 

Raleigh,  <fec.,  R.  R.  Co.  v.  Connor,  566 

Ramsey  v.   Erie  Ry.  Co.,  283,  631,  676, 

689 
Ramsey  v.  Gould,  283,  690,  695 
Ramsgate,  ifec,  Co.  v.  Montefiore,  57 
Ramwell's  Case.  122 
Ranee's  Case,  539,  548,  549,  550 
Rand  v.  Hubbell,  534,  537,  555,  557 
Rand  v.  White  Mountains  R.  R.  Co.,  121, 

201 
Randall  v.  Albany  City  Natl.  Bk.,  581, 

583,  586,  687 
Ranger  v.  Great,  (fee,  R.  R.  Co.,  519 
Rankin  v.  McCullough,  478 
Rankine  v.  Elliott,  228 
RatclifFe  v.  Davis,  471,  473 
Rawlings  v.  Hall,  347,  452 
Rawlins  v.  Wickham,  155 
Ray  V.  Powers,  229 
Raymond  v.  Brodbelt,  303 
Raymond  v.  Leavitt,  348 
Raynell  v.  Lewis,  604 
Read  v.  Frankfort  Bk.,  638 
Head  v.  Jaudon,  447 
Read  v.  Lambert,  457 
Reading,  &c.,  Mfg.  Co.  v.  Graeff,  215 
Ream  v.  Hamilton,   346 
Reavely,  Ex  parte,  63 
Reavely's  Case,  63 
Receiver  v.  Phil.  Warehouse  Co.,  247 
Reciprocity  Bank,  Case  of  the,  02,  247, 

251,  253,  266,  281,  313,  497 
Redmond  v.  Enfield  Mfg.  Co.,  631 
Redmond  v.  Nickerson,  652 
Red  W.  Hotel  Co.  v.  Fried  rich,  190 
Red  Rock  v.  Henry,  97,  101 
Reed    v.  Boston    Machine    Co.,    9,    275, 

298 
Reed  v.  Iloyt,  15,  17.  283,  285 

Ixxiii 


TABLE   OF   CASES. 


[77ie  references  are  to  sections.'] 


Reed  v.  Heard,  555 
Reed  v.  Jones,  614 
Reed  v.   Richmond,   <fec.,   R.   R.   Co.,  55, 

186 
Rees  V.  Bk.  of  Montgomery  County,  286, 

287,  544 
Reese  v.  Bk.  of  Commerce,  522,  52*7,  530, 

531 
Reese  v.  Fermie,  347 
Reese  River  Min.  Co.  v.  Smith,  143,  145, 

148,  151.  153,  156,  163 
Reformed,  <fec..  Church  v.  Brown,  67 
Regina  v.  The  Saddlers'  Co.,  515 
Regina  v.  Wilts.  <fe  Berks.  Canal  Nav.,  514 

515 
Regents  v.  Williams,  500 
Regina   v.    Aldham,    <fec.,    Ins.    Society, 

593 

Regina  v.  Brown,  357 

Regina  v.  Carnatic  Ry.  Co.,  319,  390 

Regina  v.  Cronmire,  452 

Regina  v.  Esdaile,  357 

Regina  v.  Liverpool,  <fec. ,  Ry.  Co.,  391 

Regina  v.  Nash,  363 

Regina  v.  Wing,  527 

Reichwald  v.  Commercial  Hotel  Co.,  4,  13, 

228,  591,  633 
Reid  ;;.  Allan,  199 
Reid  V.  EatOQton  Mfg.  Co.,  242,  535,  539, 

549,  550 
Reid's  Case,  63,  250 
Reiger  v.  Beaufort,  94 
Reilly  v.  Oglesby,  596,  619,  656 
Reineman  v.  Covington,  (fee.,  R.  R.  Co.,  91 
Reitenbaugh  v.  Ludwick,  583,  587 
Relfe  V.  Life  Ins.  Co.,  566 
Remfrey  v.  Rutter,  455 
Remington  v.  Samana  Bay  Co.,  200 
Remington  v.  King,  227 
Renner  v.  Bk.  of  Columbia,  462 
Rensselaer,  &c..  Plank  Road  Co.  v.  Barton, 

67,  124,  174 
Rensselaer  &  W.  R.  R.  Co.  v.  Wetsel,  177, 

191,  288 
Republic  Ins.  Co.,  In  re,  187,  210 
Republic  Life  Ins.  Co.  v.  Pollock,  567 
Revere  v.  Boston  Copper  Co.,  629,  630 
Revere  v.  Boston,  564 

Ixxiv 


Rex  V.  Babb,  519 

Rex  V.  Carmarthen,  601,  605 

Rex  V.  City  of  London,  638 

Rex  V.  Doncaster,  595,  596 

Rex  V.  Gaborian,  599 

Rex  V.  Head,  623 

Rex  V.  Langhorn,  599 

Rex  V.  Mayor,  (fee,  of  Carlisle,  598 

Rex  V.  Newcastle,  515,  519 

Rex  V.  Spencer,  608,  623 

Rex  V.  Town  of  Liverpool,  595,  596,  598 
626 

Rex  V.  Worcester  Nav.  Co.,  390 

Rexford  v.  Knight,  638 

Reynolds  v.  Douglas,  200 

Reynolds  v.  Feliciana  Steamboat  Co.,  224, 
226 

Rhey  v.  Evensburg,  tfec,  Co.,  52,  67 

Ribon  V.  Railroad  Cos.  654,  692 

Rice  V.  Merrimack  Hosiery  Co.,  219 

Rice  V.  Peninsular  Club,  625 

Rice  ';.  Rock  Island  R.  R.  Co.,  185,  499, 
500 

Rice's  Appeal,  662 

Richards  v.  Donagho,  92 
Ricliards  v.  Home,  &c.,  Assn.,  57 
Richard  v.  New  Hampshire  Ins.  Co.,  228, 

681 
Richardson  v.  Abendroth,   215,  226,  247, 

262 
Richardson  v.  Kelley,  341 
Richardson  v.  Pitts,  234,  235 
Richardson  v.  Richardson,  552,  554 
Richardson  v.  Vermont,  <fec.,  R.   R.   Co., 

268,  271,  272,  277,  541,  592,  599 
Richardson,  In  the  Matter  of,  92 
Richardson's  Case,  63,  250,  253,  266 
Richmond  v.  Daniels,  564 
Richmond  v.  Union  Steamboat  Co.,  462 
Richmond,  ifec,  Co.  v.  Clarke,  54,  186 
Richmond,  Ac,  R.  R.  Co.  v.  Alamance  Co., 

564 
Richmond  Street  Ry.  Co.  v.  Reed,  67 
Richmond's  Case,  127,  128,  168,  251 
Richmond's  Exrs.  Case,  309 
Richmondville  Mfg.  Co.  v.  Prall,  8,  383 
Ricker  v.  American  Loan  <fe  Trust  Co.,  504 
Riddell  V.  Harmony  Fire,  <fec.,  Co.,  626 
Riddle  v.  Merrimac  Locke,  629 


TABLE   OF  CASES. 


[The  references  are  to  sedions.'\ 


Riddle  v.  Philadelphia,  (fee,  R.  R.  Co.,  91 

Ridenour  v.  Maj-o,  233,  508 

Rider  v.  Kidder,  308 

Rider  v.  Morrison,  168,  265 

Ridgefield  &  N.  Y.  R.  R.  Co.  v.  Brush,  13, 

83,  137,  138,  180 
Ridgefield  *fe  N.  Y.  R.  R.  Co.  v.  Reynolds, 

88 
Ridgely  v.  Dobson,  504 
Ridgeway  v.  Farmers'  Bk.,  625 
Ridhoff  V.  Browne  R.  S.  S.  M.  Co.,  186 
Riggs  V.  Commercial,  <fcc.,  Ins.  Co.,  4 
Riggs  V.  Cragg,  554 
Riggs  V.  Swann,  508 
Rikhofify.  Brown's  Rotary,  <frc.,  Co  ,  112, 

125 
Rinesmith  c.  People's  Freight  Ry.  Co.,  137 
Ring  V.  Briscoe,  228 
Rinkine  v.  Elliot,  208 
Ripley  v.  Sampson,  125,  214,  248 
Risley   v.   Indianapolis,   <fec.,   R.   R.  Co., 

649 
Risto's  Case,  57 
Ritter  v.  Cushman,  459 
Rivanna  Nav.  Co.  v.  Dawsons,  311 
River  Dun  Nav.  Co.  v.  North,  <fec.,  Ry.  Co., 

699 
Rives  V.  Montgomery  South  P.  R.  Co.,  109, 

138,  141,  187 
Robbins  v.  Butler,  504,  509 
Robbins  v.  Clay,  667 
Robbins  v.  The  Justices,  <fec.,  222 
Roberts  v.  Mobile  &.  0.  R.  R.  Co.,  86,  116 
Robert's  Appeal,  308,  500,  509,  554 
Robert's  Case,  83 
Robertson  v.  Bullions,  625 
Robertson  v.  Rockford,  91 
Robins  v.  Embry,  228 
Robinson  v.  Addison,  302 

Robinson  v.  Bank  of  Darien,  99,  207,  215, 

227,  228 
Robinson  v.  Beale,  311 
Robinson  v.  Bidwell,  91,  217 
Robinson  v.  Chartered  Bank,  332 
Robinson  v.  Edinboro'  Academy,  67 
Robinson  v.  Ilemstreet,  625 
Robinson  v.  Hunt,  305 
Robinson  v.  Hurley,  465,  475,  476 
Robinson  v.  Lane,  638 


Robinson  )'.  Mollett,  450,  462 
Robinson  v.  Norris,  451,  458,  462 
Robinson  v.  Natl.    Bank   of  New    Berne, 

383,  487,  488,  546 
Robinson  v.  Philadelphia,  Ac,  R.  R.  Co., 

654 
Robinson  v.  Pittsburgh   <fe  C.   R.  R.  Co., 

138,  168 
Robinson  v.  Smith,  645,  661 
Robinson's  Executors  Case,  248 
Robson  V.  Dodds,  690 
Rochdale  Canal  Co.  v.  King,  686 
Rochester  v.  Alfred,  93 
Rochester  v.  Barnes,  497 
Rock  V.  Nicholls,  342,  489 
Rock  Creek  v.  Strong,  91 
Rockford,  <fec.,  R.  R.  Co.  v.  Schunick,  55 
Rockland,  Ac,  B.  Co.  v.  Sewall,  176 
Rockville,  &c..  Turnpike  Co.   v.   Maxwell, 

128 
Rockville,  <fec.,  Co.  v.  Van  Ness,  73,  185 
Rocky  Mountain  National  Bank  v.  Bliss, 

200,  221,  224 
Roehler  v.  Mechanics'  Aid  Society,  626 
Rogan  V.  Watertown,  91 
Rogers  v.  Burlington,  91 
Rogers  v.  Danhy  Univ.  Soc,  4 
Roerers  v.  Gould,  340 
Rogers  v.  Hastings  Co.,  657 
Rogers  v.  Huntington  Bank,  522, 523.  527, 

530 
Rogers  v.  Lafayette  Agri.  Works,  691,  695 
Rogers  v.  Oxford,  tfec,  Ry.  Co.,  690 
Rogers  v.  Stevens,  487,  488 
Rogers'  Case,  57 
Rogers,  Ex  parte,  345 
Rolling  Stock  Co.  v.  R.  R.  Co.,  658 
Rollins  V.  Clay,  633 
Romaine  v.  Allen,  587 
Roniaine  v.  Van  Allen,  583 
Roman  v.  Fry,  63,  2.^.0,  265 
Roman  Catholic,  <fec..  Asylum  v.  Emmons, 

305 
Rorke  v.  Thomas,  227,  636 
Rosenbach  v.  Salt  Springs  National  Bk., 

522,  533 
Rosenfield  v.  Einstein,  515 
Rosenstock  v.  Tormey,  451,  462 
Rosevelt  v.  Brown,  4,  245,  247,  258,  260 

Ixxv 


TABLE   OF   OASES. 


[The  references  are  to  seclions'\ 


Rosewarne  v.  Billing,  345 

Ross  V.  Horer,  305 

Ross  V.  Chicago,  &c.,  R.  R.  Co.,  499,  500 

Ross  V.  Estates  Investment  Co.,  143,  144, 
295 

Ross  V.  Lafayette  &  Indianapolis  R.  R.  Co., 

106,  115,  117 

Ross  V.  Ross,  491 

Ross  V.  San  Antonio,  (fee,  R.  R.  Co.,  56 

Ross  V.  Soutliwestei-n  R.  R.  Co.,  328,  414 

Ross  V.  Turnpike  Co.,  633 

Rossv.  Union  Pacific  Ry.  Co.,  837,  335 

Round  V.  McCormick,  224 

Roundtree  v.  Smith,  341 

Rowe  V.  Hoagland,  387 

Rowland  v.  Header  Furniture  Co.,   185, 
197 

Rowland's  Case,  35,  50 

Royal  Bk.  of  India's  Case,  60,  241,  316 

Royal  Bk.  of  Liverpool  v.  Grand  Junction 

R.  P.  Co.,  686 

Royal  Exchange  Ins.  Co.  v.  Moore,  454 

Rozet  V.  McClellan,  475,  476 

Rubey  v.  Shain,  91 

Ruchizky  v.  De  Haven,  250, 343,  344, 346, 
446 

Rudge  V.  Bowman,  336 

Rudolf  t).  Winters,  347 

Rugely  &  Harrison  v.  Robinson,  252 

Ruggles  V.  Brock,  164,  185 

Ruggles  V.  City  of  Fond  du  Lac,  571 

Rumball  v.  Metropolitan  Bk.,  5,  321,  416 

Rumsey  v.  Berry,  346 

Runyon  v.  Coster,  591 

Rush's  Estate,  322 

Russell  V.  Bristol,  69 

Russell  V.  Loring,  560 

Russell  V.  McLellan,  633 

Russell  V.  Temple,  6 

Russell  V.  Wakefield  Waterworks  Co.,  674, 
692,  696 

Russell's  Executors  Case,  248 

Rutledge,  Ex  parte,  558 

Rutland,  Ac,  R.  R.  Co.  v.  Lincoln,  65 

Rutland  <fe  Burlington  R.  R.  Co.  v.  Thrall 
110,  115,  lie',  lis,  119,  120,124,125' 
129,  130,  180,  268,  269,  271,  277,  4,99 

Rutz  V.  Esler  &  R.  Mfg.  Co.,  141,  191 

Ryan  v.  Com'rs,  567 

Ixxvi 


Ryan  v.  Leavenworth,  <fec.,   Ry.  Co.,  815 
543,  649,  685 

Ryan  v.  Ray,  692 

Ryder  v.  Alton,  &c.,  R.  R.  Co.,  73,  75, 168 
169,  173,  523,  544,  614 


s 


Sabin    v.  Bank  of  Woodstock,  321,  484, 
522,  580 

Sackett's  Harbor  Bank  v.  Blake,  194,  218, 

227 
Sadler  v.  Lee,  585 
Sadler's  Case,  62 
Saffold  V.  Barnes,  138,  164 
Sage,  Re,  514,  668 

Sagory  v.  Dubois,  42,  67,  108,  124, 127, 
208,  548 

Salem  Bank  v.  Gloucester   Bank,  95,  626 

Salem  Iron,  &c.  Co.  v.  Danvers,  567 

Salem,  &c.  Corp.  v.  Ropes,  65,  176,  180, 
290 

Sales  V.  Bates,  246,  248,  251,  252,  263 

Salisbury  o.  Black's  Adm'r,  195 

Salisbury  v.  Metropolitan    Ry.  Co.,  277, 
539,  540,    550 

Salisbury    Mills    v.  Townsend,  325,  387, 
542,  546 

Salmon  v.  Richardson,  353 

Salmon  v.  The  Hamborough  Co.,  199,  204 

Salomons  v.  Laing,  672,  693 

Salt  Lake,  Ac.  Bank  v.  Golding,  569 

Salt  Lake  City  Natl.  Bank  v.  Hendrickson, 
214,  227,   241 

Saltsman  v.  Shults,  509 

Saltmarsh  v.  Planters,  <fec.  Bk.  of  Mobile, 
638 

Sampson  v.  Bowdoinham  Steam  Mill  Co., 
594,  595,  598 

Sampson  v.  Shaw,  341,  348 
Samuel  v.  Holliday,  599,  623,  669,  692 
San  Antonio  v.  Gould,  91 
San  Antonio  v.  Jones,  91 
San  Antonio  v.  Lane,  91 
San  I5uenaventura  Commercial,  (fee.  Co.  v 
Vassault,  594,  595,  599 

San  Diego  v.  San  Diego,   <fec.  R.  R.  Co., 
658 

San  Francisco  v.  Flood,  565 

San  Francisco  v.  Fry,  565 


TABLE   OF   CASES. 


[The  references  are  to  sections.'] 


San  F.,  (fee.  R.  R.  Co.  v.  Bee.  656 

San  Ji'Se  Saving.s  Bank  v.  Pharis,  227 

Sanborn  v.  Benedict,  342 

Sanborn  v.  Leffei-ts,  226 

Sanders  v.  Bromley,  559 

Sanderson's    Patents    Association,  In  re, 

635 
Sandford  v.  Bd.  of  Supervisors,  505 
Sandford  V.  Handy,  140,  154 
Sadler's  Case,  251,  383 
Sands  V.  Kimbark,  226 
Sands  v.  Sanders,  130 
Sandy  River  R.  R.  Co.  v.  Stubbs,  660 
Sanger   i\    Upton,  3,  13,  42.  52,  65,  67, 

99.    108,    164,    199,    204,  207,  208, 

209,  251 
Sankey  Brook  Coal  Co.,  Re,  III 
Santa  Clara  Mining  Co.,  <fec.   of  Baltimore 

V.  Mciedith,  657 
Santa  Cruz  R.  R.  Co.  v.  Schurtz,  176 
Santa  Criiz  R.  R.  Co.  v.  Spreckles,  242 
Sargent  v.  Essex  Mfg.  Co.,  378,  490,  522 
Sargent,    Ex  parte,    332,    377,  380,  387, 

416,  471,  473 
Sargent  v.  Franklin  Ins.  Co.,  6,  320,  331, 

332,    342,    378,    .382,   383,  489,  521, 

522,  526,  547,  574,  581,  584 

Sargent  v.  Webster,  600,  624 

Sauerhering  v.  Iron  Bridge,  <fec.  R.  R.  Co. 
93 

Saugatuck,  (fee.  Co.  v.  Westport,  59 

Saunder's  Case,  246 

Savage  v.  Ball,  47,  611 

SavMge  V.  Medbury,  107 

Savage  v.  Walslie,  629 

Savinils  Bank  v.  Bates,  228 

Savings  Bank  v.  Davis,  595,  596 

Savings  Bank  v.  Nashua,  567 

Sawyer  v.  Iloag,  99.  193,   199,  205,   208, 

226,  228,  265,  584 
Sawyer  v.  Taggart,  344,  346 
Sayless  v.  Blane,  258,  262,  264 
Scadding  v.  Lorant,  601 
Scammon  v.  Kimball,  193 
Scarlett  v.  Academy  of  Music,  118,  120, 

137 
Scarth  v.  Chadmck,  702 
Scliaeffer  v.  Bonliam,  94 
Schiiffff/r  V.  Missouri,  iVc.  Co.  4,  52,  192 
Scliall  «.  Bowman,  92 


Schenectady.  «fec.  R.  R.  Co.  v.  Thatcher, 
70,  119,  130,  177,  183,  255,  500, 
599 

Sclienck  v.  Andrews,  34 

Schepeler  v.  Eisner,  461 

Schmidt  v.  Gunther,  509 

Schmidt  v.  Hennepin  County  B.  Co.,  527 

Schoff  V.  Bloomfield,  598,  601 

Schoharie  Valley  R.  R.  Case,  615 

Scholefield  v.  Redfern,  556,  558,  560 

Scholey  v.  Central  Ry.  Co.,  150,  160 

Scholfield  V.  Union  Bank,  612 

Schollenberger,  Ex  parte,  591 

Schouton  V.  Kilmer.  220 

Schricker  v.  Ridings,  215 

Schroder's  Case,  15, 18,  34 

Schwanck  v.  Morris,  161 

Schwenck  v.  Naylor,  355 

Scotland  Co.  v.  Mo.,  Iowa,  &c.  Ry.  Co., 
568 

Scott  V.  Central  R.  R.  &  Banking  Co.  of 
Ga.,  534,   535,   536,  545,  546,  550 

Scott  V.  De  Peyster,  681 

Scott  V.  Dixon,  144,  352,  353 

Scott  V.  Eagle  Fire  Ins.  Co.,  539,  540,  541, 

549,  555 
Scott  V.  Indianapolis  Wagon   Works,  340, 

481,  482 
Scott  V.  Pequannock  Natl.  Bank,   8,  378, 

487 
Scott  V.  Rogers,  587 
Scottish  Petroleum  Co.,  Re,  153 
Scovil  V.  Roosevelt,  554 

Scoville  V.  Thayer,  28.  38,  39.  42,  47, 
1U8.  193,  195,  207,  228,  281,  290,  292, 
298 

Scripture  v.  Francestown  Soapstone  Co., 
260,  489 

Seaman  v.  Enterprise  Fire  Ins.  Co.,  4 

Seaman  v.  Low,  351 

Searing  v.  Searing,  542 

Sears  v.  Hotchkiss,  661 

Seaton  v.  Grant,  690,  702 

Seawright  v.  Payne,  13,  243 

Second  Natl.  Bank  v.  Hail,  218,  234,  239 

Second  Natl.  Bank  of  Louisville  v.  Nation- 
al State  Bank  of  New  Jersey,  533 

Sedalia,   Warsaw,  &.c.  Ry.   Co.   v.  Abeil, 

177 
Sc.lalia,  W.  &  S.  Ry.  Co.  ?;.  Wilkinson,  68 
Sedg>vick  Co.  v.  Bailey,  102 

Ixxvii 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Seeley  v.  N.  Y.  Natl.  Exchange  Bank  of 

New  York,  289,  540 
Seeligson  v.  Brown,  484,  487 
Seignouret  v.  Home  Ins.  Co.,  280 
Seizer  v.  Mali,  295,  296 
Sellers  v.  Phoenix  Iron  Co.,  65*7 
Selma,  &c.  R.  R.  Co.  v.  Anderson,  56,  148, 

165.  176 
Selma,  (fee.  R.  R,  Co.  Ux  parte,  91 
Selma,  <fec.  R.  R.  Co.  v.  Roundtree,  173 
Selma,  <fec.  R.  R.  Co.  v.  Tipton,  67,  70,  75, 

124,  169 
Sewall  V.  Boston,  (fee.  Co.,  134,  363,  364, 

366,  412 
Sewall  V.  Chamberlain,  639 
Sewall  V.  Eastern  R.  R.  Co.,  55,  67,  286 
Sewall  V.  Lancaster  Bank,  523,  527,530,576 
Seward  v.  City  of  Rising  Sun,  6,  565 
Sewell's  Case,  281,  285,  290,  292,  298 
Seybert  v.  Pittsburgh,  91 
Seymore  v.  Sturgess,  68,  69,  70,  107,  207, 

208,  218,  256 
Seymour  v.  Bagshaw,  353 
Seymour  v.  Bridge,  462 
Seymour  v.  Delaucy,  579 
Seymour  v.  Detroit  Copper,  (fee.  Mills,  618 
Seymour  v.  Ives,  581,  583,  584,  585 
Shackleford  v.  Dangerfield,  115,  119,  120 
Shackley  v.  Fisher,  108 
Shaffner  v.  Jeffries,  78 
Shaler,  <fec.  Quarry  Co.  v.  Bliss,  218 
Shales  v.  Seigmoret,  344 
Sharman's  Case,  62,  63,  65,  246,  253,  266 
Sharp  V.  Dawes,  624,  633 
Sharp  V.  Warren,  509 
•  Sharpless  v.  Mayor,  90,  91,  100 
Siiarpley  v.  Louth  &  E.  C.  Ry.  Co.,  181 
Shaw,  Ex  parte,  321 
Shaw  V.  Boylan,  215,  241 
Shaw  V.  Dennis,  91 

Shaw  V.  Fisher,  246,  259,  264,  338,  383 
Shaw  V.  Holland,  581,  582,  588,  594 
Shaw  V.  Norfolk,  R.  R.  Co.,  592 
Shaw  V.  Port  Philip  &  C.  Gould  Min.  Co., 

363 
Shaw  V.  Rowley,  264,  334,  527 
Shaw  V.  R.  R.  Co.,  654 
Shaw  V.  Spencer,  247,  325,  326,  412,  414, 

462,  472,  474 
Shawhan  v.  Zinn,  636,  678,  692 

Ixxviii 


Shea  V.  Mabry,  674,  680 
Sheffield  &   Manchester  Ry  Co.  v.  Wood- 
cock, 52, 116,  378 
Sheild,  Re,  308 
Sheilds  v.  Ohio,  500,  501 
Shelby  v.  Guy,  218 
Shelby  Co.  Court  v.  Cumberlain,  «fec.  R.  R. 

Co.,  91 
Shelby  R.  R.  Co.  v.  Louisville,   «fec.  R.  R. 

Co.,  595,  597 
Shelbyville,   (fee.   Turnpike  Co.  v.  Barnes, 

500 
Sheldon  v.  Eickemeyer,  (fee.  Co.,  288,  667, 

686 
Shellington  v.  Rowland,   200,    221,   224, 

255,  258,  262,  263 
Shelby,  Re,  465 
Shenandoah  Valley  R.  R.  Co.  v.  Griffith, 

487,  526 
Shepherd  v.  Gillespie,  338,  454,  456 
Shepherd  v.  Johnson,  582 
Shepherd's  Case,  262 
Sheppard  v.  Murphy,   445,  453,  455,  462 
Sheppard  v.  Oxenford,  240 
Sherman  v.  Clark,  297 
Sherman  v.  Smith,  215,  497 
Sherrard  v.  Sherrard,  558 
Sherrington's  Case,  18 
Sherwood  v.  Buffalo,  (fee.,  R.  R.  Co.,  204, 

226 
Sherwood  v.Meadow  Valley  M.Co., 368,412 

Sherwood  v.  Tradesman's  National  Bank, 

339 
Shrewsbury,  <fec.,  Ry.  Co.  v.  Northwestern 

Ry.  Co..  673 
Shields  v.  Ohio,  633 
Ship  V.  Crosskill,  145,  149,  157,  502 
Shipley  v.  City  of  Terre  Haute,  99 
Shipley  v.  Mechanics'  Bank,  390 
Shipman  v.  Mtn&  Insurance  Co.,  320,  466 
Shipman's  Case,  245,  246 
Ship's  Case,  502 
Shockley  v.  Fisher,  208,  228 
Shoemaker  v.  National  Mechanics'  Bant, 

313,  316 
Short  V.  Medbury,  215 
Shortridge  v.  Bosanquet,  262,  332 
Short's  Estate,  In  re,  565 
Shortz  V.  LTnangst,  594 
Shotwell  V.  Mali,  295 


TABLE   OF   CASES. 


[The  references  are  to  sections.] 


Shropshire,    <tc.,    Ry.    &    Canal   Co.    v. 

Queen,  325,  359,'416 
Shurtleff  v.  Wiscassett^  97 
Shurtz  V.   Schoolcraft,  <fee..  R.  R.  Co.,  66, 

176 
Shuttleworth  v.  Greaves,  302,  305 
Sibbald  r.  The  Bethlehem  Iron  Co.,  445, 

449,  451 
Sibley  v.  Mobile,  91,  101 
Sibley  y.  Perry,  303 
Sibley  v.  Quinsigiamund  National  Bank,  S, 

378,  414,  487 
Sichell's  Case,  246 

Silk  Manfg.  Co.  v.  Campbell,  625,  678 
Silkstone  Fall  Colliery  Co.,  Ex  parte,  595 
Silver  v.  Ely,  4 
Simm  V.  Anglo,  <fec.,  Co.,  293 
Simmons  v.  Dent,  251 
Simmons  v.  Sisson,  227 
Simmons  v.  Southwestern  R.  R.  Co.,  325, 
326 

Simmons  v.  Vallance,  302 

Simon  v.  Anglo-American  Telegraph  Co., 
364 

Simons  v.  Vulcan  Oil,  etc.,  Co.,  651 

Simonson  v.  Spencer,  224,  226 

Simpson  v.  Denison,  500,  670,  671 

Simpson  v.  Moore,  537,  554 

Simpson  v.  Reynolds,  201 

Simpson  v.  Westminster  Palace  Hotel  Co., 

666,  675 

Simpson's  Case,  18 

Sims  V.  Street  R.  R.  Co.,  61,  653 

Singer  v.  Given,  199 

Singer  Mfg.  Co.  v.  Elizabeth,  93 

Singer's  Case, 309 

Sinking  Fund  Cases,  496 

Sioux   City,    (fee,    R.    R.    Co.    v.   United 

States,  269 
Sipperly  v.  Stewart,  462 
Sistare  v.  Best,  445 
Hitgreaves  v.  Farmers,  <fec.,  Bank,  375 
Skinner  v.  City  of  London,  dec,  Co.,  391, 

527,  586 
Skinner  v.  Dayton,  504,  508 
Skowhegan   Bunk  v.  Cutler,  262,  340,  489 
Kkowhegan  &  A.  R.  R.  Co.  v.  Kinsman,  176 
Skrairika  v.  Alien,  42,  548 
Slack  V.  Maysville,  (fee.  R.  R.  Co.,  91,  92, 

94 


Slate  V.  Chamber  of  Com.,  504 

Slater's  Case,  263,  266 

Slaymaker  v.  Bank  of  Gettysburg,  6,  319, 

320,  480 
Slee  V.  Bloom,  4,  42,   127,  200,  209,  211, 

221,  222,  226,  241,  253,  629,  633 
Sleecb  v.  Tliorington,  302 
Slingsby  v.  Granger,  305 
Slipber  v.  Earhart,  56,  86,  88 
Slocum  V.  Prov.  S.  (fe  G.  P.  Co.,  185 
Sloman  v.  Bank  of  England,  134,  363,  365 
Small  V.  Herkimer,  (fee.  Co.,  69,  125,  133, 

134 
Smallcombe  v.  Evans,  599 
Smallhouse  v.  Kentucky,  (fee.  Co.,  215 
Smead  v.  Indianapolis,  (fee.  R.  R.  Co.,  500 
Smith  V.  Allison,  87 
Smith  V.  Alvord,  591 
Smith  V.  American  Coal  Co.,  359,  361,  414, 

487,  488,542,  611 
Smith  V.  Anderson,  648,  652 
Smith  I'.  Bangs,  59,  72 
Smith  V.  Bank  of  Victoria,  653 
Smith  V.  Bouvier,  341,  344,  448 
Smith  V.  Burley,  567 
Smith  V.  Burns,  322 
Smith  V.  Chadwick,  143 
Smith  V.  Chicago,  <fec.  R.  R.  Co.,  633 

Smith  V.  City  of  Fond  du  Lac,  94 
Smith  «;.  Clark  Co., -91,  92 

Smith  V.  Coale,  476 

Smith  V.  Colorado  Fire  Ins.  Co.,  234 

Smith  V.  Cork,  (fee.  Ry.  Co.,  272,  276 

Smith  V.  Cresent  City,  (fee.  Slaughterhouse 
Co.,  6,  359,  361,  378,487.488 

Smith  V.  Ei-b,  595 

Smith  V.  Exeter,  565 

Smith  V.  Fagan,  653 

Smith  V.  First  National  Bank,  571 

Smith  V.  49  <fe  56  Quartz  M.  Co.,  340,  464 

Smith  ij.  Goldsworthy,  281,  290 

Smith  V.  Gower,  189,  633 

Smith  V.  Ilallelt,   111 

Smitli  V.  lleatli,  451 

Smiths.  Heindeckor,  197 

Smith  V.  Iluckabee,  204,  215,    226,   227, 
228,  241 

Smith  V.  llurd,  C78 

Smitli  V.  Ind.  <t  111.  R.  R.  Co.,  117 

Ixxix 


TABLE   OF   CASES. 


[T/ie  references  art  to  sections. '\ 


Smith  V.  Law,  596,  601 

Smith  V.  Lockwood,  508 

Smith  I'.  Maine  Boys  Tunnel  Co.,  134 

Smith  V.  Mosby,  227 

Smith  v.  Mut.  Life  Ins.  Co.,  218 

Smith  V.  New  York,  Ac.  Co.,  667 

Smith  V.  North   American  Min.  Co.,  284, 

387,  391 
Smiths.  Northampton  Bk.,  542 
Smith  V.  Plankroad  Co.,  173 
Smith  V.  Poor,  546,  575,  679 
Smith  ?-.  Prattville  Mfg.  Co.,  541,  681 
Smiths.  Rathbun,  661,  680,  693 
Smith  V.  Reiese,  &c.  Co.,  55,  156,  295 
Smith  w.  Silver  Valley.  <fec.  Co.,  591,  619 
Smith  V.  Smith,  626,  633 
Smith  V.  Tallahassee  Branch  of  C.  P.  R. 

Co.,  119,  138,  142,  187 
Smith  V.  Tracy,  354 
Smith  7j.  Virgin,  508,  510 
Smith's  Case,  288 
Sraoot  V.  Ileim,  483 
Smouse  v.  Bail,  475 
Smyth  V.  Darley,  594,  599 
Snell'sCase,  57,  125,  127,  168,  310 
Society   of  Italian  Union,    <fec.  v.  Monte- 

donico,  6^6 
Societe   Generale  de  Paris  v.  Tramways, 

<fec.  Co.  359,   377,  532 
Societe  Generale  de  Paris  v.  Walker,  359, 

370,  382 
Society  of  Prac.  Knowl.  The  w.  Abbott,  38 

Society  for  Savings  v.  City  of  New  Lon- 
don, 91,  94,  l03 
Society,  <fec.  of  the  Sick  v.  Meyer,  626 
Socoville  V.  Cantield,  218 
Somerset  &.  K.  R.  R.  Co.  v.  Gushing,  182, 

281,290 
Somerset  R.  R.  Co.  v.  Clarke,  182 
Somerville's  Case,  266 
South  Bay,  Ac.  Co.  v.  Gray,  52,  124,  497 
South  Carolina  Mfg.  Co.  v.  Bank  of  South 

Carolina,  195,  211 
South  Eastern  Ry.  Co.'s  Claim,   251 
Southern  Life  Ins.  Co.  v.  Cole,  339 
Southern  L.  Ins.  Co.  v.  Lanier,  173 
Southern  Plank  Road  Co.  v.  Hixon,  626 
Southern  Penn.  Iron  «fe  R.  K.  Co.  v.  Ste- 
ven's Ex'r,  499 

Ixxx 


Southhampton  Dock  Co.  v.  Richards,  115 
Southmayd  v.  Reiss,  221,222,  224,260 
South  Mountain,  &o.  Co.,  In  re,  4,  42,  54, 

199,  256,  263 
South  School  District  v.    Blakeslee,  590, 

595 

South  Ga.  <fe  Fla.  R.  R.  Co.  v.  Ayres,  187, 

192,  500,   668,  701 
South  Staffordshire  Ry.   Co.  v.  Burnside, 

130,  252 
Southwestern  P.  R.  Bk.  v.  Douglas,  468 

Southwestern  Ry.  Co.  v.  Papot,   315,  350, 

543 
Southwestern  R.    R.  Co.  v.  Thomason,  6, 

330 
Spackman  v.  Evans,  52, 124,  128,  129, 168, 

199,  229,  288,  685,  686 

Spackman's  Case,  127 

Spalding  v.  Paine's  Adm'r,  464 

Sparga's  Case,  13,  18,  35,  255 

Sparks  v.  Proprietors,  &c.,  Water  Works, 

134 
Sparks  v.  Weedon,  306 
Sparling  v.  Parker,  6 
Sparrow  v.   Evansville,   Ac,  R.  R.   Co., 

670 
Spartanburg  <fe  A.  R.  R.  Co.  v.  Ezell,  173 
Spartenburgh,  Ac,  R.  R.  Co.  v.  De  Graf- 

fenreid,  83,  89 
Spear  «.  Crawford,  4,  56,  67,  68,  70,  192 
Spear  v.  Grant,  199,  204,  548,  549 
Spear  v.  Hart,  542,  543 
Speight  V.  Gaunt,  322 
Spence's  Case,  248 
Spense  ®.  Iowa  Valley  Construction  Co., 

241 
Spering's  Appeal,  681 
Sperry  v.  Johnson,  19 
Speyer  v.  Colgate,  452,  587 
Sponsler's  Appeal,  302 
Sprague  v.  Cachigo  Mfg.  Co.,  325,  361 
Sprangler  v.  Indiana  ife  Illinois  Central  R. 

R.  Co.,  115,  118,   120,  124,  499,  500 
Spring  Co.  v.  Knowltcni,  23,  27 
Springfield  St.  Ry.  Co.  v.  Sleeper,  86 
Springport  ».  Teutonia  Savings  Bank,  94, 

98 
Spring  Valley,  Ac  ,  Works  v.  Board   of 

Supervisors  of  San  Francisco,  501 

Spring  Valley  Water  Works  v.  Schottler, 
565 


TABLE   OF   CASES. 


[The  references  are  to  sections.''^ 


Sproule  V.  Bouch,  556,  557 

Spurlock  V.  Pacific,  &c.,  R.  R.  Co.,  522, 

525,  527 
Squires  v.  Brown,  218 
St.  Albans  v.  National  Car  Co.,  566 
St.  Ann's  Church,  Matter  of,  625 
St.  Charles,  &c.,  R.  R.  Co.  v.  Assessors, 

564 

St.  James  Club,  Re,  504 

St.  John  V.  Erie  Ry.  Co.,  269,  271,  272, 
540 

St.  John's  College  v.  Purnell,  500 

St.  Joseph,  &c.,  R.  R.  Co.  v.  Buchanan 

County,  91 
St.  Joseph  Township  v.  Rogers,  94 
St.  Lawrence  Steamboat  Co.,  Matter  of, 

4,  308,  610,  611,  615,  616,  620    • 
St.  Louis  Association  v.  Hennessey,  185 
St.  Louis  V.  Alexander,  91 
St.  Louis  &  Cedar  Rapids  R.  R.  Co.  v. 

Eakins,  86,  87 
St.  Louis,  &c.,  Co.  V.  Jackson,  651 
St.  Louis,  (fee,  Co.  V.  Sandoval,  <fec.,  Co., 

127 
St.  Louis,  &c..  Insurance  C  >.  v.  Goodfel- 

low,  378,  522,  523,  527,  530,  532 

St.  Louis  Iron  M.,  (fee,  R.  R.  Co.  v.  Lof- 
tin,  3 

St.  Louis,  (fee,  Loan  Association  v.  Augus- 
tin,  633 

St.  Louis  ]National  Bank  v.  Papin,  566, 

571 
St.  Louis  R.  R.,  (fee,  Co.  v.  Ilarbine,  497 

St.   Louis  (fe   San   Francisco   Ry.  Co.   v. 
Wilson,  488 

St.  Marylebone  Banking  Co.,  In  re,  251 

St.  Mary's  Church,  500.  624 

St.  Paul,  (fee.  R.  R.  Co.  v.  Robbins,  17, 
5.5,  70,  192 

St.  Phillip's  Churcl)  v.  Zion,  (fee,  Church, 

638 
Stace's  Case,  18,  281,  238 
Stackpole  v.  Seymour,  390 
Stack's  Case,  4 
Stacy  V.  Little  Rock  &  Fort  Smith  R.  R. 

Co.,  13 
Stafford  Bank  v.  Palmer,  235 
Staffron's  Executor's  Case,  253 
Stainbank  v.  Fornley,  366 
Stainland  v.  Willott,  308 


Stamford  Bk.  v.  Ferris,  319,  483 

Standing  v.  Bowring,  308,  320 

Stanhope's  Case,  123,  127,  128,  685 

Stanley,  ^a;^a?-fe,  111 

Stanley  v.  Stanley,  262,  497 

Stanton  v.  Small,  344 

Stanton  v.  Wilson,  67 

Stanwood  v.  Stanwood,  319 

Staples  V.  Gould,  342 

Starr  Fire  Ins  Co.  v.  Palmer,  479 

Starin  v.  Genoa,  91,  94,  98 

Stark  V.  Burke,  200,  208 

Starrett  v.  Rockland,  (fee,  R.   R.  Co.,  67, 
68 

State  V.  Accommodation  Bk.  of  La.,  499, 
501 

State  V.  Adams,  626 

State  «^.  Baily,  15,  502,  632,  633,  636 

State  V.  Baltimore,  (fee,  R.  R.  Co.,  534, 

536,537,  541,  544,546,  568 
State  V.  Bank  of  Maryland,  228 
State  V.  Bk.  of  South  Carolina,  632 
State  V.  Barron,  633 
State  V.  Bentley,  667,  568 
State  V.  Bienville  Oil  Works,  515,  516 
State  V.  Bissell,  91 
State  V.  Bonnell,  590,  604,  619 
State  V.  Branin,  567,  568 
State  V.  Carteret  Club,  626 
State  V.  Catskill  Bk.,  4 
State  V.  Chamber  of  Commerce,  626 

State  V.   Cheraw  &  C.  R.  R,  Co.,  3     268 
369,  390 

State  V.  Clark,  91 

State  V.  Constantine,  609 

State  V.  Cresent  City,  (fee,  Co.,  74,  75 

State  V.  Dallas  County,  94 

State  V.  Ferris,  4,  262,  382,  611,  620 

State  V.  First  Natl.    Bk.,  (fee,  8,  390  414 

465,487,489 
States.  Flavell,  562 
State  V.  Garoutte,  100 
State  V.  Georgia  Medical  Soc,  626 
State  V.  Greene  Co.,  91,  92, 103,  607 
State  V.  Greer,  609 
State  V.  Guerrero,  390 
State  V.  Guttcnburg,  92 
State  V.  Ilaight  570 
State  V.  Uamilion.  6G3 


[F] 


Ixxxi 


TABLE  OF   CASES. 


[The  references  are  to  sections.'] 


State  V.  Hancock,  95 

State  V.  Hannibal  &  St,  J.  R.  R.  Co.,  565, 

567 
State  V.  Hart,  570 
State  v.  Holladay,  94,  99 
State  V.  Hunton,  608 
State  V.  Jefferson  Turnpike  Co.,  161,  295 
State  V.  Jennings,  96 
State?;.  John,  218 
State  V.  Lake  City,  102 
State  V.  Lancaster  Co.,  101 
State  V.  Leete,  414 
State  V.  LefBngwell,  90 
State  V.  Lehre,  59,  64.  72,  616,  621 
State  w.  Lime,  91,  97 
State  V.  Lusitanian  Portuguese    Society, 

&c.,  626 

States.  Macon  Co.  Court,  91,  94 

State  V.  Maine,  &c.,  R.  R.  Co.,  50 

State  V.  Mayhew.  565 

State  V.  McDaniel,  4,  616,  620 

State  V.  McGrath,  281 

State  V.  Merchant,  285,  633 

State  V.  Miller,  390 

State  V.  Morristown  Fire  Assn.,  3,  241 

State  V.  Nemaha  Co.,  91 

State  V.  New  Orleans  Gas  Light  Co.  370 

State  V.  New  Orleans,  &  C.  R.  R.  Co.,  359, 
542 

State  V.  North,  350 

State  V.  North  Louisiana,  &e.,  R.   R.  Co., 
296 

State  V.  Osawkee  Township,  91 

State  V.  People's  Bldg.,  &c..  Association, 
390 

State  V.  Pettineli,  593,  599, 611,  621 

State  V.  Petway,  568 

State  V.  Real  Estate  Bk. 

State  V.  Rives,  633,  638 

State  V.  Robinson,  560 

State  V.  Rombauer,  390 

State  V.  Seneca  Co.  Bk. 

State  V.  Sibley,  500 

State  V.  Smith,  65,  282,  286,  314,  613,  618 

State  V.  St.  Louis,  Ac,  Co.,  390 

State  V.  Sullivan  Co.,  91,  94 

State  V.  Swearingen,  616 

State  V.  Thomas,  566,  608 

State  V.  Timken,  39 

Ixxxii 


632 


632 


State  V.  Town  of  Clark,  97 

State  V,  Trustees  Vincennes  University, 
633 

State  V.  Tudor,  610 

St:ite  V.  Tunis,  567 

State  V.  Union  Township,  91 

State  V.  Vaughan,  487 

State  V.  Wapello,  91 

State  V.  Warren  Foundry  &  M.  Co.,  340, 
390,  482,  484,  488 

State  Bk.  v.  Cox,  321 

State  Bk.  v.  State,  638 

State  Bk.  of  Virginia  v.  City  of  Richmond, 
563 

State  Bk.  of  Ohio  v.  Fox,  311,  314 

State  Bk.   of  Ohio  v.  Knoop,  492,   494, 

562 
State  Fire  Ins.  Co.,  Li  re,  199 
State  Ins.  Co.  v.  Gennett,  387,  465,  489 
State  Ins.  Co.  v.  Redmond,  173 
State  Ins.  Co.  v.  Sax,  465,  487 
State  Ins.  Co.,  Re,  280,  289 
Slate  of  Louisiana  v.  Bank  of  Louisiana, 

541,  542,  626 
State  of  Michigan  v.  Howard,  236 
State  of  Minnesota  v.  Young,  92 
State  of  Nevada  v.  Curtis,  625 
State  of  Nevada  v.  Wright,  606 
State  of  Ohio  v.  Bryce,  627 
State  of  Ohio  v.  Franklin  Bk.  of  Columbus, 

311,561 
State  of  Tenn.  v.  Whitworth.  568 
State  Saving  Association  v.  Kellogg,  200, 

221,  228 
State  Tax  on  Foreign-held  Bonds,  566 
Staten  I.  R.  T.  R.  R.  Co.,  Re,  174 
Steacy  v.  Little  Rock  &  Ft.  Smith  R.  R. 

Co.,  50 
Steam  Engine  Co.  v.  Hubbard,  218 
Steamshii)  Dock  Co.  v.   Heron's  Admx., 

521,  622 

Stearns  v.  Marsh,  476,  477 
Stebbins  v.  Leowolf,  342,  344 
Stebbins  v.  Merritt,  593,  596,  593 

Stebbins  v.  Phoenix   Fire   Ins.    Co.,    414. 

522,  523,  526,  528 

Stedman  v.  Eveleth,  200 
Steel's  Case,  153 
Steere  v.  Hoagland,  221 


1 


TABLE   OF  CASES. 


[TTie  references  are  to  sectiotis."] 


Steers  v.  Lasbl^y,  347 

Stein  ;-.  Howard,  26,  287 

Stein  I'.  Mayor,  <fec  ,  91 

Steinmitz  v.  Versailles  R.  R.  Co.,  110 

Stelphen  v.  Ware,  195,  227 

Stenton  v.  Jerome,  459,  477 

Stephens  v.  De  Medina,  334 

Stephens  v.  Fox,  200,  204,  209,  222 

Stephenson  v.  Dawson,  302 

Stephenson's  Case,  32.  620 

Sterling  v.  Jaudon,  438,  477 

Stetson  V.  City  Bk.  of  New  Orleans,  634 

Stetson  V.  City  of  Bangor,  564,  569 

Steuben vilie,   (fee.,   R.    R.    Co.   v.    North 

Township,  91 
Stevens  v.  Anson,  91 
Stevens  v.  Corbitt,  86 
Stevens  v.  Davison,  668 
Stevens  v.  Eden  Meeting  House  Society, 

593,  596 
Stevens  v.  Hurlbut  Bk.,  477,  587 
Stevens  v.  Midland,  (fee.,  Ry.  Co.,  268 
Stevens  v.  Phoenix  Ins.  Co.,  591 
Stevens  v.  Rutland,  <fec.,   R.   R.   Co.,  494, 

49.^,  500,  502,  624,  672,  690 

Stevens  v.  South,  <kc.,  Ry.  Co.,  269,  272, 

534,  541,  546,  607,  624,  671 
Stewards  of  M.  E.  Church  v.  Town,  138 
Stewart  v.  Austin,  502 
Stewart  v.  Canty,  333,  449,  581,  587,  588 
Stewart  v.  Drake,  458,  459,  586 

Stewart  v.  Erie,  <fec..  Trans.  Co.,  674,  683, 
686 

Stewart  v.  Fireman's  Ins.  Co.,  330,  560 

Stewart  v.  Garrett,  346 

Stewart  v.  Lay,  211,  221,  224,  226,  228 

Stewart  v.  Mechanics'  <fe  Farmers'  Bk.  4 

Stewart  v.  Mahoney  Mining  Co.,  612 

Stewart  v.  Natl.  Union  Bk.,  313 

Stewart  v.  Poke  Co. ,  9 1 

Stewart  v.  Schall,  34  6 

Stewart  v.  Trustees  of  Hamilton  Colleire. 
70  ^ 

Stewart's  Case,  127,  145,  160,  502,  685 

Stewart's  Trustee  v.  Evans,  248 

Stinson  v.  Thornton,  325 

Stock,  jEx  parte,  620 

Stockdale  v.  South  Sea  Co.,  327 

Stocken's  Case,  112,  125,  128,  129 


Stockholders  of  the  Shelby  R.  R.  Co.  v. 

Louisville,  (fee,  R.  R.  Co.,  594,  396 
Stockton  V.  Mechanics',  (fee.  Bank.,  227 
Stockton  Malleable  Iron  Co.,  527 
Stockton,  (fee,  R.  R.  Co.  v.  Stockton,  91 
Stoclrwell  v.  St.  Louis  M.  Co.,  382 
Stoddard  v.  Shetucket  Foundry  Co.,  13, 

16,  544,  546 

Stokes  V.  Lebanon,  (fee,  Co.,  69,  124,  125 

Stokes  V.  Scott,  91 

Stokes  V.  Stickney,  218 

Stone  V.  City  &  County  Bk.,  163 

Stone  V.  Great  "Western,  (fee,  Co.,  67,  115 

Stone  V.  Wiggin,  200 

Stoneham,  (fee,  R.  R.   Co.   v.  Gould.  13! 
176 

Stoney  v.  American  Life  Ins.  Co.,  591 

Stoops  V.  Greensburgh,  (fee,  Co.,  67 

Storm  V.  Waddell,  481 

Story  V.  Furman,  216,  224,  226,  497 

Story  V.  Saloman,  b42,  344,  443 

Stover  V.  Flack,  64,  211,  247,  249    3'>1 
339 

Stow  V.  Cartright,  681 

Stow  V.  Flagg,  67 

Stow«.  Wyse,  506,  598 

Stowell  V.  Stowell,  83 

StrafFon's  Case,  52,  262 

Strafford  v.  Horton,  304 

Straker  ■».  Wilson,  556 

Strange  v.  Houston  (fe  T.  C.  R.  R.  Co.,  262, 

321,  338,  359 

Stranton  Iron  &  Steel  Co.,  Jie,  332,  611 

618 
Strasburg  v.  Echternacht,  67,  338 
Stratford  v.  Jones,  460,  477 
Stratford  &  M.  Ry.  Co.  v.  Stratton,  116 
Stray  v.  Russell,  45.'>,  462,  588 
Street  v.  Morgan,  455 
Streeter  v.  Sumner,  252 
Strickland  v.  Railroad  Co.,  91 
Striker  v.  Kelly,  93 
Stringer,  Ex  parte,  527 
Stringer's  Case,  539,  540,  641,  550 

Strong  V.  Brooklyn  Crosstown  R.  R.  Co., 
288,  540 

Strong  V.  McCagg,  631 

Strong  V.  Smith,  611,  612 

Strong  V.  Wheaton,  209,222,  224,  226 

Ixxxiii 


TABLE   OF   CASES. 


[T/ie  refirences  are  to  sections. '\ 


Strout  V.  Katoma  "W.  &  M.  Co.,  465,  489 

Stryker  v.  Cassidy,  215 

Stuart  V.  Valley  11.  R.   Co.,   58,   59,   169, 

173 
Stupart  V.  Arrowsmith,  630 
Sturges  V.  Burton,  218 
Sturges  V.  Carter,  565 
Sturgev.  Eastern,  Ac,  R.   R.,  268,  269, 

272, 276 
Sturges  V.  Keith,  576,  581,  584 
Sturges  V.  Stetson,  23,  25,  29,  40,  41,  133, 

351 
Sturgis  V.  Board  of  Trade,  626 
Stutzer,  Matter  of,  560 
Suburban  Hotel  Co.,  In  re,  629,  631,  632 
Sudlow  V.  Dutch  R.  R.  Co.,  134 
Sullivan  v.  Campbell,  509 
Sullivan  v.  Metcalfe,  143 
Sullivan  v.  Portland,  <fec.,  R.  R.  Co.,  633 
Sumbre  County  v.  National  Bk.,  571 
Summers  v.  Sleath,  192 
Sumner  v.  Marcy,  60,  215,  317 
Sumner  v.  Stewart,  463 
Sumrall  v.  Mut.  Ins.  Co.,  500 
Sunderland  Marine  Ins.  Co.  v.   Kearney, 

199 
Supervisors  of  Fulton  County  v.   Miss., 

(fee,  R.  R.  Co.,  499,  500 
Supervisors  of  Schuyler  Co.  v.  People,  91 
Supervisors  v.  Galbraith,  92 
Supervisors  v.  Schenck,  91,  93,  285 
Supervisors  v.  Stanley,  569,  571 
Supervisors  v,  Wisconsin,  tfec,  R.  R.  Co., 

91 
Sussex  R.  R.  Co.  v.  Morris,  &c.,  R.  R.  Co., 

673 
Sutherland  t,.  Olcott,  227,  281,  285 
Sutton  V.  Bank  of  England,  382 
Sutton  V.  Tatham,  462,  588 
Sutton's  Case,  211,  261 
Suydam  v.  Jenkins,  583 
Snow  V.  Wheeler,  508 
Sw.in,  Ex  parte,  363,  365,  366 
Swan  V.  North  British,  &c.,  Co.,  134,  363, 

365,  366,  575 
Swansea  Dock  Co.  v.  Levvien,  110,  596 
Swansea  Vale  Ry.  Co.  v.  Budd,  519 
Swartout  v.  Mich.  Air  Line  R.  R.  Co.,  78, 

180,  185,  191 

Ixxxiv 


Swatara  R.  R.  v.  Brune,  13  . 
Swazy  V.  Choat,  <fec.,  Co.,  74 
Sweenej'  v.  Bk.  of  Montreal,  325 
Sweet  V.  Hurlburt,  91 
Sweeting  v.  Pearce,  455,  462 
Sweny  v.  Smith,  128,  129,  132,  134 
Swepson  v.  The  Bank,  228 
Swift  V.  Jewsbury,  74 
Swift  V.  Smith,  624 
Syke's  Case,  106,  113 
Symon's  Case,  63,  250,  260,  266 
Syracuse,  &c.,  R.   R.   Co.  v.  Gere,   141, 
174 

Syracuse,  <fec.,  R.  R.   Co.,   Matter   of  the 

Application,  1,  616 

Syracuse  Savings  Bk.  v.  Seneca  Falls,  94, 
96 


Tackerson  v.  Chapin,  580 

Taft  V.  Chapman,  452 

Taft  V.  Hartford,  Ac,  R.  R.  Co.,  267.  270, 
272 

Taft  V.  Ward.  219,  508 

Taggard  v.  Centenius,  475 

Taggart  v.  Western  Md.  R.  R.  Co.,  77,  83, 
84,  173,  186,  195,  499 

Tahiti  Cotton  Co.,  Re,  387 

Taite's  Case,  145,  161 

Talbot  V.  Dent,  9 1 

Talbot  V.  Scripps,  636,  694 

Talcott  V.  Pine  Grove,  91 

Tall  Bridge  Co.  v.  Osborne,  567 

Tallmadge  v.  Fishkill  Iron  Co.,  193,  205, 

227 
Tallman  v.  Butler  Co.,  566 
Talmage  v.  Third  Natl.  Bk.,  321 
Talmage  v.  Pell,  60,  316,  505 

Tally  V.  Freedmen's  Sav.,   &c.,  Co.,  471, 

472 

Tanner  v.  Tanner,  30,  301 

Tantum  v.  West,  346,  347 

Tappan  v.  Bailey,  608 

Tappan  v.  Merchants'  Natl.  Bk.,  566,  672 

Tappenden  v.  Randall,  298 

Tarbell  v.  Page,  185,  199 

Tarlton  v.  Baker,  311 

Tarquand  v.  Marshall,  560 


TABLE   OF   CASES. 


[  The  references  are  to  sections.  ] 


Tar  River,  &c.,  Co.  v.  Neal,  6Y,  124,  185 

Tasker  v.  Wallace,  15,  50 

Taurine,  In  re,  266 

Taussig  V.  Hart,  450,  457,  360,  469,  471, 

587 
Taxpayers  of  Milan  v.  Tennessee,  <fec.   R. 

R.  Co.,  91 

Taxpayers  of  Kingston,  Ex  parte.  9 1 

Taylor  v.  Ashton,  149 

Taylor  r.  Bowers,  298 

Taylor  t.  Chichester,   <fec.,   Ry.   Co.,  664, 
683 

Taylor  v.  Cheever,  476 

Taylor  v.  Earle,  317,  632,  636,  667 

Taylor  v.  Fletcher,  88 

Taylor  v.  Great,  .fee,  R.  R.  Co.,  321,  377, 
462 

Taylor  v.  Griswold,  596,  608,  610.  623 
Taj'lor  V.  Hughes,  54,  73,  258,  309 
Taylor  v.  Ketchura,  459,  469 
Taylor  v.  Miami  Exporting  Co.,  282,  31 1, 
549,  613 

Taylor  v.  Midland  Ry.  Co.,  134,  363,  305 

Taj^lor  V.  Newbern,  91 

Taylor  v.  Solomon,  660,  691 

Taylor  v.  South,  <fec.,  R.  R.  Co.,  268,  297, 
685,  686 

Taylor  v.  Stray,  462,  588 

Taylor  v.  Taylor,  248 

Taylor  v.  Ypsilanti,  91 

Teasdale's  Case,  129,  168,  281,  310 

Tees  Bottle  Co.,  Re,  377 

Telegraph  Co.  v.  Davenport,  134,  3G5,  366, 
384 

Telegraph  Construction  Co.,  Re,  280 

Telley  v.  County  of  Cook,  462 

Tempist  v.  Kilmer,  75,  339,  581,  588 

Temple  v.  Lemon,  176 

Tennant  v.  City  of  Glasgow  Bank,    151, 
163,  263 

Tcnney  v.  Foote,  346,  347 

Tenney  v.  New  Eng.  &  Union,  504 

Tenth    Ward   National   Bank   v.    City  of 

Newark,  570 

Terhune  v.  Midland  R.  R.  Co.,  692 

Terry  v.  Anderson,  200,  226 

Terry  v.  Bank  of  Cape  Fear,  195.  227,  228 

Terry  v.  Caiman,  218,  227 

Terry  v.  Eagle  Lock  Co.,  285,  286,  537 


Terry  v.  Little,  203,  204,  205.  223,  224 

226,  241 
Terry  v.  McLure,  227 
Terry  v.  Tubman,  200,  226,  227 
Thacker  v.  Hardy,  342,  344,  345 
Thames,  tfec  ,  Co.  v.  Sheldon,  52,  54,  67 
Thayer  v.  New  England,  <fec.,  Co.,  222 
Thayer  v.  Union  Tool  Co.,  226 
Thebus  v.  Smiley,  193,  224,  227,  228 
Thigpen  v.  Mississippi,  &c.,  R.  R,  Co.,  67, 

83,  138 
Third  National  Bank  v.  Boyd,  587 
Third  National  Bank  v.  Harrison,  344 
Thomas  v.  Railroad  Co.,  297,  668 
Thomas  v.   Brownville,   (fee,  R.   R.    Co.. 

649 
Thomas  v.  City  of  Glasgow  Bank,  251 
Thomas  v.  City  of  Richmond,  93,  298 
Thomas  v.  Dakin,  505 
Thomas  v.  Ellmaker,  504 
Thomas  v.  Hobler,  693,  697 
Thomas  v.  Port  Hudson,  91 
Thomas  v.  Steinheimer,  587 
Thomas'  Case,  128,  129,  168,  248,  310 
Thompson  v.  Alger,  339,  342 
Thompson  v.  City  of  Peru,  91 
Thompson  v.  Cummings,  347 
Thompson  v.  Davenport,  454 
Thompson  v.  Erie  Ry.  Co.,  269,  271,  272, 

276,  519 
Thompson  v.  Guion,  185,  497,  500 
Thompson  v.  Jewell,  226 
Thompson  v.  Kelly,  91,  92 

Thompson  v.  Lambert  686 

Thompson  v.  Lee  County,  9i">,  94 

Thompson  v.  Meisser,  199,  211,  224,  227 

Thompson  v.  Page,  65,  70 

Thompson  v.  Patrick,  471 

Thompson  v.  Perrine,  93 

Thompson  v.  Pittson,  91 

Thompson  v.  Reno  Savings  Bk.,  52,   65, 
67,  108,  184,  191,  191,  199,  205 

Thompson  v.  Society  of  Tammatiy,  626 

Thompson  v.  Toland,  325,  457,  409,  473, 
475,  676,  583,  587 

Thompson's  A])pcal,  f'5i:,  557 

'rh(Hn|iHon's  ( ^asc,  18 

TlKJinjison's  Estate,  In  rr,  :,:,{ 

Ixxxv 


TABLE   OF   CASES. 


[7%e  references  are  to  sectwris.'\ 


Thornbiiro;h  v.  Newcastle  &  D.  R.  R.  Co., 

ISY, 149 
Thorndike  v.  Locke,  339 
Thornton  v.  Lane,  200,  22*7 
Thornton    v.   Marsjinal  Freight  Ry.  Co., 

634,  638 
Thornton  v.  Wabash  Ry.  Co.,  633,  654 
Thorp  V.  Woodhnll,  15,  174,  255,  382 
Tliorpe  II.  Hughes,  155,  295 
Thorpe  v.  Rutland,  Ac,  R.  R.  Co.,  494 
Thrasher  v.  Pike  Co.  R.  R.  Co.,  52,  55,  (,1 
Thoroughgood's  Case,  55 
Thurston  v.  Duffy.  34 
Ticonic,  (fee.  Co.  v.  Lang,  65,  83,  87,  180 
Tifft  V.  Porter,  299,  302 
Tilsonburg,   <fec.    Co.   v.   Bolton,    52,   65, 

56,  ee,  73 

Tinker  v.  Van  Dyke,  218,  224 

Tinkham  v.  Borst,  208 

Tinkler,  In  re,  557 

Tiiisley's  Case,  346 

Tippecanoe  County  v.  Lafayette,  tfec.  R. 

R.  Co.,  668 
Tippetts  V.  Walker,  6 
Tipton  Co.  V.  Rogers'  Locomotive  Works, 

93 
Tisdale  •■.  Harris,  8,  339 

Titcomb  v.  Union  Marine,  Ac.  Ins.  Co., 
482,  530 

Titus  V.  President,  <fec.  of  the  G.  W.  Turn- 
pike Road,  10,  293 

Tobey  v.  Robinson,  23,  39,  348 

Tockerson  v.  Chapin,  585 

Todd  V.  Emly,  504 

Todd  V.  Taft,  338 

Tome  V.  Parkersburg,  Ac.  R.  R.  Co.,  293, 
294 

Tomlin  v.  Tonic  &  Petersburg  R.  R.  Co., 
119 

Tomlinson  v.  Bricklayers,  Ac,  656 

Toralinson  v.  Miller,  339 

Tomlinson  v.  Tomlinson,  6 

Tonica,  Ac.  R.  R.  Co.  v.  Stein,  56,  70 

Tooke,  Ex  parte,  527 

Topeka  Bridge  Co.  v.  Cumminga,  176 

Torry  v.  Bk.  of  Orleans,  450 

Totton  V.  Pison,  267,  268,  269,  270 

Toucey  v.  Bowen,  221 

Towar  v.  Hale,  504,  638 

Town  V.  Bank  of  River  Raisin,  629 

Ixxxvi 


Town  Council,  Ac.  ■».  Elliott,  348 

Town  of  Douglass  v.  Niantic  Savings  Bk., 
95 

Town  of  East  Lincoln  v.  Davenport,  103 

Town  of  Elmwood  v.  Marcy,  218 

Town  of  Montclair  v.  Ramsdell,  98 

Town  of  Platteville  v.  Galena,  Ac.  R.  R. 

Co.,  97 
Town  of  Prairie  v.  Loyd,  103 
Town  of  Reading  v.  Wedder,  103 
Town  of  Scipio  v.  Wright,  91 
Town  of  South  Ottawa  v.  Perkins,  218 
Town  of  Windsor  v.  Hallett,  93 
Towues  V.  Nichols,  390 
Townsend  v.  Goewey,  69,  124,  504,  508 
Townsend  v.  Mclver,  383,  386,  387,  390 
Township  of  Pine  Grove  i!.  Talcott,  91 
Tracy  v.  Talmage,  505 
Tracy  v.  Yates,  260,  263 
Trade  Auxiliary  Co.  v.  Vickens,  617 
Traer  v.  Clews,  639 
Trafford  v.  Brehm,  322 
Trask  ?;.  Maguire,  562,  563 

Treadwell  v.  Salisbury  Mfg.  Co.,  317,  607, 

624,  629,  630,  636,  667 
Treasurer  v.  Commercial  Coal  Min.Co.,  338 
Tredurn  v.  Bourne,  181 
Trenton  Ins.  Co.  v.  Johnson,  341 
Trimmer  v.  Penn.  Ac.  R.  R.  Co.,  699. 
Trinder  v.  Trinder,  304 
Trippe  v.  Hucheon,  222 
Trott  V.  Sachett,  86,   89 
Trowbridge  v.  Scudder,  234 
Troy  Iron,  Ac.  Factory  v.  Corning,  504 
Troy  A  Greenfield  R.  R.  Co.  v.  Newton, 

17,  180,  182 
Troy,  Ac.  R.  R.   Co.  v.  Boston,  Ac.  R.  R. 

Co.,  625,  668,  670 
Troy,  Ac.  R.  R.  Co.  v.  Kerr,  73,  124,  187, 

501,  633 
Troy,  Ac.  R.  R.  Co.  v.  McChesney,  124 
Troy,  Ac.  R.  R.  Co.  v.  Tibbits,  52,  59,  78, 

79,  80,  124,  277 
Troy,  Ac.  R.  R.  Co.  v.  Warren,  52,  65,  66 
Trustees  of  Dartmouth  College  v.  Wood- 
ward, 494 
Trustees  of  Eminence  v.  Deposit  Bank,  570 
Trustees  of  Free  School  ?;.  Flint,  215,  242, 

243 


TABLE   OF   CASES. 


[The refere7iees  are  to  sections.] 


Trustees  of  the  School  District  v.  Gibbs, 

616 
Trustees,  Ac.  v.  Bossieux,  68 1 
Tucker  v.  Aiken,  564 
Tucker  v.  Wilson,  476 

Tucker's  Case,  57 
Tally  V.  Tranor,  587 

Tumacacori  Mining  Co.,  Jn  re,  631,  632 
Tunesraa  v.  Schuttler,  224 
Turnbull  v.  Payson,  54,  73 
TurnbuU  v.  Prentiss  Lumber  Co.,  20.'^ 
Turner  v.  Commissioners  of  Woods mCo., 
91 

Turner  v.  Grangers  L,  <fe  H.    Ins.    Co., 
163 

Turner  v.  May,  338 

Turner  v.  Turner,  305 

Turquand  v.  Marshall,  599 

Tuskaloosa,  <fec.  Association  v.  Green,  634 

Tuskaloosa  Mfg.  Co.  v.  Cox,  676 

Tuttle  V.   Mich.  Air   Line  R.  R.  Co.,  187, 
500,  595,  596,  668 

Tuttle  I/.  Walton,  522,  525,  530,  532 

Tvvin  Creek,  &c.  Co.  v.  Lancaster,  67,  70 

Twin  Lick  Oil  Co.  v.  Marbury,  285,  625, 
653,   660,  686 

Twycross   v.  Grant,  143 

Tying  v.  Clarke,  222 

Tyson  v.  Mahone,  692 

Tyson  v.  School  Directors,  91 


u 


Umsted  v.  Buskirk,   204,  205,  206,  208, 
211,  216,  226,  229 

Underwood  v.  New  York,  <fec.  R.  R.  Co., 
544 

Union  Agri.  &,  Stock  Ass'n  v.  Mill,  499 

Union  Bank  v.  EllicoU,  228,  667 

Union  Bank  «.  Laird,  414,   522,  523,527, 
532,  531 

Union  Bank  v.  McDonough,  61,  74 
Union  Bank?;.  Owen,  4 
Union  Bank  v.  State,  566,  568 
Union  Bank  v.  Wando  Min.  <fec.  Co.,  222 
Union  Bank  of  Tennessee  v.  Tl>e  State,  6 
Union  (Jold  Mining  Co,  v.  Rocky  Mountain 
Nat.  Bk.,  625 


Union  Iron  Co.  v.  Pierce,  218,  499 
Union  Hill  Company,  Exparte,  596 
Union  Hotel  Co.  v.  H«^rsee,  61,  65,  82,  83, 

189 
Union  Mut.  Ins.  Co.  v.  Frear  Stone  Mfg. 

Co.,  38,  42,138,  199,  215,  265 
Union  Mutual,  <fec.  Ins.  Co.  v.  Keyser,  625 
Union  National  Bank  v.  Carr,  344 
Union  National  Bank  v.  Chicago,  572 
Union  National  Bank  v.  Hunt,  312,  350 
Union  Pacific  R.  R.  Co.  v.  Credit  Mobilier, 

285 
Union  Pacific  R.  R.  Co.  v.  Durant,  650 

Union  Pacific  R.  R.  Co.  v.  United  States, 

269,  270,  540 
Union  Pacific  R.  R.  Co.  v.  Smith,  91 
Union  &  P.  Bank  v.  Farrington,  466 

Union  Screw  Co.  v.  American  Screw  Co., 

543 
Union  Trust  Co.  v.  Rochester  &  Pittsburgh 

R.  R.  Co.,  659 
Union,  &c.,  Co.  v.  Jenkins,  67,  70,  124, 

174 
United  Ports,  <fec..  Insurance  Co.,  In  re, 

636 
United  Service  Co.,  In're,  635 
United  Society  v.  Eagle  Bank,  169 
United  Society,  <fec.  v.  Underw<iod,  081 
United  States  v.  Britton,  313,  3r.7 
United    States   v.   Columbian   Insurance 

Co.,  613 
United  States  v.  Cutts,  375,  379,  414,  465 
United  States  v.  Jefferson  County,  101 
United  States  v.  Knox  County,  94 
United  States  v,  Lathrop,  218 
United  States  v.  McKelder,  594,  599,  601 
United  States  v.  New  Orleans,  91 
United  States  v.  Norton,  92 
United  States  v.  Railroad  Co.,  506 
United  States  v.  Vaughan,  342,  378,  414 
United  States  Rolling  Stock  Co.  v.  Atlan- 
tic, <fec.,  R.  R.  Co.,  286 
United  States  Trust  Co.  v.  Harris,  313 
United  States  Trust  Co.  v.  United  States 

Fire  Insurance  Co.,  318 
Unity  Insurance  Co.  v.  Coam,  59,  234 
Unthank  v.  Henry  County  T.  Co.,  119 
Upton   V.   Burnliara,   4,  42,   50.  2:)8,  265, 

262,  388,  384 
Upton  V.  Englehnrt,  116,  150,  151,  105 

Ixxxvii 


TABLE  OF   CASES. 


[  The  references  are  to  sections.l^ 


Upton  V.  Hansbrough,  42,  145,  184,  199 

208,  209,  256,  288 
Upton  V.  Jackson,  281,  503 
Upton  V.  Tribilcock,  4,  42,  46,  49,  50,  52, 

54,  67,  69,  70,  99,  138,  146,  164,  208, 
Utica  Insurance  Co.  v.  Cadwell,  4 


V 


Vail  V.  Hamilton,  613 

Vail  V.  Rice,  462 

Valk  V.  Crandall,  15,  67 

Vallance,  Ex  parte,  6 

Vallans  v.  Fletcher,  76,  240 

Valle  V.  Ziegler,  565,  567 

Valley  Bk.  &  Savings  Institution  v.  Sew- 
ing Society,  633 

Van  Aernam  v.  Bleistein,  509 

Van  Allen  v.  The  Assessors,  510,534,  569, 
571 

Van  Allen  v.  Illinois,  tfec.  K.  R.  Co.,  56, 
74,  113,  283 

Van  Blarcom  v.  Broadway  Bk.,  465 

Van  Blarcom  v.  Daget,  560 

Van  Buren  v.  Chenango  Ins.  Co.,  203 

Van  Cottw.  Van  Bi-unt,  17,  47,  48,  222, 
283 

Van  Dieman's  Land  Co.  v.  Cockerell,  134 

Van  Doren  v.  Olden,  554 

Van  Dyck  v.  McQuade,  540,  645,  681 

Van  Dyke  v.  Stout,  72 

Van  Gtahn  v.  De  Rosset,  634 

Van  Hastrup  v.  Madison,  91 

Van  Hook  v.  Whitlock,  224,  226 

Van  Norman  v.  Central  Car,  <fec.,  Co.,  546 

Van  Norman  v.  Jackson  Co.  Circuit  Judge, 
480,481,  482 

Van  Pelt  v.  U.  S.!  <fec.,  Co.,  204 

Van  Riper,  Exparte,2l% 

Van  Sandan  v.  Moore,  241,  505 

Vansands  v.  Middlesex  Co.  Bk.,  414.  521, 
5-23,  524,  530 

Van  Schmidt  v.  Brown,  576,  678 

Van  Weal  v.  Winston,  689 

Vance  v.  Phoenix  Ins.  Co.,  680 

Vance  v.  Tourne,  588 

Viindenburgh  v.  Broadway  Ry.  Co.,  611 

Vane  v.  Cobbold,  240 

Ixxxviii 


Vatable  v.  New  York,  L.  E.  &  W.  R.  R. 

Co.,  134,  633,  656 
Vaughan  v.  Wood,  476 
Vaupell  V.  Woodward,  339,  464,  476 
Vawter  v.  Griffin,  339 
Vawter  v.  Ohio  &  Miss.  R.  R.  Co.,  192 
Veeder  v.  Baker,  218 
Veeder  v.  Lima,  91 
Veeder  v.  Mudgett,  199,  215,  288 
Veiler  v.  Brown,  262,  263 
Venezuela  R.  R.  Co.  v.  Kisch,  295 
Venner?;.  Atchinson,  Ac,  R.  R.  Co.,  499 
Vermilye  v.  Adams  Ex.  Co.,  462 
Vt.  Central  R.   R.  Co.   v.   Clayes,  15,  16. 

173 
Vermont,  <fec.,  R.  R.  Co.  v.  Vermont,  <fec., 

R.  R.  Co.,  500,  503 
Vernon  v.  Hovey,  103 
Verplanck    v.   Mercantile    Ins.   Co.,  200, 

311,631,  632,  700 
Vick  V.  Lane,  206 
Vickw.  LaRochelle,  170 
Vicksburgh,  Ac,  R.  R.  Co.  v.  McKean;  56, 

142,  173,  187,  255 
Vigers  v.  Pike,  686 
Vincent  D.  Bramford,  215 
Vinton's  Appeal,  554 
Virginia,  <fec.,  R.  R.  Co.  v.  County  Com'rs, 

(fee,  86 
Vivian  v.  Mortlock,  306 
Von  Hoffman  v.  Quincy,  9 1 
Von    Schmidt   v.    Huntington,  206,  630, 

632 
Voorhees  v.  Receiver  of  Bk.,  Ac,  184 
Voris  V.  McCready,  449 
Vorrell  v.  Thompson,  464,  612 
Vose  V.  Grant,  199,  648,  549 
Vredenburg  v.  Behan,  236 
Vreeland  v.  New  Jersey,  Ac,  Co.,  52,  73, 

140,  156,  158 
Re  Vulcan  Iron  Works,  35 


w 


Walker  v.  Granite  Bk.,  519 
Walker  v.  Lewis,  215,  241 
Walker  v.  Mackie,  306 


TABLE   OF    CASES. 


\^The  references  are  to  sections.'] 


Walker  v.  Mad  River,  <fcc.,  Ry.  Co.,  676 

Walker  r.  Milne,  6 

Walker  v.  Mobile,  <frc.,  R.  R.  Co.,  61,  66, 

149,  150 
"Walker  v.  Ogden,  132,   134 
Walker's  Case,  262 
Wall  V.  Schneider,  344 
Wall  V.  Tomlinson,  319 
Wallace  v.  Long  Island  R.  R.  Co.,  658 
Wallace  v.  Townsend,  68,  74 
Waller  v.  Thomas,  504 
Wallingford,  itc.,  Co.  v.  Fox,  67 
Wallingford  Mfg.  Co.  v.  Fox,   111 
Walls  V.  Bailey,  462 
Wall  worth  v.  Holt,  678,  691 

Wain's    Assignees    v.     Bank    of     X<jrth 
America,  523 

Walnut  V.  Wade,  93,  94,  95 

Walradt  v.  Maynard,  546 

Walser  v.  Seligman,  200,  206 

Wabash  Ry.  Case,  632 

Wabash,  <fec.,  R.  R.  Co.  v.  Ham,  633 

Wade  V.  Kabfleisch,  216 

Wadsworth  v.  St.  Croix  Co.,  96 

Wadsworth  v.  Supervisors,  101 

Wagstaff  V.  Wagstaflf,  304 

Waite  V.  Coombes,  305 

Waite  V.  Dowley,  570 

Waite  t;.  Whorwood,  323 

Wakefield  v.  Fargo,  215,  249,  253,  255 

Wakeman  v.  Dalley,  243,  356 

Waker  v.  Cincinnati,  91,  92 

Walburn  ir.  Tngilby,  519 

Waldo  V.  Chicago,  St.  P.,  (fee,  R.  R.  Co., 
155,  295 

Waldo  V.  Portland,  285 

Walker  v.  Bartlett,  264,  259,  340,  377,  380 

Walker  v.  Chapman,  298 

Walker  v.  Crain,  205,  216 

Walker  v.  Detroit  Transit  Ry.  Co..  10,  391, 
380,  416 

Walker  v.  Devereaux,  59,  61 

Walsh  V.  Memphis,  &c.,  R.  R.  Co.,  206, 

226 
Walsh  V.  Seagcr,  155 
Walsh  V.  Sexton,  308 
Walsh  V,  Stille,  325,  326 
WiiKh  V.  Union  Bank,  266 
Walstttb  V.  Spottisvvoode,  240 


Walter's  Case,  383 

Walter's  Second  Case,  127,  251,  309 

Waltham  Bk.  v.  Waltham,  664 

Walton,  Ex  parte,  383 

Walton  V.  Walton,  300,  302 

Walton's  Case,  95 

Wallworth  v.  Brackett.  185,  593 

Wal-worth  Co.    Bk.    v.   Farmers'  Loan   cfe 

Trust  Co.,  285 
Wandsworth,  ifec.,  Gas  Light  <fe  Coke  Co. 

V.  Wright,  615 
Wapello  V.  B.  &  M.  R.  R.  Co.,  91,  100 
Ward  V.  Brigham,  240 
Ward  V.  Davidson,  657,  674 
Ward  V.  GriswoldvUle  Mfg.  Co.,  108.  204, 

207,  182 
Ward  V.  Kitchen,  322,  323 
Ward  V.  Lord  Londesborough,  76 
Ward  V.  Sea  Ins.  Co.,  629,  632,  633 
Ward  V.  Society  of  Attorneys,  630 
Ward  V.  Sittingbourne,  <fcc.,  Ry.,  548 
Wardw.  Southeastern  Ry.  Co.,  319,  387 
Ward  V.  Van  Duzer,  451 
Ward  V.  Londesborough,  240 
Ward's  Case,  57,  262,  309 
Ward  &  Garfit's  Case,  262 
Ward,  In  re,  323 
Warden  v.  R.  R.  Co.,  649 
Wardens,  (fee,  v.  Rector,  (fee,  658 
Wardens  of  Christ  Church  v.  Pope.  616 
Ware  v.  Bazemore,  694 
Ware  v.  Grand,  (fee,  R.  R.  Co.,  502 
Ware  v.  McCandlish,  552 
Waring  v.  Cahawba  Co.,  4 

Waring  v.  Mayor,  (fee,  of  Mobile,  499, 

500 
Warner  v.  Beers,  505 
Warner  v.  Callender,  205,  226 
Warner  v.  Hopkins,  689 
Warner  v.  Mower,  694,  595,  596,  598,  601 
Warren  v.  Brandon  Mfg.  Co.,  489 
Warren  v.  Davenport  Fire  Insurance  Co., 

4 
Warren  v.  Hewitt,  346 

Warren  v.  King.  269,  270,  540 

Warren  o.  i'a.stle waite,  305 

Warwick  R.  R.  Co.  v.  Ci.dy.  17'',  182 

Waseca  County  Bank  v.  McKenna,  572 

Washington  v.  Emory,  322,  323 

Ixxxix 


TABLE   OF   CASES. 


[The  references  are  to  sections.l 


Washington,  Ac,  T.  P.  Road  v.  State,  629 
Washington  Bank  v.  Palmer,  209 
Washinjrton  Benevolent  Soc.   v.   Bacher, 

626 
Washington  Insurance  Co.  v.  Price,  4 
Wasson  v.  First  National  Bank,  569,  571 
Water  Valley  Mfg.  Co.  v.  Seaman,  131, 

145,  173 
Waterbury  v.   Merchants'  Ex.   Co.,   505, 

508,  509,  510,  632,  690 
Waterford  W.  W.  &  B.  Ry.  Co.  v.  Dal- 

biac,  179 
Waterhouse  ■».  London,  tfec,  R.   R.  Co., 

293 
Waterhouse  v,  Jamieson,  43,  50,  255 
Waterhouse  v.  London  &  S.  W.  Ry.  Co., 

364 
Waterman  v.  Buckland,  341 
Waterman  v.  Troy,  Ac,  R.  R.  Co.,  277 
WattTtown  V.  Watertown,  505 
Watkins  v.  Dorsett,  481 
Watkins  v.  Wilcox,  623 
Watson,  Ex  parte,  168 
Watson  V.  Eales,  130,  256 
Wat?on  V.  Earl  Charlemont,  158 
Watson  V.  Miller,  454 
Watson  V.  Spratley,  6,  340 
Watts  V.  Salter,  179,  240 
Watts'  Appeal,  658,  680,  686 
Waukon,  <fec.  R.  R.  Co.  v.  Dwyer,  69,  106 
Wear  v.  Jacksonville,   <fec.  R.  R.  Co.,  83, 

87,  118 
Weaver  v.  Barden,  134,  821,  412,  418 
Weaver  v.  Huntingdon,  <fec.  Coal  Co..  483 
Weaver  v.  Weaver,  570 
Webb  V.  Burlington,  560,  565 
Webb  V.  Challoner,  447 
Webb  V.  Earle,  268,  272,  273,  534 
Webb  V.  La  Fayette  Co.,  94 
Webb  V.  Graniteville  Mfg.  Co.,  328 
Webb  V.  Ridgely,  614 
Webb  V.  Weatherhead,  504 
Weber  v.  Fickey,  10,  13,  227,  383 
Webster  v.  Hale,  301 
Webster  v.  Grand  Trunk  Ry.  Co  ,  575,  680 
Webster  i).  Sturges,  344,  346,  347 
Webster  v.  Turner,  629 


Webster  v.  Upton,  42,  50,  67,  69.  70,  99, 
164,  185,  199,  208,  255,  256,  259,  263, 
384 
Webster's  Case,  129,  502 
Weed  V.  Little  Falls,  &c.  Co.,  686 
Weeks  «.  Ellis,  615 
Weeks  v.  Love,  216,  224,  226,  228 
Weetjen  v,  Vibbard,  653 
Wehrman  v.  Reakirt,  200,  221,  224,  262, 

265 
Weightman  v.  Clark,  91,  92 
Weigley  v.  Coal  Oil  Co.,  215 
Weikersheim's  Case,  247,  320 
Weir  V.  Barnett,  158,  355,  681 
Weir  V.  Bell,  158 
Weiss  V.  Mauch  Chunk  Iron  Co.,  17,  67 

215 
Weismer  v.  Village  of  Douglass,  91 
Welch  V.  Post,  90. 

Wellersburg,  &c.,  Co.  v.  Hoffman,  59 
Wellersburg,  &c.  Co,  v.  Young,  52 
Welles  V.  Cowles,  6 
Wellman  v.  Howland  Coal  &  Iron  Works, 

206 
Wells  V.  Abernethy,  581 
Wells  V.  Gates,  504,  508 
Wells  V.  Pontiac  Co.,  93 
Wells  V.  Rodgers,  111 
Wells  V.  Supervisors,  90,  91 
Wells  V.  Yates,  508 
Wells,  Fargo  &  Co.  v.  Welter,  447 
Wellsborough  v.  New  York,  &c.,  R.   R. 

Co.,  94 
Wellsborough,  &c. ,  R.  R.  Co.  v.  Griffin,  655 
West  V.  Carolina  Life  Ins.  Co.,  629 
West  V.  Crawfordsville  &  A.  T.  Co.,  145 
West  V.  Wentworth,  581 
West  Branch  Bk.  v.  Armstrong,  527,  529, 

580, 532 
West  Branch,  <fec..  Canal  Co.'s  Appeal, 

576,  581 
West  Chester,  &c.,  R.  R.  Co.  ».  Jackson, 

546 
West  Cornwall,  &c.,  Ry.  Co.  v.  Mowatt, 

52 
AVest  Devon,  &c.,  Mine,  In  re,  515,  519 
West  Philadelphia  Canal  Co.  v.  Innes,  265, 

256 
West,  &c.,  R.  R.  Co.  v.  Mowatt,  29,  38 


XC 


TABLE  OF  CASES. 


[TTie  references  are  to  sections.] 


West,  (fee,  Co.'s  Appeal,  321 

West  Chester  Iron  Co.,  Case  of,  634 

West  Chester,  <fec.,  R.  R.  Co.  v.  Jackson, 

268.  269.  271 
WestLott  V.  Fargo,  508,  509 
Westcott  V.  Minnesota,  &.C.,  Co.,  123 
Western   Bk.  of  Scotland  v.  Addie,  140, 

144,  145,  157,  161,349 
Western  Bk.  of  Scotland  v.  Tallman,  15, 

17 

Western  R.  R.  Co.  v.  Avery,  195 

Western  Transportation,   Ac,  Co.  v.  Kil- 
derhouse,  218 

Western,  &c.,  R.  R.  Co.  v.  Franklin  Bank, 
293 

Weston  V.  Bear  River,  &c.,  Co.,  465,  489, 
532 

Weston  V.  City,  &e.,  of  Charleston,  569 

Weston's  Case,  63,  250,  255,  266,  331,  332, 
521,  650 

Westropp  V.  Solaman,  451,  462 

Wetherbee    v.   Baker,   35,   47,   138,  200, 
205,  206 

Wetumpka  v.  Wetumpka  Warf  Co.,  93 

Wetumpka  &  Coosa  R.  R.  Co.  v.  Bingham, 
500 

Weyer  v.  Second  National  Bank  of  Frank- 
lin, 6,  329,  330.  412,  414 

Whaley  Bridge,  <fec.,  Co.  v.  Green,  651 

Wbeatcroft's  Case,  168 

Wheatland  v.  Taylor,  93 

Wheeler,  Matter  of,   281,  285,  286,  604, 
621,  625 

Wheeler  v.  Faurot,  364,  262 
Wheeler  v.  Friend,  341 
Wheeler  v.  Frontier  Bank,  497 
Wheeler  v.  Miller,  4,  52,   192,  193,  199, 

207.  209,  215,  222,  227 
Wheeler  v.  Newbould,  477 
Wheeler  v.  Perry,  554 
Wheeler  v.  Santa  Fe,  &c.,  R.  R.  Co.,  60 
Wheelock  v.  Kost,  184,  247,  253 
Wheelock  v.  Moulton,  6 
Whelan  v.  Lynch,  448,  452,  581 
Whelpley  v.  Erie  Railway  Co.,  298 
Whipple  V.  Parker,  506 
Whitaker  v.  Smith,  215 
White  V.  Baxter,  451 
White  V.  Blum,  203,  224 
White  V.  Browneil.  504 


White  V.  Campbell,  638 

White  V.  Carmarthen,  &c  ,  Ry.  Co.,  691 

White  V.  Drew,  339 

White  V.  Franklin  Bank,  298 

White  V.  Price,  326,  329 

White  V.  Saulsbury,  378,  414 

White  V.  Salisbury,  581,  588 

White  V.  Schuyler,  338,  579 

White  V.  Smith,  344,  445,583,  584,    587  i 

White  V.  Syracuse,  &c.,  R.  R.  Co.,  315, 

500 
White  V.  Winchester,  302,  306 
White's  Case,  62,  251,  262 
Wliite  Executor  v.  Salisbury,  334 
White,  Ac,  R.  R.  Co.  v.  Eastman,  68 
White  Mountains  R.  R.  Co.  v.  Eastman, 

124,  137,  138,  168,  182,  636 
White  Mountains    R.   R.   Co.    v.   White 

Mts.,  (fee,  R.  R.  Co.,  636 
White's  Bk.  v.  Toledo,  &c.,  Lis.  Co.,  529 
Whitehall   &  P.  R.  R.  Co.  v.  Myers,  137, 

.501 
Whitehaven,  &c.,  Co.  v.  Reed,  295 
Whitehead  v.  Whitehead,  558 
Whitehouse  v.  Moore,  451,  462 
Whitehouse's  Case,  145,  161 
Whitehouse  &  Co.,  Ee,  193 
Whitewright  v.  American  Tel.,  &c..  Co., 

364 
Whitesell  v.  Boston,  565 
Whitesides  v.  Hunt,  344,  346 
Whiting  V.  Potter,  93 
AVhiting  v.  Sheboygan,  &c.,  R.   R.  Co., 

91 
Whitman  v.  Porter,  194 
Whitman  v.  Proprietors,  &c.,  73 
Whitney  v.  City  of  Madison,  563,  571 
Whitney  v.  Mayo,  691 
Whitney  v.  Page,  259 
Whitney  v.  Phoenix,  554,  559 
Whitney  v.  Ragsdale,  566 
Whitney  Arms  Co.  v.  Barlow,  222,  604 
Whitwell  V.  Warner,  228,  625 
Whittemore  v.  Amoskeag  Natl.  Bk.,  691) 
Whittlesey  v.  Delaney,  650 
Wicks  V.  ilatch,  459,  4'^7,  478 
Widow  Conant  v.  Millandoii,  612 
Wiggin  V.  Freewill  Baptist  Cliurcii,  5'.)1, 

590,  597 

xci 


TABLE    OF   CASES. 


[77te  references  are  to  sections.'] 


Wiglit  v.  Slielhy  R.  R.  Co.,   56,  71,  138, 

141,  173 
Wight  V.  Springfield,  (fee,  R.  R.  Co.,  4, 

620 
Wilbur  V.  Lynde,  660 
Wilbur  V.  Stockholder  of  the  Corporation. 

105,  108,  203,  204,  205, 207 
Wilcox  v.  Brickel,  695 
Wilday  t\  Sandys,  557 
Wilde  V.  Jenkins,  638 
Wildman  v.  Wildman,  5,  319 
Wiles  V.  Suydani,  218,  224,  226,  227 
Wilkins  v.  Thorne,  134 
Wilkinson  v.  Anglo-Col.  Gold  M.  Co.,  4, 

57 
Wilkinson  v.  Dodd,  703 
Wilkinson  v.  Lloyd,  334 
Wilkinson  v.  Prov.  Bank,  390 
Wilkinson's  Case,  145,  161 
Willamette  F.  Co.  v.  Stannus,  177 
Willcock  Ex  parte,  468,  611, 612,  614,  624 
Willey  V.  Parratt,  240 
Williams  v.  Archer,  577,  581,  582 
Williams  'J.  Bk.  of  Michigan,  236 
Williams  v.  Boice,  649,  550 
Williams  v.  College  Corner  &  Richmond 

Gravel  Road  Co.,  518 
Williams  v.  Carr,  346 
Williams  w.  Duck  River,  <fec.,  R.  R.   Co., 

91 

Williams  v.  Financial  Corp.,  599 

Williams  v.  Fullerton,  546 

Williams  v.  German  Mut.  Fire  Ins.  Co., 

596 
Williams  v.  Oilman,  462 
Williams  v.  Great  Western  Ry.  Co.,  4 
Williams  v.  Gregg,  681 
Williams  v.  Hall,  91 
Williams  v.  Hanna,  258,  260,  261,  336 
Williams  i».  Lowe,  123,  124,  521 
Williams  v.  McKay,  681 
Williams  v.  Mechanic's  Bk,  414,  465,487 
Williams  v.  Page,  76,  240 
Williams  v.  Parker,  9,  275 
Williams  v.  Patrons  of  Husbandry,  653 
Williams  v.  Reynolds,  481 
Williams  v.  Roberts,  93 
Williams  v.  Salmond,  76 
W  iUiams  V.  Savage  Mfg.  Co.,  282, 286.  3 1 4 

xcii 


Williams  v.  Smith,  4 

Williams  «.  Traphagen,  193,  228 

Williams  v.  Western  Union  Tel.  Co.,  3,  4, 

51,  537,  540,  541 
Williams's  Case,  245,  246,  266 
Williamson  v.  New  Jersey  Southern  R.  R. 

Co.,  464 
Williamson  v.  Smoot,  480 
Williamson  v.  Wads  worth,  215 
Willis  V.  Fry,  293,  585 
Willis  V.  Phil.  &c.  R.  R.  Co.,  293 
Willis  V.  Plaskett,  305 
Williston  y.  Michigan,  &c.  R.  R.  Co.,  269, 

271,  276,  539,  688 
Willoughby,  Re,  557 
Willoughby  v.  Comstock,  477,  478,  505 
Wilis  V.  Murray,  383,  595,  601 
Wilmersdoerffer    v.    Lake  Mahopac,   <fec. 

Co.,  630,  631 
Wilmington  R.  P.  Co.  v.  Reid,  494,  495. 

562,  568 
Wilmington  C.  <fe  R.  R.  R.  Co.  v.  Thomp- 
son, 185 
Wilson,  Ex  parte,  250 
Wilson  V.  Bk.  of  Montgomery  Co.,  28G 
Wilson  V.  Brownsmith,  302 
Wilson  V.  Caneadea,  93 
Wilson  V.  Harman,  558 
Wilson  V.  Keating,  338 
Wilson  V.   Little,  6,  464,  465,  4.77,  582 
W^ilson  V.  Maddison,  305 
Wilson  V.  Matthews,  581 
Wilson  V.  Miers,  630 
Wilson  V.  Milwaukee,  ifec.  R.  R.  Co.,  93 
Wilson  V.  Pittsburgh,   <fec.   Coal  Co.,  2o9, 

222 
Wilson  V.   Proprietors  of  Central  Bridge, 

251,  612,  629,  630,  636 
Wilson  V.  Salamanca,  103 
Wilson  V.  Shreveport,  91 
Wilson  V.  Stanhope.  240 
Wilson  V.  Stockholders,  209 
Wilson  V.  Whittaker,  583,  586 
Wilson  V.  Wills  Valley  R.  R.  Co..  117,  499 
Wilson's  Appeal,  57,  63,  250,  558 
Wiltbank's  Appeal,  637,   554 
Wiltzy.  Peters,  616 
Winans  v,  Hassey,  462 
Wiucham,  «fec.,  Co.,  In  re,  65 


TABLE  OF  CASES. 


[7%^  refei-ences  art  to  sections.'] 


Winch  V.  Birkeuhead,  Ac.  R.  R.  Co.,  636, 

668, 692 
Winchester  v.  Matter,  341 
Winchester,  <fec.,  Co.  v.  Clark,  93 
Wincock  v.  Turpin,  204,  211 
Windham,  Provident,  <fec.  v.  Sprague,  214, 

224,  225,  241 
Winfield  v.  Barton,  200 
Wingfield  v.  Peel,  200 
Winn  V.  Macon,  91 
Winslow  V.  Fletcher,  361,  485 
Winsor,  Ex  parte,  108,  205,  547 
Winsor  v.  Bailey,  690,  691,  693 
Winter  v.  Belmont  Min.  Co.  368 
Winter  v.  City  Council  of  Montgomery, 

94,  96 
Winters  v.  Muscogee  R.  R.  Co.,  120,  499, 

500 
Winthrop  Iron  Co.  v.  Meeker,  624 
Wintringham  v.  Rosenthal,  50,  255 
Wiswall   V.   Greenville,  <fec.,  li.   R.   Co., 

672 
Witherhead  v.  Allen,  221,  224,  508 
Withnell  v.  Gartham,  607 
Witt  V.  St^ere,  552,  556 
Witter  V.  Miss.,  (fee,  R.  R.  Co.,  499,  500 
Witters  v.  Sawles,  248,  252,  307 
Wolcot  V.  Heath,  342 
Wolff  V.  New  Orleans,  91 
Wolverhampton,  <fec.,  Co.  v.  Hawksford, 

58 
Wonson  v.  Fenno,  338 
Wontner  v.  Shairp,  160,  179,  181 
Wood  V.  Bedford,  <fec.,  R.  R.  Co.,  C29 
Woodi^.  Coosa,  «&c.,  R.  R.   Co.,   73,  173, 

185 
Wood  V.  Draper,  508,  562 

Wood  V.  Duramer,  199,  206,  226,  548,  549, 
038 

Wood  V.  Finch,  504 
Wood  V.  Hayes,  457,  471 
Wood  V.  Hicks,  218 
Wood  V.  Smith,  473 
Wood  V.  Union,  (fee,  Assn.,  297 
Wood  V.  Wood,  624,  626 
Wood's  Appeal,  329,  410,  473,  474 
Wood's  Claim,  47 

Wood  Hydraulic,  ttc,  Min.  Co.  v.  King, 
591,  592 


Woodfork  v.  Union  Bk.,  499 

Woodhall's  Case,  13 

Woodhouse  v.   Commonwealth   Ins.  Co., 

497 
Woodhouse  v.  Crescent  Mutual  Ins.  Co., 

321 
Woodruff,  Estate  of,  554 
Woodruff  V.  Erie  R.,R.  Co.,  625,  670 
Woodruff  V.  Harris,  489 
Woodruff  V,  McDonald,  58,  351 
Woodruffs.  Trapnall,  215,  497 
Woodruff?;.  Wentworth,  618 
Woodruff,  (fee,  Iron  Works  v.  Chittenden, 

226,  227 
Woods  V.  De  Figaniere,  519 
Woods  V.  Hicks,  241 
Woods  V,  Lawrence  Co.,  91 
Woodson  V.  Brassfield,  94 
Woolmer  v.  Toby,  240 
Woollaston's  Case,  127,  129 
Woolsey  v.  Independent  Order,  (fee,  626 
Woonsocket  Union  R.  R.  Co.  v.  Sherman, 

88 
Worcester  &  N.  R.  R.  Co.  v.  Hinds,  182 
Worcester,  (fee,  Co.  v.  Willard,  67,  68, 124 
Work  V.  Bennett,  471,  475,  583 
Worrall  v.  Judson,  4,  245,  258,  262 
Worrell's  Appeal,  322 
Worth  V.  Com'rs  of  Ashe  County,  565 
Worth  V.  Phillips,  343,  346 
Worthington  v.  Sebastian,  565 
Worthington  v.  Tormey,  458,  477 
Woven  Tape  Skirt  Co.,  Matter  of,  638 
Wright  V.  Bishop,  92 
Wright  V.  Bundy,  591 
Wright  V.   Central   California,   (fee,   Co., 

609,  615 
Wright  V.  Commonwealth  of  Pennsylvania, 

609 
Wright  V.  McCormack,  206,  216,  221,  226, 

228 
Wright  V.  Oroville  M.  Co.,  659 
Wright  V.  Stelz,  571 
Wright  V.  Tuckett,  542,  543,  562 
Wright  V  Vermont,  (fee,  R.  R.  Co.,  277 
Wright  V,  White,  555 
Wright's  Appeal,  292.  293,  294,  350 
Wright's  Case,  153,  163,  168 

xciii 


TABLE   OF   CASES. 


[TAe  referencea  are  to  sfciious.'\ 


Wyman  v.  American  Powder  Co.,  74,  220, 

574,  581 
Wyman  v.  Fiske,  342,  346,  347 
Wynkoop  v.  Seal,  451 
Wynne  v.  Price,  246,  259,  264,  338.  383, 

454 
Wyscaver  v.  Atkinson,  92 


Yates  V.  Maddan,  305 
Yeaton  v.  United  States,  218 
Yelland's  Case,  383 
Yerkes  v.  Saloman,  342,  344,  347 
Yetts  V.  Norfolk  Ry.  Co..  113,  675 
York  V.  North  Midland  Ry.  Co.,  650 
York  &  C.  R.  R.  Co.  v.  Pratt,  176 
York,  <fec.,  Ry.  Co.  v.  Hudson,  674 
York,  &c.,  R.  R.  Co.  v.  Ritchie,  129 


Young,  Ex  parte,  344,  347 
Yougheogheny  Shaft  Co.  v.  Evans,  214, 
224 

Young  V.  Moses,  636,  639 

Young  V.  New  York  &  Liverpool  Steam- 
ship Co.,  206 

Young  V.  Rosenbaum,  221,  224 

Young  V.  Vough,  522,  526,  529,  531,  533 


Zabriskie  v.  Cleveland  C.  &  C.  R.  R.  Co., 
27,  91,  315,  500,  595,  598,  686 

Zabriskie  v.  Hackensack  &  N.  Y.  R.  R. 
Co.,  495,  499,  5ii],  503,  607,  630,  636, 
686 

Zabriskie  v.  Smith,  216 

Zimmer  v.  Schleehauf,  220 

Zirkel  v.  Joliet  Opera  House  Co.,  170,266 

Zulueta's  Claim,  251,  282,  309 


XCIV 


THE  LAW 


OF 


STOCK  AND  STOCKHOLDERS. 


STOCK  AND  STOCKHOLDERS. 


PART  I. 

ISSUE    OF   AND    LIABILITY   ON    STOCK. 


CHAPTER   I. 


INTRODUCTORY.— OF  STOCK  AND  STOCKHOLDERS  GENERALLY. 


§    1 


Classes  of  corporations  and  the  class 

considered  herein. 
Corporations  having  a  capital  stock. 
Definition  of  capital  stock. 
Definition  of  corporator,  subscriber, 

shareholder,  and  stockholder. 
Shares  of  stock  defined. 


6.  Shares  are  personalty  and  not  real 

property. 

7.  Stock  as  property. 

8.  Law  of  place  governing  stock. 

9.  Classes  of  stock. 

10.  Certificates  of  stock. 


§  1.   Classes  of  corporations  and  the  class  considered  herein. 

— A  corporation,  as  defined  by  Chief  Justice  Marshall  in  the 
Dartmouth  College  case/  is  "  an  artificial  being,  invisible,  intan- 
gible, and  existing  only  in  contemplation  of  law."  This  felici- 
tous definition  comprehends  incorporated  bodies  of  every  class 
and  nature.  For  the  better  understanding,  however,  of  the  law 
of  corporations,  and  for  the  treatment  of  special  branches  of  that 
law,  the  early  writers,  like  Kyd,  Blackstone,  Kent,  Angell,  and 
Ames,  and  many  subsequent  authors,  have  subdivided  corpora- 
tions into  distinct  classes.  These  subdivisions  have  been  made  on 
various  principles  of  classification.  When  divided  with  respect 
to  the  members  of  corporations,  they  are  aggregate  and  sole.  As 
regards  their  functions,  they  are  public  or  municipal,  and  private; 
and  again,  private  corporations  are  divided  into  ecclesiastical  or 
religious,  and  lay  ;  and  still  further,  lay  corporations  are  divided 
into  eleemosynary  or  charitable,  and  civil,  which  include  all  pri- 
vate corporations  that  are  created  for  temporal  purposes,  such  as 
banking,  insurance,  trading,  railroad,  manufacturing,  turnpike, 
bridge,  and  canal  corporations.  Civil  corporations  include  also 
certain    public  corporations,  such  as  municipalities,  and  certain 


'  Dartmouth  College  v.  Woodward,  4  Wheat.  518,  636  (1819). 

1 


§  2.]  STOCK   AND   STOCKHOLDERS   GENERALLY.  [CH.  I. 

educational  institutions.  At  an  early  day,  private  corporations 
for  business  purposes  were  few  in  number  and  of  little  importance 
in  the  law.  Chancellor  Blarid  states  that  no  instance  of  such  a 
corporation  in  the  colonial  times  of  America  can  be  found.^  In 
England,  also,  at  that  time,  private  corporations  for  profit  were  of 
small  consequence.  But  the  past  seventy-five  years  have  com- 
pletely reversed  the  relative  importance  of  the  diff"erent  classes 
of  corporations,  and,  at  tlie  present  time,  private  corporations  for 
temporal  purposes  have  completely  overshadowed  all  other  kinds. 
With  this  change  there  is  a  decided  tendency  to  re-classify  the 
subject,  and  the  modern  treatises  on  cor])oration  law  have  recog- 
nized the  fact  that  old  classifications  are  to  be  disregarded,  and 
that  corporations  are  to  be  divided  into  joint-stock  corporations, 
or  those  having  a  capital  stock,  and  corporations  without  a  capital 
stock.^  This  classification  is  due  largely  to  the  remarkable  growth 
of  the  law  regulating  the  one  prominent  difference  between  the 
two  classes.  That  feature  is  that  corporations  with  a  capital  stock 
have  stock  and  stockholders,  while  corporations  without  a  capital 
stock  have  none,  but  are  governed  largely  by  principles  of  law 
that  have  changed  little  since  the  days  of  Blackstone  and  Kent. 
It  is  with  this  feature  of  modern  corporations,  as  distinguished 
from  those  that  especially  characterized  the  early  corporations  at 
common  law,  and  that  have  sunk  into  comparative  unimportance,^ 
that  the  present  work  is  concerned. 

§  2.  Corporations  having  a  capital  stock. — This  treatise, 
however,  does  not  discuss  all  the  questions  which  arise  in  connec- 
tion with  corporations  having  a  capital  stock.  In  some  respects 
this  class  of  corporations  involves  principles  of  law  in  common 
with  corporations  which  have  not  a  capital  stock.  The  old 
questions  of  how  a  corporation  shall  contract ;  whether  a  seal  be 
necessary ;  the  right  to  appear  by  attoi'ney  ;  the  power  to  make 

'  McKim  V.  Odom,  3  Bland's  Ch.  (Md.)  stock,  and   both  are  managed  by  boards 

407,  418  (1828).  of  officers  aud  meetino-s  of  the  slockhold- 

-^  The  recent  work  of  Taylor  on  "  Cor-  ers.  But  a  joint-stock  company  is  unin- 
porations  having  a  Capital  Stock  "  bears  corporated  and  is  but  a  partnership, 
witness  to  this  fact;  as  does  also  Mora-  See  Chapter  on  Joint-Stock  Companies. 
wetz  on  Corporations,  a  work  which  treats  ^  The  subject  of  municipal  corpora- 
very  little  of  the  older  classes  of  corpora-  tions  would  seem  to  form  an  exception  to 
tions  and  the  principles  which  govern  this  statement,  were  it  not  that  the  great 
them,  but  fully  and  clearly  of  private  and  deservedly  successful  work  of  Judge 
corporations  having  a  capital  stock.  It  Dillon  on  Municipal  Corporations  has 
is  well  to  state  here  that  a  joint-stock  cor-  clearly  stated  and  thereby  settled  most 
poration  and  a  joint-stock  company  are  of  the  difficult  Subjects  connected  with 
essentially  different.     Both  have  a  capital  that  branch  of  the  law. 


-CH.  I.] 


STOCK  AND  STOCKHOLDERS  GENERALLY. 


[§3. 


by-laws  ;  the  right  to  sue  and  be  sued  ;  and  to  hold  and  dispose  of 
property  in  the  corporate  name,  are  questions,  capacities,  and  inci- 
dents common  to  all  corporations,  and  for  the  most  part  have  be- 
<;ome  so  well  settled  as  to  give  rise  to  comparatively  little  litiga- 
tion at  the  present  day.  On  the  other  hand  it  is  believed  that  the 
modern  law  of  corporations,  as  regards  its  litigated  questions,  its 
unsettled  principles,  and  its  rapidly  crystallizing  results,  is  cen- 
tered largely  on  two  subjects — the  law  of  express  and  implied  cor- 
porate powers,^  and  the  law  of  stock  and  stockholders.  The  lat- 
ter is  the  subject  of  this  treatise. 

« 

§  3.  Definition  of  cajntal  stock. — Capital  stock  is  the  sum 
fixed  by  the  corporate  charter. as  the  amount  paid  in  or  to  be  paid 
in  by  the  stockholders,  for  the  prosecution  of  the  business  of  the 
corporation,  and  for  the  benefit  of  corporate  creditors  in  case  the 
corporation  becomes  insolvent.^  The  capital  stock  is  to  be  clearly 
distinguished  from  the  amount  of  property  possessed  by  the  cor- 
poration. Occasionally,  under  the  terms  of  taxation  statutes, 
which  have  been  drawn  without  regard  to  the  technical  meaning 
of  words,  the  courts  will  construe  the  capital  stock  to  mean  all  the 
actual  property  of  the  corporation.^  But  this  is  for  the  purpose 
^f  carrying  out  the  intent  of  the  statute,  and  is  not  the  real  mean- 
ing of  the  term.      At  common  law  the  capital  stock  does  not 


'  This  is  evidenced  by  the  popularity 
and  constant  demand  and  use  of  that 
learned  work,  Green's  Brice's  Ultra  Vires ; 
also  by  tlie  treatises  on  railroad  law  by 
Rorer,  Wood,  Pierce,  lledfield,  and  Shel- 
ford,  works  which  treat  largely  of  the 
powers  of  railroads  to  contract,  to  take 
land.  <fec.  So  also  a  mere  cursory  view 
of  the  numerous  decisions  on  corpcjration 
law  by  the  courts  at  the  i)resei)t  day,  will 
show  that  those  two  subjects  constitute 
the  kernel  of  modern  corporation  litijja- 
tion. 

'■'  For  various  definitions  see  Barry  v. 
Merchants'  Ex.  Co.,  1  Sand.  Ch.  280-805 
(1844);  Ilightower  v.  Thornton,  8  Ga. 
486,  500  (1850);  Hannibal  &  St.  J.  R.  R. 
Co.  V.  Shacklelt,  30  Mo.  551,  558  (1800); 
St.  Louis  Iron  M.,  etc.,  R.  R.  Co.  v.  Loftin, 
30  Ark.  693,  709  (1875);  Bent  v.  Ilart, 
10  Mo.  App.  143-146  (1881);  Mutual  Ins. 
Co.)'.  Supervisors,  Ac,  4  N.  Y.  442  (1851); 
Bailey  k.  (Mark,  21  Wall.  284  (1874), 
"where  Field,  J.,  says  "it  ai)])iies  oidy  to 
the  property  or  means  conlrihuted  by 
the  stockholders  as  the  fund  or  basis  for 


the  business  or  enterprise  for  which  the 
corporation  or  association  was  formed." 
Jones  V.  Davis,  35  0.  St.  474,  476(1880); 
Burrall  v.  Bushwick  R.  R.  Co.,  75  N.  Y. 
211  (1878),  where  Folger,  J.,  defines  it  as 
"that  money  or  property  which  is  ))ut  in 
a  single  corporate  fund  by  those  who  by 
subscription  therefor  become  members  of 
a  corporate  body."  Williams  v.  ^Vestern 
Union  Tel.  Co.,  93  N.  Y,,  162-188  (1883), 
where  Earl,  J.,  tersely  says  it  is  "  the 
property  of  the  corporation  contributed 
by  its  stockholders  or  otherwise  obtained 
by  it,  to  the  extent  required  by  its  char- 
ter." Sanger  v.  Upton,  91  U!  S.  56,  60 
(1875);  State  v.  Morristown  Fire  Assn., 
23  N.  .J.  L.  195;  State  v.  Gheraw  &  V,.  R. 
R.  Co.,  16  S.  C.  524  (18811. 

3  Ohio  cfe  M.  R.  R.  Co.  v.  Weber,  96 
111.  443  (1880);  City  of  Philadeli)hia  v. 
Ridge  Ave.  R.  R.  Co.,  102  Peim.  St.  190 
( 1 880).  In  valuation  for  jnirpo^es  of  taxa- 
tion it  has  been  iield  thnt  the  value  of  tlie 
cliaiter  is  not  to  be  included  as  a  piirt  of 
the  capital  stock.  Coit  v.  North  C.  Gold 
A.  Co.,  14  Fed.  Rep.  12(1882). 


^•] 


STOCK   AND   STOCKHOLDERS   GENERALLY. 


[CH.  I. 


vary,  but  remains  fixed,  although  the  actual  property  of  the  cor- 
poration may  fluctuate  widely  in  value  and  may  be  diminished 
by  losses  or  increased  by  gains.  The  term  "  stock  "^  has  been 
used  at  times  to  indicate  the  same  thing  as  capital  stock.  Gener- 
ally, however,  it  means  shares  of  stock,  and  in  this  sense  it  is 
used  in  this  treatise. 

§4.  Definitions  of  corporator,  snhscriher,  shareliolder,  and 
stocTcliolder. — A  corporator  is  one  of  those  to  whom  a  charter  is 
granted,  or  of  those  who  file  a  certificate  of  incorporation  under 
a  general  incorporating  statute.^  A  subscriber  i^  one  who  has 
become  liable  to  the  corporation  for  one  or  more  shares  of  stock 
in  the  corporation.^  A  shareholder  in  this  country  means  the 
same  thing  as  a  stockholder,  and  the  terms  are  used  interchange- 
ably to  indicate  one  who  owns  stock  in  a  corporation  and  has  been 
accepted  as  a  stockholder  by  the  corporation.^  A  stockholder  does 
not  stand  in  the  attitude  of  a  partner  towards  the  corporation. 


1  Burr  V.  "Wilcox,  22  K  Y.  551-555 
(1860) ;  People  v.  Commissioners,  &c.,  23 
N.  Y.  192-220  (1861);  Bailey  v.  Railroad 
Co.,  22  Wall.  604-637  (1874). 

*  Chase  v.  Lord,  7*7  N.  Y.  1-11  (1879), 
the  court  saying:  "Corporators  exist 
before  stockholdere,  and  do  m.t  exist 
with  them.  When  stockholders  come  in, 
corporators  cease  to  he."  Cf.  Lady 
Bryan's  Case,  1  Sawy.  349.  That  pro- 
moters or  corporators  need  not  he  sub- 
scribers to  the  stock  of  the  company, 
see  Densmore  Oil  Co.  v.  Densmore,  64 
Penn.  St.  43,  54  (Sharswood,  J.)  (1870). 

3  Busey  v.  Hooper,  35  Md.  15,  hold- 
ing that  a  subscriber  is  not  a  stockholder, 
but  is  only  in  position  to  become  one. 
Spear  v.  Crawford,  14  Wend.  20-23 
(1835).  In  England  it  has  been  held  that 
under  a  statute  the  subscriber  must  sign 
the  incorporation  articles  and  by-laws 
before  he  can  become  a  stockholder. 
Wilkinson  v.  Anglo-Col.  Gold  M.  Co.,  18 
Q.  B.  728  (1852).    See  also  Chap.  IV. 

■*  See  Rosevelt  v.  Brown,  11  N.  Y. 
148-150  (1854),  holding  that  so  far  as 
corporate  creditors  are  concerned,  the 
stockholders  need  not  be  the  stockowners. 
State  V.  Ferris,  42  Conn.  560  (1875)  ; 
Adderly  v.  Storm,  6  Hill,  624  (1844); 
Worrall  v.  Judson.  5  Barb.  210  (1849). 
Where  the  registered  holder  is  merely 
a  nominal  holder,  he  will  not  be  entitled 
to  special  privileges,  such  as  free  ad- 
mission to  a  place  of  amusement.    Appeal 


of  American  Acad.,  &c.  (Penn.),  2  East. 
Rep.  386  (1885).  In  behalf  of  corporate 
creditors,  where  the  corporation  is  insolv- 
ent, a  person  is  often  held  to  be  a  stock- 
holder, all  hough  no  certificate  has  been 
issued  to  him,  and  the  ordinary  indicia 
of  stockholdership  do  not  indicate  that  he 
is  a  stockholder.  Sanger  v.  Upton,  91 
U.  S.  56  (1875);  Upton  v.  Tribilcock,  91 
U.  S.  45  (1875);  Wheeler  v.  Miller,  90 
N.  Y.  353  (1882);  Burr  v.  Wilcox,  22  N. 
Y.  55  (I860);  Slee  v.  Bloom,  19  Johns. 
456  (1822);  Dorris  iv.  French, 4  Hun,  292 
(1875);  Hamilton,  Ac,  R.  R.  Co.  v.  Rice,  7 
Barb.  157-167(1849);  Clark  ?;.  Farrington, 
11  Wis.  306,  327(1860);  Hayuesi^.  Brown, 
36  N.  H.  545-563  (1858);  Chesley  v. 
Cummino-s,  37  Me.  76-83(1853);  Chester, 
(fee.  V.  Dewey,  16  Mass.  94  (1819);  Gris- 
wold  V.  Seligman,  72  JSIo.  110;  Schaffer  v. 
I\lo.  &  Co.,  46  Mo.  248  (1870);  Boggs  v. 
Olcott,  40  111.  303  (1866);  He  South 
Mountain,  tfcc,  7  Sawy,  20  (1881) ;  Upton 
V.  Burnham,  3  Biss.  431  (1873);  Johnson 
V.  Albany,  <fec.,  R.  R.  Co.  40  How.  Pr.  193 ; 
New  Albany,  Ac  ,  R.  R.  Co.  v.  McCormick, 
10lnd.499(1838);  Payne  i'.  Elliot,  54  Cab 
339  (1880).  In  Griswold  v.  Seligman,  72 
Mo.  110  (1880),  the  court  says:  "Our 
statute  make  a  clear  distinction  between 
mere  stockholders  and  stockowners.  . 
.  .  It  is  stockowners  only  who  can  be 
made  liable  for  the  debts  of  the  corpora- 
tion." 


CH.  I.] 


STOCK   AND   STOCKHOLDERS   GENERALLY. 


[§4. 


He  may  sue  the  coi'poration,  or  be  sued  bj  it,  both  at  law  and  in 
equity.^  Moreover,  he  has  a  direct  interest  in  the  corporation, 
and  at  times  may  take  the  part  of  the  corporation  in  prosecuting 
or  defending  its  suits.^  A  sharehokler  in  a  corporation,  which 
does  not  properly  insure  its  property,  has  such  an  insurable 
interest  in  that  property  that  he  may  recover  upon  a  policy 
thereon  taken  in  his  own  name,  for  an  amount  which,  added  to  the 
company's  insurance,  would  cover  his  interest.^ 

At  common  law  tlie  stockholder,  on  account  of  his  interest  in 
the  corporation,  was  not  a  competent  witness  in  a  suit  in  which 
the  corporation  was  a  party.  In  some  States,  however,  this  rule 
has  been  changed  by  statute,  and  in  others  it  is  easily  evaded  by  a 
formal  transfer  of  the  certificate  of  stock  to  another  person/ 

A  stockholder  is  incompetent  to  serve  as  a  judge ^  or  juror  ^  in 


'  Waring  v.  Cahawba  Co.,  2  Bay  (S. 
C),  109  (1797),  where  this  right  "of  a 
stockholder  was  the  question  in  litigation. 
Rogers  v.  Danby  Uniy.  Soc.,  19  Vt.  187 
(1847) ;  Culberston   v.  Wabash  Nav.   Co., 

4  McLean,  544  (1849);  Peirce  v.  Par- 
tridge, 44  Mass.  44  (1841);  Barnstead  v. 
Empire  Min.  Co.,  5  Cal.  299  (1855);  Uz 
parte  Booker,  18  Ark.  338  (1857).  A 
stockholder  as  a  creditor  of  the  corpora- 
tion may  obtain  security  for  his  debt  in 
exclusion  of  other  creditors.  Reichwald 
V.  Commercial  Hotel  Co.,  106  111.  439 
(1883). 

2  See  Part  IV. 

•'  Warren  v.  Davenport  Fire  Ins.  Co., 
31  Iowa,  464  (1871);  distinguishing 
Phillips  V.  Knox  County  Ins  Co.,  20 
Ohio,  174(1851);  c/.Seamanw.  Enterprise 
Fire,  &c.,  Ins  Co  ,  18  Fed.  Rep.  250;  s.  c. 

5  McCrary,  558(1883).  Contra,  Riggs  v. 
Commercial,  <fcc.,  Ins.  Co.,  51  JN.  Y. 
Super.  Ct.  466  (1884).  See  Greenhood  on 
Public  Policy,  255;  Angell  on  Fire  & 
Life  Insurance,  Chap.  XI,  and  cases 
cited. 

■•  See  N.  Y.  Code  of  Civil  Procedure, 
§i^  828,  839.  That  a  transfer  will  render 
the  transferer  competent,  see  111.  Ins. 
Co.  V.  Marseilles  Mfg.  Co.,  6  111,  236 
(1844);  Union  Bk.  v.  Owen,  4  Humph 
(Penn.)  338  (1843);  Bell  v.  Hull,  6  M.  <fe 
W.  699  (1840);  1  Greenleaf's  Evidence, 
§  429.  Ilfi  is  competent  though  the 
transfer  has  not  been  registered.  Bank 
of  Utica  V.  Smalley,  2  Cow.  770  (1824); 
Gilbert  v.  Manchester  Iron  Mfg.  Co.,  11 
"Wend.  627  (1834);  Delaware,  <fec.,  R.  R. 
Co.  I'.  Irick,  23  N.  J.  L.  321  (1852);  and 


although  he  expects  to  buy  it  back,  pro- 
vided there  is  no  agreement  expressly 
to  tiiat  effect.  Utica  Ins.  Co.  v.  Cadwell, 
3  Wend.  296  (1829);  Slate  v.  Catskill 
Bk.,  18  Wend.  466  (1837). 

'  Dinns  v.  Prop,  of  Grand  Junction 
Canal,  3  H.  L.  Cases,  759  (1852),  where 
the  Lord  Chancellor  was  a  stockholder 
in  the  defendant  company,  and  had  af- 
firmed a  decree  by  the  Vice-Chancellor 
in  the  case.  The  House  of  Lords  reversed 
the  decision  on  this  ground.  Cooley  on 
Constitutional  Limitations,  §§410,411; 
Washington  Ins.  Co.  v.  Price,  1  Hopk. 
Ch.  (N.  Y.)  1  (1823),  Chancellor  Sandford 
therein  refusing  to  follow  Chancellor 
Kent  in  Stuart  v.  Mechanics  &  Farmers 
Bk.,  19  Johns.  496-501  (1822).  '  In 
Peninsular  Ry.  Co.  v.  Howard,  20  Mich. 
18  (1870),  the  court  says:  "It  is  not  a 
matter  of  discretion  with  the  judge  or 
other  person  acting  in  ajudicial  capacity, 
nor  is  it  left  to  his  own  sense  of  propriety 
or  decency,  but  the  principle  forbids  him 
to  act  in  such  capacity  at  all,  when  he  is 
thus  interested  or  when  he  may  possibly 
be  subjected  to  the  temptation," 

"  Page  V.  Contoc.jok  Valley  R.  R.  Co., 
21  N.  H.  438  (1850);  Peninsular  R.  R. 
Co.  V.  Howard,  ?0  Miclr.  18  (1870); 
Fleeson  v.  Savage  S.  M.  Co.,  3  Nev.  167 
(1867);  Silver  v.  Ely,  3  Watts  &  S. 
(Penn.)  420  (1842).  (7/ Williams  */.  Smith, 
6  Cow.  166  (1826).  The  incompetency 
extends  to  the  son  of  a  stocUhi)ldcr. 
Georgia  R.  R.  Co.  v.  Hart,  60  .Via.  650 
(1378).  A  person  donating  to  the  raili-oad 
is  incompetent  to  serve  in  condrmnation 
proceedings.     Michigan  Air  Line  Ry.  Co. 

f) 


§  5.]  STOCK   AND   STOCKHOLDERS   GENERALLY.  [CH.  I. 

a  case  in  which  the  corporation  is  a  partj.  A  director  need  not 
necessarily  be  a  stockholder,  unless  a  statute  or  the  charter  ex- 
pressly so  provides.^ 

§  5.  Sliares  of  stoch  defined. — A  share  of  stock  may  be  de- 
fined as  a  right  which  its  owner  has  in  the  management,  profits, 
and  ultimate  assets  of  the  corporation.  By  the  Court  of  Appeals 
of  New  York  it  is  said  that  "  the  right  which  a  shareholder  in  a 
corporation  has,  by  reason  of  his  ownership  of  shares,  is  a  right 
to  participate  according  to  the  amount  of  his  stock  in  the  surplus 
profits  of  the  corporation  on  a  division,  and  ultimately  on  its 
dissolution,  in  the  assets  remaining  after  j^ayraent  of  its  debts."  ^ 

Chief  Justice  Shaw,  by  way  of  a  definition  of  a  share  of  stock, 
says  :  "  The  right  is,  strictly  speaking,  a  right  to  participate  in  a 
certain  proportion,  in  the  immunities  and  benefits  of  the  corpora- 
tion, to  vote  in  the  choice  of  their  oflScers,  and  the  management 
of  their  concerns,  to  share  in  the  dividends  of  profits,  and  to 
receive  an  aliquot  part  of  the  proceeds  of  the  capital,  on  winding 
up  and  terminating  the  active  existence  and  operations  of  the 
corporation."  ^  It  is  said  that  the  rights  which  a  share  of  stock 
secures  to  its  owner,  are  the  rights  "  to  meet  at  stockholders' 
meetings,  to  participate  in  the  profits  of  the  business,  and  to 
require  that  the  corporate  property  shall  not  be  diverted  from 
the  original  purpose."  ^     An  English  case  has  said :  "  It  is  cer- 

v.  Barnes,  40  Mid).  383(1879).     A  stock-  (1878);  Kent  il  Quicksilver  Mining  Co., 

holder  is  competent  though  the  corpora-  78  N.  Y.    159  (1879);  Jermain  v.   Lake 

tion  is  interested  in  a  subsequent  case  on  Shore,  <fec.,  R.  R.  Co.,  91  N.  Y.  483-492 

the  same  facts.     Commonwealth  v.  Bos-  (1883);  Field  v.  Pierce,   102  Mass.   253, 

ton,  &c.,  R.  R.  Co.,  57  Mass.   25  (1849).  261  (1869) ;  Jones  v.  Davis,  35  Ohio  !^t. 

Objedion  to  competency  must  be  raised  474,  477  (1880);  Bradley?'.  Bander,  36 

at  the  trial.     It  cannot  be  raised  for  first  Id.  28,  35  (1880);  Bent  v.  Hart,    10  Mo. 

time  by  motion  for  new  trial.     Williams  App.  143  (1881);  Harrison  v.  Vines,   46 

V.  Great  Western  Ry.  Co.,  3  H.  &  N.  869  Texas,  15,  21  (1876);  Brightwell  v.  Mal- 

(1859).     A  stockholder  may  be  the  receiv-  lory,  10  Yerg.  (Tenn.)  196  (1836) ;  Barks- 

er  or  assii^nee  of  the  corporation.     Covert  dale  ?'.  Finney,  14  Gralt.  338,  357  (1858); 

V.  Rogers,  88  Mich.  363  (1878).  Van  Allen  v.  Assessors,  3  Wall.  573,  585 

1  Wight  V.  Springfield,  Ac,  R.  R.  Co.,  (1865). 
117  Mass.  226(1875);  Re  St.   Lawrence  =*  pigijer  v.  The  Essex  Bk.,   5  Gray, 

Steamboat  Co.,  44  N.  J.  L.  529-541  (1882);  373,  378  (1855).    Cf.  Arnold  v.  Ruggles, 

State     V.     M«Daniel,     22    O.     St.     354  1  R.  I.  165  (1837). 

(1872).  Cf.  Bartholomew  V.  Bentley,  1  0.  ^  poj-bes  v.  Memphis,  &c.,  R.  R.  Co., 

St.  37  (1852);  Despatch  Line  v.  Bellamy  2  Woods,  323,  331   (1872).    Cf.  Payne  v. 

Mfg.  Co.,    12    N.    H.     205-223     (1841);  Elliott,  54  Cal.  339(1880).     Mr.  Justice 

Cumming   v.    Prescott,  2  Younge   &   C.  Sharswood  says :   "  A  share  of  stock  is  an 

488(1337);  Stack's  Case,   33  L.  J.  (Ch.)  incorporeal  intangible  thing.    Itisariglit 

731  (1864).  to  a  cert.",in  proportion  of  the  capital  stock 

^  Plimpton  V.  Bigelow,  93  N.   Y.  592,  of  a  corporation — never  realized  except 

599  ( 1 883).     To  same  effect  see  Burrall  v.  upon  the  dissolution  and  winding  up  of  the 

Bushwick  R.  R.   Co.,  75  N.  Y.  211,216  corporation — with  the  right  to  receive  in 

6 


CH.  I.] 


STOCK   AND   STOCKHOLDERS   GENERALLY. 


[§6. 


tainly  not  easy  to  define  precisely  the  meaning  of  '  stock.'  It  is 
not  an  ancient  subject  of  property,  nor  known  to  the  common 
law.  It  is,  however,  a  hereditament.  It  is  an  annuity  and 
treated  as  such  by  act  of  parliament,"  ^ 

Hence  it  may  be  concluded  that  a  share  of  stock  is  a  propor- 
tional part  of  certain  rights  in  tiie  management  and  profits  of  the 
corporation  during  its  existence,  and  in  tlie  assets  upon  dissolu- 
tion.^ 

§  6.  Shares  are  personalty  and  not  real  i)roi)€rty. — With  ref- 
erence more  particularly  to  the  essential  nature  of  shares  of  stock, 
it  has  been  well  settled  that  such  property  is  personalty  and  not 
realty.  It  is  said  that  a  share  of  stock  is  not  real  estate,  has  nothing 
to  give  it  the  character  of  real  estate,  is  not  land,  nor  an  heredita- 
ment, nor  an  interest  in  either  of  them.^     In  some  of  the  earlier 


the  meantime  such  profits  as  may  be  made 
and  declared  in  the  shape  of  dividends." 
Neiier  v.  Kelley,  69  Penn.  St.  403,  40*7 
(1871).  In  one  of  the  earliest  English 
cases  in  point,  Wildman  v.  Wildman,  9 
Vesey,  174,  177  (1803),  it  was  said  by 
Grant,  M.  R.,  that :  "  Tlie  interest  in  stock 
is  properly  nothing  but  a  right  to  receive 
a  perpetual  annuity,  subject  to  ledemp- 
tion." 

'  The  King  v.  Capper,  5  Price  (Eng. 
Exch.),  217,  262  (1817). 

"  Oakbank  Oil  Co.  v.  Crura,  L.  R.,  8 
App.  Cas.  65  (1882).  In  England,  there 
are  certain  terms  used,  which  are  peculiar 
to  that  country,  and  have  a  meaning 
other  than  their  meaning  in  this  coun- 
try. Tims  scrip  is  a  written  acknowledg- 
ment by  a  corporation,  that  the  holder 
will  be  entitled  to  certain  shares  of 
stock  and  a  certificate,  tlierel'or,  when 
the  unpaid  installments  on  such  shares 
are  all  paid  in.  They  are  negotiable 
instruments.  Goodwin  v.  Robarts,  L. 
R.,  1  App.  Cas.  476  (1876);  Riimball 
V.  Metropolitan  Bk.,  L.  R.,  2  Q.  B.  Div. 
194  (1877).  Stock  "  is  a  fund  or  capita], 
which  is  capable  of  being  divided  into, 
and  held  in  any  irregular  amount.  Thus, 
the  ordinary  government  funds  (consols, 
new  threes,  (fee.)  are  called  '  stocks.' be- 
cause a  person  can  buy  them  in  any 
amount  (such  as  £99,  19s.  \]<1.  as  well  as 
£100).  A  share  or  debenture,  on  the 
other  hand,  is  oi  a  fixed  amount  (such  as 
£10,  £50,  £100),  and  is  incapable  of  sub- 
division or  consolidation."  Ra}>alje  <Sr 
Lawrence's  Law  Die.  p.  1224.  siiares 
may  be  converted  by  the  company  into 


stock,  so  as  to  enable  their  holders  to  dis- 
pose of  them  in  small  or  irregular  amounts. 
Hurrell  &  Hyde   on    Joint    Stock  Com- 
panies, 47.   An  English  debenture  is  very 
nuich  the  same  as  an  American  mortgage 
on    corporation     property.       Debenture 
stock  differs  from  a  pure  debenture,  in 
that  the  title  of  each  original  holder  ap- 
pears in  a  registry,  instead  of  being  rep- 
resented by  an   instrument   complete  in 
itself,  and  the  stock  is  capable  of  being 
transferred  in  any  amounts,  unless  limited 
by  corporate  regulations.     See  Attcee  v. 
Ilawe,    L.     R.,    9    Ch.    D.    337    (1878). 
Articles  of  association  are  similar  to  by-, 
laws,  and  are  for  the  regulation  and  man- 
agement of  the  corporation.     Memoran- 
dum of  association  are  the  same  as  the 
American    articles  of  incorporation    re- 
quired to  be  filed  under  general  statutes 
for  incor[)orations.     Deed   of  settlement 
is  a  term  that  was  used  in  England,  prior 
to  1862,  to  indicate  the  same  as  the  mod- 
ern articles  of  association,    and   memo- 
randum of  association.      See  Burrows  v. 
Smith,  10  N.  Y.  550,  555  (1853). 

■■'  liligli  V.  Brent,  2  Younge  &  C.  (Exch.) 
268  (1836) ;  Edwards  v.  Hall,  6  De  G.,  M. 
<fe  G.  74  (1855);  Bradley  I/.  Iloldsworlh, 
3  Mees.  <fe  W.  422  (1838);  Ex  parte  Lan- 
caster Canal  Navigation  Co.,  1  Dea.  & 
Ch.  411  (1832);  Watson  v.  Spratley,  28 
Eng.  Law  <fe  Eq.  507  (1854).  In  Allen  v. 
Pegram,  16  Iowa,  163,  173  (1864),  Mr. 
Justice  Dillon  says:  "Mr.  Williams  treats 
of  shares  in  corporations  as  '  inror/ioreal, 
personal  properti/,'  a  very  neat  and  accu- 
rate designation.  Wms.  on  Pers.  i'rop. 
155."     See  also  Johns  »>.  Johns,  1  Ohio  St. 


§6.] 


STOCK   AND   STOCKHOLDERS   GENERALLY. 


[CH. 


cases,  perhaps  upon  the  theory  that  the  shareholders  had  a  direct 
interest  in  the  tangible  property  of  the  corporation,  shares  were 
held  to  be  real  estate  where  the  corporate  property  consisted 
wholly  or  chiefly  of  realty.^  But  as  a  result  of  all  the  authori- 
ties, we  may  say  that,  in  general,  all  shares,  except  possibly  those 
of  the  somewhat  unusual  class  of  incorporated  companies  where 
lands  are  vested  directly  in  the  individual  members,  and  the  man- 
agement only  is  in  the  corporation  ^  are  at  the  present  day  to  be 
regarded  as  personalty,^  a  view  which  has  frequently  found  ex- 
pression in  declaratory  statutes  both  in  England  *  and  in  the 
various  States  of  the  Union. ^  Stock,  though  personalty,  is  not 
a  chattel.  This  is  the  learning  in  the  King  v.  Capper,*'  a  case  in- 
volving a  forfeiture  honarum  et  castellarum  felonwrn.  It  is  rather 
a  chose  in  action  ;  or,  as  some  older  authorities  declare,  property 
in  the  nature  of  a  chose  in   action.'     It  is,  moreover,  of  such  a 


350  (1853),  Thm-man,  J. ;  Arnold  v.  Ru^;- 
gles,  1  R.  i.  165(183'?);  Dyer^^.  Osborne, 
11  Id.  321,  325  (IS'ze);  Tippets  t).  Walker, 
4  Mass.  595,  596  (1808),  Parsons,  C.  J. ; 
Sargent  v.  Franklin  -Ins.  Co.,  8  Pick.  90 
(1829);  Weyer  v.  Second  National  Bank, 
57  Ind.  198(18'7'7);  Manns  v.  Brookville 
National  Bank,  73  Id.  243  (1881) ;  Seward 
V.  City  of  Rising  Sun.  79  Id.  351  (1881); 
Southwestern  R.  R.  Co.  v.  Thomason.  40 
Ga.  408  ( 1 869).  Cf.  Wheelock  v.  Moulton, 
15  Vt.  519  (1843);  Russell  v.  Temple 
(Mass.,  1798),  3  Dane's  Abr.  108,  109. 

'  This  view  was  taken  by  the  Court 
of  Appeals  of  Kentucky.  Price  v.  Price, 
6  Dana,  107  (1838);  Copeland  v.  Cope- 
land,  7  Bush,  349  (1870),  by  Robertson, 
C.  J.  But  as  soon  as  this  latter  decision 
was  handed  down,  the  legislature  passed 
an  act  declaring  shares  of  stock  in  Ken- 
tucky to  be  personal  j^roperty,  thus  bring- 
ing the  courts  of  that  State  into  line  with 
other  common  law  courts  upon  this  ques- 
tion. In  Meason's  Estate,  4  Watts,  341 
(1835),  there  is  to  be  found  a  tendency  to 
hold  shares  in  a  toll-brids:e,  real  estate. 
Turnpike  stock  was  held  realty  in  Welles 
V.  Cowles,  2  Conn.  567  (1818) ;  s.  p.  Knapp 
V.  Williams,  4  Ves.  Jr.  430  (note)  (1798). 
So  of  canal  shares.  Tomlinson  «.  Tomliu- 
son,  9  Beav.  459  (1823).  Gf.  Bnckeridge 
V.  Ino-ram,  2  Ves.  652  (1795);  Drybutter 
V.  Bartholomew,  2  P.  Wms.  127  (1723); 
The  Kiug  V.  Winstanley,  8  Price,  180 
(1820).  Contra,  Walker  v.  Milne,  1 1  Beav. 
507  (1849).  See  also  Sparling  v.  Parker, 
9  Id.  450  (1846);  Myers  c.  Perrigal,  18 
L.  J.  (Chan.)  185  (1849) ;  s.  c.  21  L.  J.  (C. 

8 


p.)  217  (1852);  Ashton  v.  Langdale,  4 
Eng.  Law  &  Eq.  80  (1851);  s.  c.  20  L.  J. 
(Chan.)  234,  and  an  interesting  discussion 
of  the  question  in  3  Dane's  Abridgment, 
lOS  e/  seq.  (1824). 

-  For  an  instance  of  such  a  corporate 
arrangement  see  Bnckeridge  v.  Ingram,  2 
Ves.  Jr.  652  (1795),  a  case  involving  the 
nature  of  shares  in  the  navigation  of  the 
River  Avon,  under  the  statute  10  Anne. 

'■'•  See  an  essay  by  Henry  Budd,  Jr., 
Esq.,  of  the  Philadelphia  isar.  Stock 
— Its  nature  and  transfer — 7  Southern 
Law  Review  (N.  S.),  430  (1881). 

Ml  Geo.  in,  chap.  3;  Watson  v. 
Spratley,  28  Eng.  Law  <fe  Eq.  507  (1854); 
Ex  par<e  Vallance,  2  Deacon,  354  (1837); 
Ex  parte  Lancaster  Canal  Navigation 
Co.,  I  Dea.  &  Ch.  411  (1832). 

■>  1  Rev.  Laws  of  New  York,  247  ;  New 
York  Laws  of  1848,  chap.  40.  5^  8;  New 
York  Laws  of  1850,  chap.  140,  §  8  ;  Laws 
of  New  Jersey,  1830,  p.  83,  §17;  Code 
of  Virginia,  p.  550,  §  21. 

«  5  Price  (Eng.  Exch.),  217  (1817). 

''  Wildman  v.  Wildman,  9  Ves.  174 
(1803);  Howe  v.  Starkweather,  17  Mass. 
240,  243  (1821);  Hutchins  v.  State 
Bank,  12  Mete.  421,  426  (1847);  Union 
Bank  of  Tennessee  v.  The  State,  9  Yerg. 
(Tenn.)  490.  500(1835);  Allen  v.  Pegram, 
16  Iowa,  163,  173  (1864);  Arnold  v. 
Ruggles,  1  R.  L  165  (1837);  Slaymaker 
1).  Bank  of  Gettysburg,  10  Penn.  St.  373 
(1849);  Denton  v.  Livingston,  9  Johns. 
96  (1812);  Chesapeake,  tfec,  R.  R,  Co.  v. 
Paine,  29  Gratt.  502,  506  (1877);  Barks- 
dale  V.   Finney,  14  Id.   338,  357  (1858); 


CH.  I.]  STOCK    AND   STOCKHOLDERS   GENERALLY.  [§  7. 

nature  that  it  cannot  ordinarily,  either  by  apt  of  the  law  or  act  of  its 
owner,  be  reduced  to  possession.^  It  is  an  English  doctrine  that 
shares  of  stock  are  not  "  goods,  wares,  or  merchandise,"  as  those 
terms  are  to  be  understood  in  construing  that  section  of  the  Stat- 
ute of  Frauds  which  requires  delivery,  payment,  or  memorandum 
in  writing  of  a  sale  thereof.^  In  this  country,  however,  the  courts 
have  taken  the  opposite  view.^  Furthermore,  it  is  said,  that  shares 
are  not  money ,^  nor  are  they  a  security  for  money,^  nor  a  credit.^ 

§7.  Stoclz  as  property. — Certificates  of  stock  are  not  nego- 
tiable instruments.  They  have  sometimes  been  said  to  have  a 
quasi  negotiability,  but  this  phraseology  throws  little  light  upon 
the  real  character  of  the  transferability  of  stock.  It  may  be  said 
in  general  that  by  the  operation  of  the  law  of  estoppel  the  pur- 
chaser of  a  certificate  of  stock,  in  good  faith  and  for  value,  may 
take  it  free  from,  many  claims  of  previous  holders  which  would 
be  allowed  to  come  in,  in  the  case  of  a  sale  of  an  ordinary  chose  in 
action.'' 

Shares  of  stock,  being  in  the  nature  of  a  chose  in  action,  are, 
at  common  law,  not  subject  to  levy  of  execution,*  but  most 
of  the' States  have  enacted  statutes  whereby  stock  may  be  taken 
by  levy  of  attachment  or  of  execution.  This  species  of  prop- 
erty may  also  be  made  subject  to  taxation,^  and  for  purposes  of 
taxation  it  exists  apart  from  the  coi'poration,  the  corporate  prop- 
erty, the  corporate  franchises,  and  the  capital  stock.  In  most  of 
the  States,  and  in  the  Federal  courts,  trover  lies  for  the  conversion 


Fisher  i;.  Essex  Bank,  5  Gray,  373,  377  ^  Ogle  v.  Knipe,  38  L.  J.  (Chan.)  692 

(1855);  People's  Bank  I).  Kurtz,  99  Penn.  (18G9);     Godsen    t>.  Dotterill,    1    Myhie 

St.  344,  349  (1882);   Humble  v.  Mitchell,  <fe  K.  56  (1832) ;  Lowe  v.  Thomas,  5  De  G., 

11  Adol.  (fc  El.  205,  208  (1839).    Cf.  Kel-  M.  &  G.  315  (1854);  Hotham  v.  Sutton, 

\o'^^v.  Stockwell,  75  111.  68(1874)";   Lire  15   Ves.   320  (1808);  Atkins  v.  Gamble, 

Jackson,  L.  R.,  12  Eq.  354  (1871).  42  Cal.  86  (1871);   Wilson  v.  Little,  2  N. 

•  Jermain  v.  Lake  Shore,  <fec.,  R.  R.  Y.  443  (1849) ;  Mechanics'  Bank  v.  New 
Co..  91  N.  Y.  483,  492  (1883) ;  Neiler  v.  York,  (fee.,  R.  R.  Co.,  13  N.  Y.  599,  626 
Kelley,    69  Penn.    St.  403,    407  (1871);  (1856). 

Payne  v.  Elliot,  54  Cal.  339,  341  (1880).  "  New  Orleans  National  Banking  As- 

^  Pickering  v.    Appleby,    1    Comyn's  sociation    v.    Wiltz,    10   Fed.    Rep.    330 

Rep.  354  (1721);  Humble  »j.  Mitchell,  11  (1881);  s.   c.    4    Woods,    43.      See    also 

Adol.  &   El.   205  (1839).     But  see  also,  Smith  v.  Crescent  City,  <fec.,  Slaughter- 

Massell  v.  Cooke,  Finch's  Prec.  in  Chan,  house  Co.,  30  La.  Ann.  1378  (1878). 

533  (1720).  '  See  Chapter  on  Non-negotiability  of 

*  See  Chapter  XX.  Stock,  and  Part  II  in  general. 

•»  Nightingal  I'.  Devisme,  5  Burr.  2589 ;  *  See    Cliapter    on    Attachment    and 

fi.  o.  2Wm.  Black.   684  (1770);  Jones  v.  Execution. 

Brinley,    1    East,    1    (1800);    Douglas?;.  »  See  Chapter  on  Taxation. 
Congreve,  1  Keen.  410  (1836). 

9 


§§  8,  9.]  STOCK   AND   STOCKHOLDERS   GENERALLY.  [CH.  I. 

of  stock.  In  Pennsylvania,  however,  a  contrary  rule  prevails, 
altbono'h  conversion  is  held  to  lie  for  the  conversion  of  certiticates 
of  stock. ^ 

§  8.    Lcnv  of  .place  governing  stock. — Justice  Story,  in  his 
Conflict  of  Laws,  says  that  questions  relating  to  shares  of  stock 
are  to  be  determined  by  the  law  of  the  State  of  the  corporation.^ 
For  purposes  of  attachment  and  execution  levied  upon  stock  this 
is  undoubtedly  true,  since  it  is  only  at  the  domicile  of  the  corpo- 
ration that  such  an  attachment  or  execution  can  be  levied.^     As 
regards  the  taxation  of  stock,  however,  the  stock  follows  the 
domicile  of  the  stockholder,  and  may  be  taxed  in  accordance  with 
the  law  of  the  domicile  of  such  stockholder.*     In  reference  to- 
transfers  of  stock,  greater  difliculty  appears.      The  authorities 
seem  to  hold  that  the  transfer  must  be  made  in  accordance  with 
the  law  of  the  State  of  the  corporation,  and  so  far  as  legal  pro- 
ceedings against  the  stock,  at  the  domicile  of  the  corporation,  are 
concerned,  this  is  the  rule.^     A  different  rule  seems  to  prevail 
as  regards  the  method  of  transfer  of  stock  by  a  married  woman, 
and  it  is  held  that  a  transfer  made  in  accordance  with  the  law 
of  her  domicile  is  valid  and  effectual,  without  reference  to  the 
law  governing  married  women's  rights  in  the  State  where  the 
corporation  exists.^ 

As  regards  the  common  law  and  statutory  liability  of  a  stock- 
holder on  his  stock,  the  law  of  the  domicile  of  the  corporation 
determines  the  extent  of  the  liability,  while  the  law  of  the  for u?rh 
determines  the  method  of  enforcing  that  liability.'' 

§  9.   Classes  of  stock. — The  capital   stock  of   a   corporation 


1  See    Chapter    on    Conversion     and  Bk.,  133  Mass.  515  (1882)     Cf.  State  v. 

Measure  of  Damages.  First  Natl.  Bk.  &c.,  89  Ind.  302  (1883). 

^  Story  on  Conflict  of  Laws,  8th  ed.  The  case  of  Glenn  v.   Clabaugh,  3  Atl. 

§  383.  Rep.  9ti2  (1886),  holds  that  the  insolvent 

3  See    Chapter   on    Attachment    and  laws   of    Maryland    cannot   discharge   a 

Execution.  Maryland  subscriber  to  a  Virginia  cor- 

■1  See  Chapter  on  Taxation  of  Stock ;  poration.     The  validity  of  a  contract  to 

Delaware  Railroad  Tax,  18   Wall.   206,  sell  stock  under  the  Statute  of  Frauds  is 

230  (18*73).  determined    by   the   lex    loci   contractus^ 

5  See  Noyes  v.  Spaulding,' 27  Vt.  420  Tisdale  v.  Harris.  20  Pick.  9. 

(1853);  Richmondville  Mfg.  Co.  w.  Prall,  ''See    Hill  i^.  Pine  River   Bk.,  45  N. 

9  Conn.  481  (1833);  Black  v.  Zacharie,  3  H.  300  (1864);  Dow  v.  Gould,  <fec.,  S.  M. 

How.  483  (1845).     As  regards  national  Co.,  31  Cal.  629  (1867).     See  also   Ross 

banks,  see  Scott  v.  Pequonnock  Natl.  Bk.,  v.  Southwestern  R.  R.  Co.,  53  Ga.  514. 

15    Fed.    Rep.   494   (1883);    Continental  'New    Haven,    (fee,   Co.    v.    Linden 

Natl.  Bk.  V.  Eliot  Natl.  Bk.,  12  Rep.  85  ;  Spring  Co.  (Mass.,  1886),  6  Eastern  Rep. 

Dickinson   v.    Central    Natl.    Bank,    129  663.     See  also  Ch.  XI,  XIL 
Mass.  279  ;  Sibley  v.  Quinsigamund  Natl. 

10 


CH.  I.]  STOCK   AND   STOCKHOLDERS   GENERALLY.  [§  9. 

may  be  either  common  or  preferred.  By  common  stock  is  meant 
that  stock  which  entitles  the  owners  of  it  to  an  equal  pro  rata 
division  of  profits,  if  any  there  be;  one  shareholder  or  class  of 
shareholders  having  no  advantage,  priority,  or  preference  over  any 
other  shareholder  or  class  of  shareholders  in  the  division.  By 
preferred  stock,  or  as  it  is  denominated  in  England,  preference 
shares,  is  meant  stock  which  entitles  its  owners  to  dividends  out 
of  the  net  profits  before  or  in  preference  to  the  holders  of  the 
common  stock.  Common  stock  entitles  the  owner  to  a  pro  rata 
of  dividends  equally  with  all  other  holders  of  the  stock ;  while 
preferred  stock  entitles  the  owner  to  a  priority  in  dividends  or 
earnings. 

By  watered  or  fictitious  stock  is  meant  stock  which  is  issued 
as  f  ull}^  paid  up,  when,  in  fact,  the  whole  amount  of  the  par  value 
thereof  has  not  been  paid  in.  If  any  amount  less  than  the  whole  face 
value  of  the  stock  has  not  been  paid,  then  the  stock  is  watered  to 
the  extent  of  the  deficit.  Watered  stock  is,  accordingly,  stock 
which  does  not  represent,  in  good  faith,  money  paid  in  to  the 
treasury  of  the  company,  or  money's  worth  actually  contributed 
to  the  working  capital  of  the  concern.  The  issue  of  such  stock 
may  be  lawful,  but  it  is  generally  in  fraud  of  the  rights  of  some 
interested  party,  as,  e.  g.,  creditors  of  the  corporation,  certain 
shareholders  or  classes  of  shareholders,  or  of  the  public.^ 

By  deferred  stock  is  meant  stock  the  payment  of  dividends 
upon  which  is  expressly  postponed  until  some  other  class  of  share- 
holders are  paid  a  dividend,  or  until  some  certain  obligation  or 
liability  of  the  corporation  is  satisfied. 

By  overissued  or  spurious  stock  is  meant  stock  issued  in  excess 
of  the  full  amount  of  capital  stock  authorized  by  the  charter 
of  the  corporation.  Such  stock  may  be  issued  in  good  faith,  but 
usually  is  uttered  with  a  fraudulent  intent. 

In  Massachusetts  some  classes  of  corporations  issue  what  is 
there  known  as  sp)ecial  stock.  This  is  a  peculiar  kind  of  stock, 
essentially  local  in  character,  provided  for  by  statute,  and  un- 
known before  the  year  1855.  Its  characteristics  are  that  it  is 
limited  in  amount  to  two-fifths  of  the  actual  capital ;  it  is  subject 
to  redemption  by  the  corporation  at  par  after  a  fixed  time,  to  be 
specified  in  the  certificate ;  the  corporation   is  bound   to  pay  a 


'  See  Chapter  III,  on   Issue  of  Fictitiously-  Paid-up  Stock. 

11 


§  10.]  STOCK   AND    STOCKHOLDERS   GENERALLY.  [CH.  I. 

fixed  half-yearly  sum  or  dividend  upon  it  as  a  debt ;  the  holders 
of  it  are  in  no  event  liable  for  the  debts  of  the  corporation  beyond 
the  amount  of  their  stock,  and  the  issue  of  special  stock  makes  all 
the  general  stockholders  liable  for  all  debts  and  contracts  of  the 
corporation  until  the  special  stock  is  fully  redeemed.' 

§  10.  Certificates  of  stock. — A  certificate  of  stock  is  from  one 
point  of  view  a  mere  muniment  of  title,  like  a  title  deed.  It  is 
not  the  stock  itself,  but  evidence  or  warrant  of  the  ownership  of 
the  stock,  that  is  to  say,  it  is  a  written  acknowledgment  by  the 
corporation  of  the  interest  of  the  shareowner  in  the  corporate 
property  and  franchises ;  it  operates  to  transfer  nothing  from  the 
corporation  to  the  shareholder,  but  merely  affords  to  the  latter 
evidence  of  his  rights.  It  should  be  clearly  apprehended  that  the 
certificate  is  not  the  stock,  but  merely  written  evidence  of  the 
ownership  of  shares.^  Accordingly,  it  is  said  that  shares  have 
no  "  earmarks " — that  one  share  cannot  be  distinguished  from 
another  share — but  that  it  is  only  the  certificates  which  are  dis- 
tinguishable one  from  the  other  by  their  numbers  and  in  other 
•ways.^  The  certificate,  therefore,  has  value  in  itself  only  as  evi- 
dence, and  apart  from  the  shares  which  it  represents  it  is  utterly 
worthless.*  And  even  as  evidence  it  is  not  in  every  case  essen- 
tial ;  it  is  merely  a  convenient  voucher,  which  the  shareholder  has 
a  right  to  receive  if  he  asks  for  it.^  One  element  of  its  value 
to  the  shareholder  is  that  it  is  prima  facie  evidence  of  his  title.® 

'  American   Tube  Works   v.   Boston  case  in  which  the  distinction  between  a 

Machine  Co.,   139    Mass.    5(1885);  Wil-  refusal  on  the  part  of  a  corporation  to 

liaius  V.  Parker,  136  Id.  204,  207  (1884) ;  issue  a  certificate  in  a  certain  form,  and  a 

Reedv.  Boston  Machine  Co.,  Sup.Jud.Ct.of  refusal  to  recognize  the  owner  of  shares 

Mass.  (1886) ;  Stats,  of  Mass.  1855,  chap,  as  owner — a  denial  of  his  property  in  the 

290;   1870,   chap.  224,  §§  25,39,  cl.  4 ;  stock— is  clearly   drawn.      By   the    Su- 

Pub.  Stat,  of  Mass.,  chap.  106,  §§  42,  61,  preme  Court  of  Indiana  the  distinction 

cl.  3.  to  the  effect  that  a  certificate  is  not  the 

"  Hawley  v.   Brumagim,  33  Cal.   394  title,  but  only   evidence  of  the    title,   to 

(1867);  Campbell  v.  Morgan,  4  Bradw.  shares  is  clearly  drawn.     The  court  says  : 

100  (1879);   People's  Bank  v.   Kurtz,  99  "The  certificate  did  not  constitute  the 

Penu.  St.  344(1882);  Hubbell  v.  Drexel,  title  to  the  stock.     The  registry  of  the 

21   Am.   Law   Reg.  (N.   S.)  452  (1881);  stockholder's  name  upon  the  stock  books 

Van  Allen  v.  Assessors,  3  Wall.  573,  598  of  the  company,  opposite  the  number  of 

(1865);  Burr  v.    Wilcox,   22   N.    Y.    551  his  shares,  gave   him  his  title.      In  legal 

(I860).     "  Stock  is  one  thing,  and  certif-  contemplation  the  certificate  was  merely 

icatei  anothei-.     The  former  is  the  sub-  an  additional  and  convenient  evidence  of 

stance,  and  the  latter  is  the  evidence  of  the  ownership  of  the  stock."     Cincinnati, 

it."     Hawley  v.  Brumagim,  supra.  &c.   R.   R.    Co.  v.   Pearce,   28    Ind.    502 

3  Hubbell  V.  Drexel,  supra.  (1867). 

"  Payne  v.  Elliot,  54  Cal.  339.  *^  Broadway  Bank  v.  McElrath,  13  N. 

5  Johnson  v.  Albany,  &c.,  R.  R.  Co.,  J.  Eq.  24  (1860);    Courtright   v.  Deeds, 

40  How.  Prac.  193  (1870).     Of.   Arnold  37  Iowa,  503  (1873);  Walker  v.  Detroit 

V    Sufltblk  Bank,  27  Barb.  424  (1857),  a  Transit,  &c.  Co.,  47  Mich.  338  (1882). 


CH.  I.] 


STOCK   AND   STOCKHOLDERS   GENERALLY. 


[§10. 


The  rigbt  of  every  shareholder  to  demand  and  receive  from  the 
company  a  certificate  is  generally  conceded.^  When  certificates 
are  executed  by  a  part  only  of  the  officers  required  by  law  to  sign 
them,  they  are  void.^  But  a  certificate  issued  to  an  officer  of  the 
corporation  who  is  a  shareholder,  although  the  certificate  is  signed 
by  that  officer,  is  valid.^  It  is  not,  however,  essential  to  the  ex- 
istence of  the  corporation,  that  certificates  of  stock  shall  be 
issued.*  Without  a  certificate  the  shareholder  has  a  complete 
power  to  transfer  his  stock,^  to  receive  dividends,^  and  to  vote,' 
and  he  is  individually  liable  as  a  stockholder.^  A  certificate  of 
stock  may  be  a  valid  subject  of  a  donatio  causa  mortis,  of  a 
legacy,  a  contract  of  sale,  a  pledge,  or  a  gift.^  Under  the  English 
statute  an  issue  of  stock  by  a  corporation  has  reference  only  to  the 
issue  of  the  certificates,  and  means  an  original  putting  out  of  the 
shares.^"  In  New  York,  making  out  and  mailing  the  certificates 
has  been  held  to  constitute  a  due  issuing  thereof."  And  in  Mary- 
land, the  stub  of  a  book  from  which  certificates  have  been  de- 
tached is  evidence  of  their  regular  issue.^ 


12 


'  Buffalo,  (fee.  R.  R.  Co.  v.  Dudley,  14 
N.  y.  336,  347  (1856);  National  Bank  -■. 
Watsontown  Bank,  105  U.  S.  217  (1881); 
Chester  Glass  Co.  v.  Dewey,  16  Mass.  94 
(1819).  A  valid  certificate  may  be  issued 
out  of  the  State  in  which  the  corporation 
exists.  Courtrightw.  Deeds,  37  Iowa,  503 
(1873). 

^  Holbrook  v.  Farquier,  <fec.  Co.,  3 
Cranch  C.  C.  425  (1829). 

3  Titus  V.  President,  <fec.  of  the  G.  W. 
Turnpike  Road,  61  N.  Y.  237  (1874). 

■»  Chester  Glass  Co.  v.  Dewey,  16  Mass. 
94  (1819);  Burr  v.  Wilcox,  22  N.  Y.  551 
(1860). 

*  First  National  Bank  v.  Giflford,  47 
Iowa,  575  (1877);  National  Bank  v.  Wat- 


sontown Bank,  105  U  .S.  217  (1881).  Cf. 
Brigham  v.  Mead,  10  Allen,  245  (1865). 

•>  Ellis  V.  Proprietors  of  Essex  Merri- 
mack Bridge,  2  Pick.  243  (1824). 

■J  Beckett  v.  Houston,  32  Ind.  393 
(1869). 

*  Agricultural  Bank  v.  Wilson,  24  Me. 
273  (1844);  Mitchell  v.  Beckman,  61  Cal. 
117  (1883). 

**  See  Chapter  XVIII,  on  Legacies 
and  Gift  cf  Stock. 

"*  East  Gloucestershire  Ry.  Co.  v.  Bar- 
tholomew, L.  R.  3  Exch.  15  (1867); 
Bush's  Case,  L.  R.  9  Clian.  554  (1874). 

^'  Jones  V.  Terre  Haute,  &c.  R.  R.  Co., 
17  How.  Pr.  529  (1859). 

'•^  Weber  v.  Fickey,  47  Md.  196  (1877). 


13 


CHAPTER   II. 


METHODS   OF  ISSUING  STOCK. 


§  11.  Different  methods. 

12.  First    method. — Issue    by    money 

subscription. 

13.  Second   mpthod. — Issue   for   prop-' 

erty,  labor,  or  to  a  construction 
company. 

14.  When    such    subscriptions  are  not 

legal. 

15.  What  property  may  be  received. 


16.  Payment  in   property   as  a  favor, 

not  as  a  contract  right. 

17.  Sale  of  stock  for  property. 

18.  English  statute  governing  issue  for 

property. 

19.  Performance  of  contract  to  pay  in 

property. 

20.  Thiid    method. — Issue     by    stock 

dividend. 


§  11.  Methods  of  issuing  stock. — There  are  in  general  three 
methods  of  issuing  stock.  It  may  be  issued,  first,  by  means  of 
subscriptions,  payable  in  cash,  the  subscription  being  made  in 
writing  or  by  acts  equivalent  thereto.-^  Second,  the  issue  may  be 
by  means  of  subscriptions,  payable  by  its  terms,  in  labor,  prop- 
erty, or  both,  or  by  means  of  a  sale  of  stock  for  labor,  property, 
or  both.     Third,  the  issue  may  be  by  a  stock  dividend. 

§  12.  First  method. — Issue  hy  money  subscrijytion. — An  issue 
of  stock  by  means  of  a  subscription,  payable  in  cash,  is  the  most 
usual,  honest,  and  .satisfactory  method  of  issuing  stock.  In  the 
absence  of  any  agreement  to  the  contrary,  an  ordinary  subscrip- 
tion for  stock  is  deemed  a  cash  subscription,  and  payment  in 
money  may  be  enforced.^  The  subscription  contract  is  generally 
made  by  a  writing  duly  signed  by  the  subscriber.  The  writing 
itself  is  contained  in  books  opened  by  the  corporation  or  b}^  com- 
missioners appointed  in  conformity  with  a  statute,  or  it  is  made 
without  formality,  on  subscription  lists  or  separate  sheets  of 
paper. 

A  subscription,  payable  in  cash,  may  arise  also  from  the  mere 
acts  or  declarations  of  a  party.  A  person  having  assumed  the 
position  of  a  subscriber  or  stockholder  is  frequently  held  to  be 
bound  as  such.  Any  act  or  declaration,  sufficient  to  indicate  an 
intent  on  the  part  of  the  person  to  be  a  subscriber,  and  an  accept- 


'  See  Chapter  IV. 

14 


*  See  Chapter  IX. 


•CH.  II.] 


METHODS   OF   ISSUING   STOCK. 


[_^ri 


aiice,  by  the  corporation,  of  the  person  as  such,  is  equivalent  to  a 
written  subscription,  and  tiie  person  is  barred  as  a  subscriber,^ 

§  13.  Second  method. — Issue  for  ])ro]perty,  labor,  or  to  a 
construction  company. — The  issue  of  stock  for  labor,  prop- 
erty, contract  work,  or  anj  yaluable  consideration  other  than 
n)oney,  has  given  rise  to  much  controversy  and  litigation. 
In  England  a  long  line  of  decisions,  under  the  Companies 
Acts,  has  established  the  principle  that  stock  need  not  nec- 
essarily be  paid  for  in  cash,  but  that  it  may  be  paid  for  in 
raonev's  worth.^  Such  also  was  the  rule  at  common  law.^ 
The  well-established  rule  now  is  that  a  subscription  for  stock, 
payable  by  its  terms  in  property  or  labor,  or  both,  is  a  good 
and  legal  subscription.  If  the  property  is  taken  at  a  valuation 
made  without  fraud,  the  payment  is  as  effectual  and  valid  as  though 
made  in  cash  to  the  same  amount.  An  issue  of  stock  for  prop- 
erty is  one  which  finds  support,  not  only  in  the  decisions,  but  in 
the  daily  transactions  of  corporations,*  and  the  law  does  not  com- 
pel the  corporation  and  the  subscriber  to  go  through  the  useless 
form  of  a  payment  by  the  corporation  to  the  subscriber  of  the 
value  of  the  property,  and  an  immediate  repayment  of  the  same 
money  by  the  subscriber  to  the  corporation  on  his  subscription.^ 


'  See  Chapter  IV. 

"^  See  many  cases  in  Chapter  III. 
Stacy  V.  Little"  Rock  &  Fort  Smith  R.  R. 
Co.,  5  DiU.  348.  376  (1879). 

3  Woodhall's  Case,  3  De  G.  &  Sm.  63 
(1849),  and  in  Burkinshaw  v.  Nichols 
L.  R.,  3  App.  Cas.  1004,  1012  (1878), 
payment  having  been  made  in  property, 
the  court  said:  "If  there  had  been  no 
statutory  enactment  forbidding  a  trans- 
action of  that  kind,  it  is  a  transaction 
which  might  be  properly  valid."  Cf. 
dictum  in  Sanger  v.  Upton,  91  U.  S. 
56,  60(1875).  "  It  is  not  now  questioned 
that  a  corporation  may  issue  its  stock  by 
way  of  payment  in  the  purchase  of  prop- 
erty. This  is  on  the  principle  that  there 
is  no  need  for  the  roundabout  j)roces3  of 
first  issuing  the  stock  for  money,  and  then 
paying  the  money  for  the  property.  But 
it  is  necessary  that  the  property  so  taken 
be  considered  reasonably  worth  the  par 
value  of  the  stock  jjaid  for  it."  Chouteau 
V.  Dean,  7  Mo  App.  210(1879);  Wyman 
V.  Amer.  Powder  Co.,  62Mass.  168  (1851) ; 
Reichwald  /'.  Coinmen-ial  Hotel  Co.,  106 
111.  439  (1883);  llaydon  v.  Atlanta  Cotton 
Factory,  61  Ga.  234(1878). 


■»  Foreman  v.  Bigelow,  4  Cliff.  508,  544 
(1878). 

•''  ^eawright  v.  Paj-ne,  6  Lea  (Tenn.), 
283  (1880):  Brant  v.  Ehlen,  59  Md.  1 
(1882);  Spargo's  Case,  L.  R.  8  Ch.  App. 
412  (1873) ;  Boot<fe  Shoe  Co.  v.  Hart,  56 
N.  H.  548  (1876).  Payment  in  property 
by  subscribers  was  held  not  allowable  in 
Neuse  River  Nav.  Co.  v.  Com'rs  of  New- 
bern,  7  Jones'  Law  (N.  C.)  275  (1859); 
also  Henry  v.  Vermillion  <fe  Ashland  11. 
R.  Co.,  17  0.  187  (1843),  although  the 
latter  case  seems  to  involve  an  oral 
agreement  to  allow  such  payment,  and  to 
have  been  decided  on  that  ground. 
Greenhood  on  Public  Policy,  136  (1886), 
improperly  applies  iierelo  the  rule  rela- 
tive to  si)ecial  agreements  with  pai't  of 
persons  jointly  interested  in  an  enter- 
prise. There  is  a  long  line  of  cases  sus- 
taining the  validity  of  an  issue  of  stock 
for  money's  worth  instead  of  money  itself. 
They  are  given  in  this  and  the  fi)llowing 
chapter.  So  well  established  has  this 
prineij)le  of  law  become  that  the  few 
cases  holding  to  the  contrary  can  no 
longer  be  considered  good  law.  "That 
in  the  absence    of    fraud  an  agreement 

IT) 


§  14.]  METHODS  OF   ISSUING  STOCK.  [CH.  ir. 

There  is  some  doubt  as  to  whether  an  oral  agreement  of  the 
corporate  agents,  that  a  subscription  may  be  paid  in  property  is 
binding  upon  the  corporation.  Under  the  well-established  rule 
that  parol  evidence  will  not  be  allowed  to  add  to  or  vary  a  written 
agreement,  it  has  been  held  that  such  an  oral  agreement  with  the 
agent  cannot  be  admitted  in  evidence.^  When,  however,  the 
parol  agreement  is  made  subsequently  to  the  act  of  subscribing, 
and  is  supported  by  a  sufficient  consideration,  it  is  valid  and  en- 
forceable.^ 

§  14.  When  such  suhscriptions  are  not  legal. — A  subscription 
payable  by  its  terms  in  labor  or  property  is  in  the  nature  of  a 
conditional  subscription.  Accordingly,  in  certain  States,  where 
a  percentage  or  fixed  amount  of  the  capital  stock  must  be  sub- 
scribed for  before  a  charter  can  be  obtained  ;  and  where,  by  the 
decisions  of  the  courts,  such  preliminary  subscriptions  must  be 
absolute  and  unconditional;  a  subscription  payable  by  its  terms 
in  labor  or  property,  being  conditional  to  that  extent,  cannot 
form  a  part  of  the  preliminary  subscription.^  In  such  States, 
however,  subscriptions  to  the  remainder  of  the  caj)ital  stocky 
the  part  not  subscribed  for,  in  order  to  obtain  the  charter, 
may  be  conditional,  and  may,  by  their  terms,  be  payable  in 
property  or  labor.*      On  the  ground  that  subscriptions  payable 


may  ordinarily  be  made  by  which  stock-  Ridgefield  &  N.  Y.   R.  R.  Co.   v.   Brush, 

holders  could  be  allowed  to  pay  for  their  43  Conn.  86  (1875).    Contra,  Louisville  & 

shares  in  patents,  mines,  or  other  prop-  Nash.  R.  R.  Co.  v.  Thompson,  18  R.  Monr. 

erty,  to  which  it  is  not  easy  to  assign  a  735  (1857);  McConahy  v.  Centre  &  Kish 

determinate   value,  would   appear  to  be  Turnpike  R.  Co.,  1  Penn.  <feW.  426  (1830), 

well   settled."      New   Haven,  (fee,  Co.  v.  followed  in    Swatara  R.  R.  v.   Erune,  6 

Linden  Spring  Co.,  6  Eastern  Rep., '663  Gill,  41  (1847);  oTerruled  by  Nippenose 

(Mass.    1886).      Frequently   statutes  are  Mfg.  Co.  t».  Stadon,  68  Pa.  St.  256  (1871). 

passed  regulating  the  issue  of  stock  for  See  also  Weber  v.  Fickey,  52  Md.  501 ; 

property.     In  New  York,  by  statute,  ten  Leibke  v.  Knapp,  79  Mo.  22  (1883).      On 

per  cent,  of  preliminary  subscriptions  to  this  subject  see  also  Chapter  IX. 

railroad  corporations   must    be  paid    in  -  Pittsburgh  &  Connellsville  R.  R.  Co, 

cash,  but  the  remaining  ninety  per  cent.  v.  Stewart,  41  Pa.  St.,  54  (1861). 

may   be  issued  for   property.     Manufac-  ^  Erie  &  "vVaterford  Plank  Road  Co.  v. 

tuiing    corporations  in  New  York    may  Brown,  25  Pa.  St.  156  (1855);  Nippenose 

now  issue  stock  for   property.      §  14  of  Mfg.  Co.  v.  Stadon,  68  Pa.  St.  256  (1871); 

Laws  of  1848,  ch.  40,  was  amended  by  Pittsburgh  &  Connellsville  R.  R.  Co.  v. 

Laws   1853,  ch.  333,  so  as  to  allow  such  Stewart,  41  Pa.  St.  54  (1861).     But  after 

payments.  In  Building  Corporations  pay-  the  corporation  has  obtained  its  letters 

ment  for  stock  can   be   in  money  only,  patent  and  completed  its  organization  it 

Laws  1853,  ch.  117,  §  14.     See  People  y.  may  receive    subscriptions,   payable   by 

Troy  House  Co.,  44  Barb.  625.  their  terms  in  property.     Phil.  &  West 

'  Thus  a  parol  agreement   that  part  Chester  R.  R.  Co.  v.  Hickman,  28  Pa.  St. 

payment    in    contract    labor   should    be  318(1857.)     See  Chapter  on  Conditional 

allowed  was  held  to  be  void,  inasmuch^as  Subscriptions, 

it  varied  the  terms  of  a  written  agreement.  *  See  Id.;  also  Dayton  &  Cincinnati 

16 


CII. 


n.] 


METHODS   OF  ISSUING   STOCK. 


[§15. 


in  property  or  labor  are  conditional,  it  has  been  held  also  that  a 
subscription  payable  in  labor  or  property  is  not  to  be  counted 
in  ascertaining  whether  the  full  capital  stock  has  been  sub- 
scribed,^ but  it  is  doubtful  whether  such  a  rule  can  be  considered 
good  law. 

§  15.  What  lyroperty  may  he  received. — A  coi-poration  may 
receive  in  payment  of  its  shares  of  stock  any  property  which  it 
may  lawfully  purchase,^  and,  in  general,  may  receive  any  consid- 
eration which  is  suitable  and  applicable  to  the  purposes  for  which 
the  corporation  was  organized.^  A  raih-oad  corporation  may 
receive  paymeiit  in  contract  work,  in  right  of  way,  or  in  any  kind 
of  material  or  labor  applicable  to  its  construction.^     A  manufac- 


R.  R.  Co.  r.  Hatch,  1  Disney,  84  (1855) ; 
§17n. 

'  If  it  is  counted,  an  action  against 
anotlier  subscriber  on  his  subscription 
may  be  defeated  thereb\\  New  York, 
Ilousatonic  &  Northern  R.  R.  Co.  v. 
Hunt,  39  Conn.  75  (1872);  Cabot  &  West 
Springfield  Bridge  v.  Chapin,  60  Mass. 
50  (1850);  contra  Pl)illips  v.  Covington 
<fe  Cincinnati  Bridge  Co.,  2  Mete.  (Ky. ) 
219  (1859).  See  also  Chapter  on  Con- 
ditional Subscription. 

-  Brant  v.  Ehlen,  59  Md.  1  (1882);  The 
American  Silk  Works  v.  Saloman,  4  Hun, 
135  (1875). 

•■'  See  Green's  Brice's  Ultra  Vires  (3d 
ed.),  145;  Angel!  <fe  Ames  (11th  ed.),  §  517. 
"  Payment  of  stock  subscriptions  need  not 
be  in  cash,  but  may  be  in  whatever,  con- 
sidering the  situation  of  tlie  corporation, 
represents  to  that  corporation  a  fair,  just, 
lawful,  and  needed  equivalent  for  the 
money  subscribed."  Liebke  v.  Knapp,  79 
Mo.  22  (1883).  Payment  in  newspaper 
advertising  of  the  enterprise  upheld  in 
this  case.  The  subscription  may  by  its 
terms  be  pa\able  in  plank  for  a  plank 
road  comi)any,  and  the  subscriber  is  a 
stockiiolder  before  payment  is  completed. 
Haywood  <fe  Piltsboro'  Plank  Koad  Co.  v. 
Bryan,  C  Jones'  Law  (N.  C),  82  (1858). 
Payment  in  Confederate  bonds  redeema- 
ble in  cotton  upheld.  Schroder's  Case,  L. 
R.  1 1  p:q.  Cas.  131  (1870).  So,  also,  pay- 
ment in  stock  in  a  coal  corporation  carry- 
ing on  a  supplementary  business.  East 
N.  Y.  &  .Jamaica  R.  R.  Co.  v.  Lighthouse, 
4  Rob.  (N.  y.)  41)7.  Payment  by  a  patent 
right  has  been  upheld.  Edwards  v. 
Bringier  Sugar  Extracting  Co.,  27  La. 
Ann.  118  (1875);  and  in  another  case, 
under  a  statute  not  upheld.     Tasker  v. 


Wallace,  6  Daly,  364  (1876).  Payment 
may  be  by  cancelling  a  debt  of  the  com- 
pany past  due.  Carr  v.  Le  Fevre  27  Pa 
St.  413  (1856);  Reed  v.  Hayt,  51  N  y" 
Super.  Ct.  121  (1884).  Or  not  yet  due. 
Appleyard's  Case,  49  L.  J.  (Ch.)  290 
(1880).  Payment,  however,  to  a  bank  in 
its  own  currency  was  not  upheld,  it  being 
held  that  only  specie  could  be  received. 
King  V.  Elliott,  13  Miss.  428  (1845).  Pay- 
ment by  check  cannot  be  objected  to  by 
another  subscriber.  Thorp  v.  Woodhull 
1  Sandf.  Ch.  411  (1844). 

■*  "  We  can  see  no  objection  whatever 
to  a  railroad  company  issuing  stock  and 
taking  in  payment  m"^aterials  or  labor  or 
land  necessary  for  its  road."     Clark  v. 
Farrington,  11  Wis.   306(1860).     "The 
corporation  had  a  right  to  accept  pay- 
ment of  stock  in  labor  or  materials,  in 
damages  which  the  company  were,  liable 
to  pay,   or  in  any  other  liability  of  the 
company,    provided    these    transactions 
were  entered  into  and  carried  out  in  "-ood 
faith."     Phil.  &  West  Chester  R.  R.  Co. 
V.  Hickman,  28  Pa.  St.  318  (1857);  Bed- 
ford County  V.  Nashville,  C.  <fe  St.  Louis 
R.   R.  Co.,  14   Lea  (Tenn.),    525  (1884), 
holding,  also,  that  thirty  years'  delay  in 
demanding  the  stock  is  no  bar  to  the  right. 
Payment  may  be  in   cross  ties.      Ohio, 
Ind.   &  111.   R.  R.  Co.  V.  Cramer,  23  Ind.' 
490  (18C4).     Or  in  real  estate  and  serv- 
ices.    Cin.  Ind.   &  Chicago  R.  R.  Co.  r. 
Ciarkson,  7  Ind.  595  (1856).     Or  in  serv- 
ices and  materials.     Phillips  v.   Coving, 
ton  &  Cin.  Bridge  Co.,  2  Mete.  (Ky.)219 
(1859).     Or  by  the   construction   of  the 
road.     See    «5  17.     One   railroad   having 
power  to  consolidate  with  anotlier  may, 
in   ))ayment   therefor,  issue  stock    to   the 
contractors  who  are  constructing  the  lat- 


[2] 


17 


§16.] 


METHODS   OF   ISSUING   STOCK. 


[CH.  n. 


turing  corporation  may  receive  payment  in  the  good  will  of  a 
business  or  the  stock  in  trade.-^  Land  may  be  taken  in  payment 
when  the  corporation  wonld  be  allowed  to  purchase  the  sauie.^ 
Promissory  notes  may  also  be  taken,  under  the  corporate  power, 
to  give  credit  and  extend  the  time  of  payment  of  debts.^ 

§  16.  Payment  in  property  as  a  favor,  not  as  a  contract 
right. — There  is  an  important  distinction  to  be  made  between 
payments  in  property,  where  the  subscription  itself,  by  its  terms, 
allows  such  payment,  and  a  payment  in  property  which  is  alloM^ed, 
as  a  matter  of  favor,  by  the  corpoi-ation,  the  subscription  itself 
being  silent  as  to  the  mode  of  payment/    The  latter  class  of  trans- 


ter.     Branch   v.   Jesup,    106   U.   S.    468 
(1882). 

'  Pell's  Case,  L.  R.  5  Ch.  11  (1869). 

2  Goodin  v.  Evans,  18  O.St.  150  (1868) ; 
Cin.  Ind.  &  Chicngo  R.  R.  Co.  v.  Clark- 
son,  1  Ind.  595  (1856);  Peck  v.  Coalfield 
Coal  Co.,.  11  Bradw.  (111.)  88  (1882); 
Brant  v.  Ehlen,  59  Md.  1  (1882);  Jones' 
Case,  L.  R.  6  Ch.  App.  48  (18*70);  May- 
nard's  Case,  22  W.  R.  119.  In  Foreman 
V.  Bigelow,  4  Cliff.  508.  544  (18'78),  the 
court  says:  "  Argument  to  show  that  the 
transaction  of  issuing  the  stock  in  pay- 
ment for  the  mineral  land  would  have 
been  valid  ...  is  scarcely  nec- 
essary." In  Indiana  formal  acceptance 
by  the  directors  is  necessary.  State  v. 
Bailey,  16  Ind.  46  (1861);  Junction  R.  R. 
Co.  V.  Reeve,  15  Ind.  236(1861);  Day- 
ton, (fee.  R.  R.  Co.  V.  Hatch,  1  Disney,  84 
(1855);  Carr  v.  Le  Fevre,  27  Penn.  St. 
413  (1856);  Johnson  v.  N.  Y.  &  Erie  R. 
E.  Co.,  2  Sand.  39  (1848). 

3  Stoddard  v.  Shetucket  Foundry  Co., 
34  Conn.  542  (1868);  Ogdensburgh,  &c. 
R.  R.  Co.  V.  Wooley,  3  Abb.  Ct.  of  App. 
Dec.  398  (1864);  Magee  v.  Badger,  30 
Barb.  246  (1859);  Goodrich  v.  Reynolds, 
31  111.  490  (1863);  Vermont  Central  R. 
R.  Co.  V.  Clayes,  21  Vt.  30;  Hardy  v. 
Merriweather,  14  Ind.  203.  In  Wisconsin 
a  corporation  may  accept  in  payment  of 
stock  a  note  secured  by  a  mortgage  on 
real  estate.  Clark  v.  Farrington,  11  Wis. 
306  (1860);  Blunt  v.  Walker,  11  Wis.  234 
(1860);  Cornell  v.  Hichens,  11  Wis.  353 
(I860);  Lyon  V.  Ewings,  17  Id.  61  (1863); 
Andrews  v.  Hart,  Id.  297;  Western  Bk. 
of  Scotland  v.Tallman,  17  Wis.  530(1863). 
In  Tennessee  payment  in  notes  is  not  up- 
held, but  the  subscriber  is  to  be  credited 
with  the  amount  collected  on  such  notes. 
Moses  V.  Ocoee  Bank,  1  Lea  (Tenn.),  398 

18 


(1878).  In  New  York  the  payment  of  a 
subscription  by  one's  own  note  is  pro- 
hibited by  statute.  1  R.  S.  Chap.  18, 
Title  4,  §  2.  Payment  by  bond  and 
mortgage  was  upheld  in  Valk  v,  Crandall, 
]  Sandf.  Ch.  179  (1843);  and  in  Leavett 
V.  Pell,  27  Barb.  322  (1858).  In  Pennsyl- 
vania— see  Leighty  v.  Susquehanna  & 
Waterford  T.  Co.,  14  S.  <fe  R.  434  (1826)-— 
the  payment  being  contrary  to  statute; 
also.  People  v.  Stockton,  &c.  R.  R.  Co.,  45 
Cal.  306  (1873). 

•*  Many  of  the  cases  which  apparently 
are  cases  of  subscriptions  wherein  the 
subscriber  has  expressly  stipulated  that 
he  may  pay  in  property  or  labor,  will  be 
found,  on  close  examination,  to  be  abso- 
lute subscriptions  payable  in  cash.  Af- 
terwards the  corporation,  although  not 
obliged  so  to  do,  accepts  property  or  labor 
instead  of  the  cash.  This  kind  of  trans- 
action is  almost  universally  upheld  by 
the  courts,  when  entered  into  and  carried 
out  in  good  faith.  Such  jjayment  is  up- 
held even  in  opposition  to  the  express 
terms  of  a  statute  requiring  payment  in 
cash.  See  §  18.  Many  of  the  American 
cases,  also,  are  plainly  cases  in  which 
payment  in  property  was  allowed  by  the 
corporation,  not  as  a  right  but  as  a  mat- 
ter of  favor.  The  courts  ujDheld  such 
agreements  because  they  are  similar  to 
offsets  of  accounts,  and  the  delays,  un- 
certainties, special  privileges,  and  other 
objections  to  subscriptions  payable  in 
terms  in  ^iroperty  and  labor  are  obviated. 
See  Boot  <fe  Shoe  Co.  v.  Hoit,  56  N.  H. 
548  (1876);  Stoddard  v.  Shetucket  Foun- 
dry Co.  34  Conn.  542  (1868),  where  the 
court  says,  "  that  the  defendant  could 
have  insisted  upon  the  plaintiff's  payment 
for  his  stock  in  cash  is  unquestionable." 
See  also  Vermont  Central  R.    R.  Co.  v. 


CH.  n.] 


METHODS   OF   ISSUING   STOCK. 


[§1T. 


actions  have  been  uniformly  upheld,  except  when  positively  pro- 
hibited by  statute.  Such  payment  has  been  held  to  be  valid, 
although  the  statute  required  payment  to  be  in  money  or  in 
cash. 

§  17.  Sale  of  stock  for  property. — The  issue  of  stock  for 
property,  labor,  or  contract  work  need  not  necessarily  be  accom- 
panied with  the  formality  of  a  subscription.^  Frequently  the 
issue  is  in  the  form  of  a  sale  of  the  stock  for  the  property  received 
in  payment.  Such  a  transaction  is  not  a  sale,  however,  since  tlie 
stock  has  a  fixed  value,  the  par  value,  which,  in  the  original  issue, 
must  be  considered  its  market  value.^  Sometimes  the  issue  is 
by  means  of  a  contract,  wherel)y,  upon  the  completion  of  certain 
work,  the  party  is  to  be  entitled  to  the  stock.  The  New  York 
Court  of  Appeals  stated  the  law  clearly  when  it  said,  in  respect 
to  such  issues,  that  "  the  right  of  the  officers  of  a  railroad  cor- 
poration to  enter  into  an  agreement  to  build  its  road  and  pay  for 
the  construction  of  the  same  in  stock  or  bonds  cannot  be  seriously 
questioned,  and  contracts  of  this  description  are  frequently  made 
for  such  a  purpose."  ^     It  is  doubtful,  however,  whether  any  clear- 


Claves,  21  Vt.  30  (1848);  Boston,  &c.,  R. 
R.  Co.  V.  Wellington,  113  Mass.  79  (1873). 
In  New  York,  railroad  corporations  must 
require  payment  in  cash  of  a  certain  per- 
centage of  the  subscription  at  tlie  time  of 
subscribing.  Laws  1850.  cli.  140,  §^2,  4. 
Ninety  per  cent,  may  be  paid  in  such 
manner  as  the  directors  may  require. 
Id.  J;  7.  Even  here,  however,  the  courts 
hold  that  the  ten  per  cent,  may  be  paid 
b}'  property  actually  received.  Beach  v. 
Smith,  30  N.  Y.  ll(j  (1864),  where  pay- 
ment was  by  services  rendered.  The 
court  said  :  "  Was  it  necessary  for  any 
purpose  that  the  ceremony  of  paying 
money  by  the  company  to  the  defendant 
and  by  the  defendant  of  the  same  money 
back  again,  shoidd  be  gone  through  with? 
It  seem  to  me  not." 

'  A  charter  provision  authorizing  the 
opening  of  stock  subscription  books,  does 
not  amount  to  a  jtrohibition  against  any 
other  mode  of  Ijecoining  a  stockliolder. 
"  If  a  raih-oad  could  sell  its  stock  f()r  the 
right  of  way,  for  lands  for  depot  purposes, 
for  iron  or  anything  essential  to  the  ac- 
complishment of  its  purpose,  it  might  do 
80."  It  is  a  legal  issue  of  stock  svithout 
subscription.  Western  Bk.  of  Scotland 
V.  Tallman,  17  Wis.  530  (1803).  See  also 
Clark  V.  Karringlon,  11   Wis.  306  (1860J; 


Reed  v.  Hayt,  51  N.  Y.  Super.  Ct.  121 
(1884).  In  Jackson  v.  Traer,  20  Northw. 
Rep.  764  (Iowa,  1884),  stock  having  been 
issued  in  payment  of  contract  work,  the 
court  says:  "  We  have  seen  no  case  which 
recognizes  a  difference  between  those 
stockholders  who  become  such  in  pursu- 
ance of  a  written  agreement,  and  those 
who  become  such  by  the  mere  acceptance 
of  stock  issued  to  them." 

'-'  See  Chap.  Ill  on  this  subject. 

»  Van  Cott  V.  Van  Brunt,  82  N.  Y. 
535  (1880).  See  also  Eppes  v.  Miss., 
Gainesville  &  Tuskaloosa  R.  R,  Co. 
35  Ala.  33  (1859),  Brady  v.  Rutland  & 
Burlington  R.  U.  Co.  3  Blatchf.  25;  8.  C. 
24  Vt.  660 ;  Troy  A  Greenfield  R.  R.  Co. 
V.  Newton,  8  Gray,  596  (1857).  If  the 
corporation  prevents  the  compleiion  of 
the  contract,  the  contractor  may  recover, 
as  damages,  the  value  of  work  already 
done,  and  also  the  profits  lost.  Myers  v. 
York  &.  CVunberland  li.  R.  Co.  2  ('urtis, 
28(1854).  If  the  corporation  refuse  to 
issue  the  stock,  according  to  c  »ntract,  the 
contractor  may  recover  as  damages  the 
marketya.\\\(i  of  the  stock.  Porter  v.  Buck- 
field  Branch  R.  11.  32  Me.  539(1851);  Bar- 
ker V.  ilutland  tfe  Washington  R.  K.  Co.  27 
Vt.  766(1H55).  If  the  contract  provides  for 
payment  t:)  the  contrMctor,  in  stuck,  with- 

19 


§18.] 


METHODS  OF   ISSUING   STOCK. 


[CH.  ir. 


ness  of  ideas  is  obtained,  under  anj  circumstances,  by  calling  an 
original  issue  of  stock  a  sale  of  stock.  A  sale  of  stock  means  a 
transfer  of  stock  after  the  stock  has  been  issued,  or  an  agreement 
to  transfer  the  same.  Such  original  issues  of  stock,  as  are  occa- 
sionally spoken  of  as  being  sales  of  stock,  might  better  be  consid- 
ered as  informal  subscriptions  arising  by  the  acts  or  declarations  of 
the  parties,  and  payable  in  property  by  the  terms  of  a  contract.^ 

§  18.  Englisli  statutes  on  issues  of  stock   for  iwoperty. — 

In  England  the  payment  for  stock  in  property,  labor,  or  contract 
work  is  regulated  largely  by  Act  of  Parliament.  The  statute  re- 
quires that  payment  shall  be  in  cash,  unless  the  contract  allowing 
payment  in  property  is  registered  at  a  specified  public  registry.^ 
Nevertheless  the  courts  have  held  that  a  payment  in  property  is 
equivalent  to  a  payment  in  cash,  where  the  property  has  been  ac- 
tually delivered,  and  such  payment  will  be  upheld.^  Such  a  23ay- 
ment  in  property,  however,  is  as  a  matter  of  favor,  and  not  of 
right.^  It  is  to  be  distinguished  from  the  payment  in  property 
which  the  subscriber  may  not  yet  have  made,  but  has  a   right  to 


out  stating  that  the  stock  is  to  be  taken  at 
its  par  value,  the  contractor  may  demand 
the  stock  at  its  market  value,  and  if  it  is 
worthless,  he  may  then  demand  money 
in  lieu  thereof.  Hart  v.  Lauman,  29  Barb. 
410.  The  contractor  cannot,  however, 
complain  because  the  capital  stock  has 
been  increased,  nor  is  a  tender  of  the 
stock  to  him^necessary.  Moore  v.  Hudson 
Pdver  R.  R.  Co.  12  Barb.  156  (1851). 

'  See  Weiss  v.  Mauch  Chunk  Iron  Co. 
58  Penn.  St.  295  (1868) ;  St.  Paul,  <fec., 
R.  R.  Co.  I'.Robbins,  23  Minn.  440(1877); 
Clark  V.  Continental  Improvement  Co.  57 
Ind.  135  (1877). 

-  Companies  Act,  Amendment  1867, 
30  and  31  Vic.  ch.  131,  §  25. 

2  Under  this  statute,  three  classes  of 
cases  of  unregistered  contracts  arise. 
First,  where  payment  is  actually  made  in 
property,  if  lairly  made,  it  is  upheld,  un- 
der the  principles  laid  down  in  §  16.  See 
Jones'  Case,  L.  R.  6  Ch.  App.  48  (1870); 
Maynard's  Case,  22  W.  R.,  119  (1873); 
payment  by  colliery,  Re  Boylan  Hull 
Colliery  Co.,  L.  R.  5  Ch.  App.  346  (1870); 
Drummond's  Case,  L.  R.  4  Ch.  App.  772 
(1869);  Schroder's  Case,  L.  R.  11  Eq.  Cas. 
131  (1870);  Pell's  Case,  L.  R.  5  Ch.  11 
(1869);  by  services.  Ex  parte  Clarke,  L. 
K.  7  Eq.  550.     The  amounts  on  each  side 

20 


must  be  payable  presently  and  in  cash. 
Fothergill's  Case,  L.  R.  8  Ch.  App.  270 
(1873);  so  that  the  transaction  is  in  the 
nature  of  a  setoff;  Forbes'  Case,  L.  R.  5  Ch. 
App.  270  (1870).  Conveyance  of  a  lease 
held  to  be  a  good  payment.  Spargo's  Case, 
L.  R.8  Ch.  App. 4(i7  (1873).  A  second  class 
of  unregistered  agreements  to  take  paj^  in 
property,  turn  upon  the  question  whether 
the  condition  to  the  subscription  is  prece- 
dent or  subsequent.  If  the  condition  is 
precedent,  and  must  be  performed  before 
the  subscription  can  be  enforced,  none  of 
the  parties  are  bound,  even  though  the 
corporation  becomes  insolvent.  Pellatt's 
Case,  L.  R.  2  Ch.  527  (1867);  Stace'sCase, 
L.  R.  4  Ch.  App.  682  (1869).  The  third 
class  is  where  the  contract  to  pay  in  prop- 
erty is  construed  to  be  a  condition  subse- 
quent. The  condition  being  subsequent, 
the  party  must  pay;  and  if  the  corporation 
becomes  insolvent,  he  must  pay  in  cash. 
Elkington's  Case,  L.  R.  2  Ch.  App.  527 
(1867);  Simpson's  Case,  L.  R.  4  Ch.  App. 
184  (1868);  Bridger's  Case,  L.  R.  5  Ch. 
App.  305  (1870);  Thomson's  Case,  34  L. 
J.  (Ch.)  525  (1865) ;  Fisher's  Case,  53  L. 
Times  Rep.  832  (1886);  Sherrington's 
Case,  34  Weekly  Rep.  49  (1885).  See  also 
Chap.  Ill,  §  35. 
"  See  §  16. 


CH.  II.] 


METHODS  OF   ISSUING  STOCK. 


[§§  19,  20. 


make  in  the  future.    The  one  is  an  executed  contract, 
may  still  be  an  executory  contract. 


The  other 


§19.  Performance  of  contract  of  payment  in  property. — 

Subscriptions  payable  in  property  are  not  subject  to  calls,  and  a 
demand  for  the  property  must  be  made  b}^  the  corporation.^  Upon 
failure  of  the  subscriber  to  furnish  the  pi-bperty,  or  upon  insolv- 
ency of  the  corporation,  such  subscriptions  become  payable  in 
cash.'  A  payment  of  part  of  the  subscription  in  cash  does  not 
waive  the  right  of  the  subscriber  to  pay  the  balance  in  prop- 
erty.^ 

§  20.  Tliird  method  of  issue,  T)y  stock  dividend. — The  third 
method  of  issuino-  stock  is  by  a  stock  dividend.  It  is  allowable 
when  an  amount  of  cash  or  property  equal  to  the  amount  of  the 
par  value  of  the  stock  so  divided  is  added  permanently  to  the 
capital  stock  of  the  corporation.  A  cash  dividend  can  be  made 
only  when  the  whole  of  the  capital  stock  has  not  been  issued,  or 
when  it  maybe  increased.  It  can  never  increase  the  capital  stock 
beyond  the  amount  as  limited  by  legislative  enactment.  An  issue 
of  stock  by  a  stock  dividend  is  prohibited  by  constitutional  or 
legislative  enactment  in  some  States.  In  England  it  has  been  a 
question  of  doubt  whether  stockholders  can  be  compelled  to 
accept  a  dividend  of  stock.  These  questions,  however,  are  dis- 
cussed elsewhere."* 


'  Ohio,  (fee,  R.  R.  Co.  V.Cramer,  23  Incl. 
490  (18G4).  Paj'ment  cannot  be  required 
in  installments.  Id.  But  upon  demand, 
the  subscriber  must  ascertain  when  and 
wliore  the  materials  are  to  be  delivered. 
McClure  v.  People's  R.  R.  Co.  90  Pa.  St.  269 
(1870). 

^  Haywood,  <fec.,  R.  R.  Co.  v.  Bryan,  6 
Jones  (N.  C),  82  (1858);  Sperry  v.  John- 
son, 11  0.  452  (1842).     aee  §  18,   n.  3. 


In  one  case,  however,  it  was  held  that 
the  subscriber  was  liable  only  in  damages 
to  the  extent  of  the  market  value  of  the 
stock.  Dayton  &  Cin.  R.  R.  Co.  v.  Hatch, 
1  Disney,  84  (1856). 

^  Pittsbur!i,h,  ifec,  R.  R.  Co.  v.  Stewart, 
41   Pa.  St.  54  (1861). 

^  See  Chapter  on  Paid-up  Stock  and 
Chapter  on  Dividends. 


21 


CHAPTER   III. 


THE   ISSUE   OF   FICTITIOUSLY    PAID   UP   STOCK. 


§  21. 
22. 
23. 

24. 

25. 
26. 

27. 
28. 
29. 
30. 

31. 
32. 


Objects  of  such  issues. 

Metbods  of  issue. 

Unsatisfactory  dicta  of  the  courts 
as  to  their  legality. 

The  important  questions  involved 
berein. 

Fictitious  stock  not  void. 

Constitutional  provisions  making  it 
void. 

Statutes  making  it  void. 

English  statutes. 

Fictitious  stock  may  be  voidable. 

Issue  by  first  method. — At  a  dis- 
count in  cash. 

Dangers  of  this  method. 

English  rule  under  statute. — Sus- 
tains issues  below  par. 

Second  method. — Issue  for  prop- 
erty at  an  overvaluation. 


New  York  rule. 
English  statute  and  rule. 
Dangers  of  this  method. 
Who  may  complain. — The  State. 

The  corporation. 

Stockholders  participating. 

Transferees    of  participating 

stockholders. 

-  Dissentins:  stockholders. 


34. 
35. 
36. 

37. 
38. 
3'>. 
40. 

41.  — 
42-44. 
45.  "Who  is  liable. — The  corporation. 

46-47.  Person      receiving     the 

stock. 

48.  OfHcers  of  the  corporation- 

49. Transferees  with  notice. 

50.  .6o?iaj^f/e  transferees. 

51.  Third  method. — Issue  by  stock  div- 

idend. 


Corporate  creditors. 


§  21.   Objects  of  issuing  fictitiously  luiid  up  stocli. — The 

issue  of  shares  of  stock  as  "paid  up,"  when,  in  fact,  they  are 
not  paid  up,  gives  rise  to  some  of  the  most  complicated  ques- 
tions connected  with  the  law  of  corporations. 

A  share  of  stock  is  supposed,  in  theory,  to  represent  its  par 
value  in  money  or  money's  worth,  paid  in  or  to  be  paid  in  to 
the  corporation.  Accordingly,  when  it  is  issued  as  paid  up,  it 
is  bought  and  sold  in  open  market,  on  the  supposition  that  the 
corporation  has  received  its  full  par  value.  Upon  this  basis, 
transactions  in  paid  up  stock,  involving  many  millions  of  dollars, 
are  of  daily  occurrence  in  the  commercial  centres  of  the  country. 
The  facilities  which  exist  for  the  sale  of  properly  issued  stock 
are  equally  available  for  the  sale  of  fictitiously  paid  up  stock, 
until  it  has  become  well  understood  and  expected  that  railroad 
and  business  corporations  will  make  tliese  issues  of  stock.^     The 


'  "According  to  the  estimate  of  the 
most  widely  acknowledged  statistical  au- 
thorities upon  railways,  through  the 
methods  of  sale  or  hypothecation,  $3,- 
700,000,000  of  purely  paper  values  have 
been  sold  to  the    public."      Hudson  on 

22 


The  Railways  and  The  Republic,  274 
(1886),  a  book  that  deals  with  the  rail- 
way problems  of  the  day,  from  an  anti- 
railway  point  of  view.  See  also  Preface 
to  Poor's  Manual  for  1884. 


CH.  m.]  ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK.  [§  22. 

issue  is  generally  to  the  organizers  or  their  co-operators,  in  os- 
tensible payment  for  property  or  construction  work.  It  is  no 
unusual  thing  for  a  newly  organized  railroad  corporation  to  issue 
to  a  construction  company,  bonds  and  stock  whose  par  value  is 
many  times  the  value  of  the  construction  work  done.  These 
bonds  and  the  stock  are  then  sold  to  the  public  at  a  profit, 
large  or  small,  according  to  the  prospects  of  the  enterprise  and 
the  skill  of  the  parties  who  are  manipulating  the  corporation. 
Soon,  however,  default  is  made  in  the  payment  of  the  interest 
on  the  bonds,  and  this  is  followed  by  corporate  insolvency,  fore- 
closure, receivership,  and  reorganization.^  The  issue  of  ficti- 
tiously paid  up  stock  is  the  favorite  device  of  corporate  pro- 
moters, organizers,  and  manipulators,  in  carrying  out  their  plans 
of  realizing  enormous  gains  from  small  investments,  and  in 
accumulating  great  fortunes  at  the  expense  of  the  public.  Oc- 
casionally, too,  the  issue  is  made  for  the  purpose  of  concealing 
large  and  unreasonable  profits;  which,  if  known,  might  cause 
the  public  to  regulate  and  diminish  the  source  of  income.  In 
such  cases,  a  stock  dividend  is  generally  resorted  to. 

§  22.  Metliods  of  issuing  fictitiously  paid  vp  stock. — There 
are,  in  general,  three  different  ways  in  which  fictitiously  paid  up 
stock  may  be  issued.^     It  may  be  by  issue  of  certificates  of  stock 

'  "  Securities  in  excess  of  cash  invest-  has  three  forms.  1.  Where  new  stock  is 
ments  are  produced:  (1)  by  stock  divi-  issued  to  i-epresent  money  which,  instead 
dends  of  prosperous  companies,  capitaliz-  of  being  jiaid  out  as  a  dividend,  is  used 
ing  what  are  called  surplus  earnings:  (2)  in  improving  the  property.  2.  Where 
by  issuing  the  securities  of  unprosperous  new  stock  is  issued  to  represent  an  actual 
roads,  for  which  the  companies  receive  increase  in  the  earning  capacity  and 
only  a  portion  of  their  face  value:  (3)  by  market  value  of  the  property,  so  that 
the  purchase  of  other  r;iilways,  of  mining  the  par  value  shall  represent  as  nearly 
or  manufacturing  property,  or  of  real  as  possible  the  real  value.  3.  Where 
estate,  or  by  consolidation  with  other  stock  is  issued  to  give  certaiti  parties 
companies,  paying  for  the  property  prices  control  of  the  road  without  actually  risk- 
largely  in  excess  of  the  real  value,  either  ing  anything  like  the  amount  represented 
in  the  capital  stock  of  the  company  or  in  by  the  jjar  value  of  their  shares."  This 
new  securities:  and  (4)  by  the  construe-  classification  can  hardly  be  commended, 
tion  of  railways  under  contracts  by  which  The  first  form  mentioned  is  not  stock- 
the  jirojectors,  as  a  railwaj'  company,  pay  watering,  but  is  valid  and  leg.al  as  the  law 
to  themselves,  as  contractors,  from  two  now  stands.  It  is  a  stock  dividend,  made 
to  four  times  the  cost  of  the  work  in  without  fraud  and  upheld  by  well  cstab- 
stocks  and  bonds,  selling  these  to  the  lished  principles  of  law.  See  Chapter 
public  as  they  can."  Hudson  on  The  on  Dividends.  The  third  form  mentioned 
Railways  and  The  Republic,  273.  by  Professor  Iladley,  is  in  part  a  repe- 

'■^  Professor  Iladley,  in  his  recent  work  tilion  of  the  second,  and  merely  gives  the 

on  Railroad  Transportation,  a  work  re-  motive  of  such  issues  of  stock.     The  sec- 

])l('te    with    inform  it.ion,    argument,    and  ond  mode  is  true  stock-watering.       Hut 

illustration,     but,    perhaps,    with    some-  the    definition    should    be    made    more 

thing  of  a  bias  towards    railway  inter-  sweeping,  so  as  to  include  issues  of  the 

csts,  says,  p.   B5,  n.  15:   "Stock-watering  original  capital  stock.     All  stock  whose 

23 


23.1 


ISSUE   OF  FICTITIOUSLY   PAID   UP   STOCK.  [cil.  m. 


for  an  amount  of  money  less  than  the  par  value  of  the  stock, 
the  certiticates  asserting  on  their  face  that  the  full  value  has 
been  paid  in;  or  it  may  be  for  property  or  construction  work 
taken  at  a  fraudulent  overvaluation ;  or  it  may  be  by  a  stock 
dividend,  the  equivalent  par  value  of  which  has  not  been  per- 
manently added  to  the  capital  stock.  Each  of  tiiese  three  meth- 
ods, as  was  shown  in  the  preceding  chapter,^  may  be  the  means 
of  issuing  stock  which  has  been  paid  up  in  good  faith.  Each, 
also,  is  available  for  the  issue  of  fictitiously  paid  up  stock.  The 
second  method  particularly,  that  of  taking  property  at  an  over- 
valuation, is  well  calculated  to  conceal  the  fictitious  character  of 
the  issue,  and  to  accomplish  the  purposes  of  the  participants. 

§  23.  Legality  of  such  issues. — There  are  various  opinions, 
generally  dicta,  contained  in  the  cases,  as  to  the  character  of 
stock  issued  as  paid  up,  when,  in  fact,  it  has  not  been  paid  for. 
The  customary  expression  is  that  such  an  issue  is  a  fraud  upon 
the  law  and  upon  the  stockholders ;  or  that  it  is  against  public 
policy ;  or  is  a  fraud  on  subsequent  purchasers  of  the  stock  so 
issued.^  Other  cases,  however,  and  cases  of  high  authority,  hold 
that  an  issue  of  stock  as  full  paid  up  stock,  under  an  agreement 
that  the  full  par  value  shall  not  be  paid,  is  not  necessarily  a  fraudu- 
lent transaction,  but  that  as  between  the  parties  thereto,  is  a  legal 
and  valid  agreement,  and  violates  no  principle  of  public  policy.^ 


full  par  value  has  not  been  paid  in  to  the 
corporation,  in  money  or  money's  worth, 
is  watered  to  the  extent  that  the  par  value 
.exceeds  the  amount  so  paid  in. 

'  See  Chapter  II. 

-  Ill  Barnes  v.  Brown,  80  K  Y.  527- 
534  (1880),  the  court  said  in  a  dictum: 
"It  is  not  claimed,  and  could  not  be 
claimed,  that  ttie  corporation  or  its  direc- 
tors could  create  any  valid  stock  by  issu- 
ing the  same  without  any  considei'ation. 
The  directors  assuming  to  issue  stock  in 
that  way  would  perpetrate  a  wrong  upon 
the  corporation  and  its  stockholders,  and 
a  fraud  upon  every  person  who  took  such 
stock  as  full  paid  stock,  relying  upon  the 
appearances  and  deceived  thereby."  In 
the  case  of  Sturges  v.  Stetson,  1  Biss.  246 
(1858),  the  court  said  :  "The  subscription 
of  stock  by  plaintiff,  for  less  than  the 
price  of  the  sliares  fixed  in  the  charter, 
was  void,  as  against  law  and  the  power 
of  tlie  directors."  See  also  Fx  parte 
Daniell,  1  De  Gex  &  Jones,  372  (1857); 
Oliphant    v.    Woodhaven,    &c.,    Co.,    63 

24 


Iowa,  332  (1884):  Tobey  v.  Robinson,  99 
111.  222,  228  (1881);'  Osgood  v.  King,  42 
Iowa,  478  (1876). 

3  In  Scoville  v.  Thayer,  105  U.  S.  143 
(1881),  the  court  says:  "It  is  conceded 
to  have  been  the  contract  between  him 
and  the  company  that  he  should  never  be 
called  upon  to  pay  any  further  assess- 
ments upon  it  [the  stock].  Tlie  same 
contract  was  made  with  all  the  other 
shareholders,  and  the  fact  was  known  to 
all.  As  between  them  and  the  company 
this  was  a  perfectly  valid  agreement.  It 
was  not  forbidden  by  the  charter  or  by 
any  law  or  public  policy."  In  the  case  of 
In  re  Ambrose  Lake  Tin  <fc  Copper  Min. 
Co.,  L.  R.,  14  Ch.  Div.  390,  394-5,  where 
paid  up  stock  was  issued  for  property 
taken  at  a  gross  overvaluation,  the  court 
said:  "  It  seems  to  me  impossible  to  say 
that,  however  wrong  the  transaction  was 
in  respect  to  other  persons,  there  was 
anything  wrong  as  between  the  company 
and  the  vendors."  In  Flinn  v.  Bagley,  T 
Fed.  Rep.  785  (1881),  the  court  held  tiiat 


CH.  ni.]  ISSUE  OF   FICTITIOUSLY   PAID   UP  STOCK.       [§§  24-26. 

§  24.  The  important  questions  involved. — These  statements 
of  the  law,  however,  throw  little  light  upon  the  important  ques- 
tions of  the  dangers,  and  rights,  and  liabilities  growing  out  of 
such  issues  of  stock.  The  stockholder  and  the  practitioner 
wish  to  know  whether  such  stock  is  void,  or  is  voidable,  or  is 
valid.  If  voidable,  it  is  important  to  know  what  are  the  rights 
and  remedies  of  the  various  parties  involved.  If  the  stock  is 
valid,  then  the  question  arises,  whether  any  one  is  lia*ble  for  that 
part  of  the  par  value  which  has  not  been  paid,  and  also  who  may 
bring  suit  to  enforce  that  liability. 

§  25.  Fictitious  stock  is  not  void. — Is  stock  void  when  fic- 
titiously issued  as  paid  up  ?  It  is  settled  that  it  is  not,  and  it  may 
be  stated  as  a  well  established  rule,  that  stock  issued  as  paid  up, 
when  it  has  not  been  fully  and  fairly  paid  up,  is  not  absolutely 
void,  unless  it  is  declared  to  be  void  by  constitutional  or  statutory 
provisions.  Nearly  all  the  cases  assume  this  to  be  the  rule,  and  do 
not  discuss  it.  Even  when  a  Constitution  or  statute  declares  such 
stock  to  be  void,  it  is  rarely  possible  to  apply  the  statutory  rule. 
A  few  cases  speak  of  such  stock  as  being  void,  but  inasmuch  as 
the  remedies  given  in  such  cases  are  the  remedies  for  the  rescission 
of  contracts  for  fraud,  the  stock  involved  was  treated  as  being 
voidable  for  fraud,  rather  than  void  absolutely.^ 

§  26.  Constitutional  provisions  making  it  void. — There  have 
been  various  constitutional  and  statutory  provisions  on  this  sub- 
ject in  the  different  States.  In  some,  the  State  Constitution  pro- 
vides that  stock  shall  not  be  issued  except  for  money,  labor  done, 
or  money  or  property  actually  received,  and  that  all  fictitious  in- 
crease of  stock  shall  be  void.^      Such  a  provision  is  held  to  be 


it  was  onlj'  as  a  fraud  upon  future  cred-  256  (ISB?),  dictum;  Spring  Co.  v.  Knowl- 
itors,  that  exception  could  be  taken  to  an  ton,  103  U.  S.  49-58  (1S80),  dictum. 
issue  of  stock  at  a  discount.  In  Lorillard  '  Slurge.s  v.  Stetson,  1  Hiss.  246 
w.  Clyde,  86  N.  Y.  384  (1*81),  the  court  (1858);  Fosdick  v.  Sturges,  1  Biss.  255 
held  it  legal  for  the  parlies,  as  between  (1858);  Gilinan,  Clinton  &  Spriniitield  R. 
themselves,  to  issue  paid  up  stock  for  R.  Co.  ?;.  Kelly,  77  111.  420  (1875);  Camp- 
property  taken  at  a  valuation  agreed  bell  v.  Morgan,  4  Rradw.  (III.)  100  (1879). 
upon  between  themselves.  The  court  -'  Constitution  of  111.  (1870),  Art.  XI, 
said:  "If  it  had  appeared  that  the  or-  S  13;  Neb.  (1875),  Art.  XI,  {5  5;  Mo. 
ganization  of  the  corporation  in  this  (1875),  Art.  XII,  §  8  ;  Penn.  (1875),  Art. 
way,  was  a  device  to  defraud  the  public,  XVI,  t:5  7  ;  Texas  (1876),  Art.  XII,  t;  6  ; 
by  putting  valueless  stock  on  the  market,  Colorado  (1876),  Art.  XV,  ^  9  ;  Arkansas, 
having  an  apparent  basis  only,  a  differ-  Art.  XII,  t$  8;  Alabama.  Art.  XIV,  jj  6; 
ent  qiieslion  would  be  presented."  See  Louisiana  (1879),  Art.  238.  In  the  last 
also  Otter  v.  Brevoort  Co.,  50  Barb.  247-  St:ite  any  corporation  issuing  such  stock 

shall  forfeit  its  charter. 

25 


§26.J 


ISSUE   OF  FICTITIOUSLY   PAID   UP   STOCK. 


[CH.  III. 


applicable  and  effective  only  when  the  issue  is  entirely  fictitious. 
It  does  not  interfere  with  the  customary  methods  of  starting  the 
corporate  enterprise  by  the  issue  of  stock  and  bonds  in  payment 
for  the  construction  of  the  corporate  works.  It  may  be  said 
that  these  constitutional  provisions  have  decidedly  failed  to 
remedy  the  evil  which  they  were  expected  to  cure.-^  They  are  so 
sweeping  in  their  effects,  and  so  disastrous  to  innocent  holders  of 
corporate  s'ecurities  that  the  courts  are  reluctant  to  declare  void 
the  stock  and  bonds  issued  by  the  corporation.  The  trouble  with 
such  remedies  is,  that  they  attempt  to  cure  the  evil  after  it  has 
been  consummated,  instead  of  attempting  to  prevent  its  occur- 

2 


rence.* 


'  Peoria  &  Springfield  R.  R.  Co.  v. 
Thompson,  103  111.  187  (1882),  the  court, 
in  interpreting  this  constitutional  pro- 
vision, said :  "  The  object  was  doubtless 
to  prevent  reckless  and  unscrupulous 
speculators,  under  the  guise  or  pretense 
of  building  a  railroad,  or  of  accomplishing 
some  other  legitimate  corporate  purpose, 
from  fraudulently  issuing  and  putting  upon 
the  market,  bonds  or  stocks  that  do  not 
and  are  not  intended  to  represent  money 
or  property  of  any  kind,  either  in  pos- 
session or  exjiectancy,  the  stock  or  bonds 
in  such  case  being  entirely  fictitious. 
We  cannot  believe  it  was  intended  by  the 
provisions  in  question  to  interfere  with 
the  usual  and  customary  methods  of  rais- 
ing funds  by  railroad  companies  for  the 
purpose  of  building  their  roads,  or  of  ac- 
complishing other  legitimate  corporate 
purpose-^.  .  .  .  Under  this  provision 
of  the  constitution  railroad  companies 
have  no  right  to  lend,  give  away  or  sell 
on  credit,  their  bonds  or  stock,  nor  have 
they  the  right  to  dispose  of  either,  except 
for  a  present  consideration  and  for  a  cor- 
porate purpose."  In  this  case  bonds  and 
cash  were  given  to  the  contractors  in 
payment  for  the  construction  of  the  road. 
The  transaction  was  upheld.  In  Cali- 
fornia, the  Supreme  Court,  in  Stein  v. 
Howard,  65  Cal.  616  (1884),  has  held 
that  the  constitutional  prohibition  does 
not  prevent  the  issue  of  stock  at  le-s  than 
its  par  value.  The  meaning  of  "  ficti- 
tious "  is  defined  to  be  that  given  in 
Webster's  Dictionary.  The  court  said, 
"  Of  the  shares  proposed  to  be  issued, 
there  is  no  one  share  upon  which  a  person 
can  place  his  finger  and  say,  that  share 
is  or  will  be  feigned,  imaginary,  not  real ; 
counterfeit,  false,  not  genuine."  An  in- 
iunction  to  restrain  such  au   issue  of  new 

26 


was  refused.      In    New 
V.  Simpson,  21  Fed.  Rep. 


increased  stock 
Castle  R.  R.  Co. 

585  (1884),  the  court,  in  passing  on  the 
provision  in  the  Pennsylvania  constitu- 
tion, held,  that  a  contract  giving  a  con- 
struction company  $300,000  of  stock,  and 
$300,000  of  bonds  for  work  worth  but 
$180,000,  will  be  set  aside,  although 
^^40,000  of  work  has  been  dune.  The  con- 
struction company  will  be  repaid  the 
$40,000  in  cash. 

^  President  Roberts  of  the  Pennsyl- 
vania Railroad,  is  reported  to  have  said 
{New  York  Times,  October  4th,  1886): 
"  If  State  Legislatures  and  Congress 
would  pass  proper  laws  for  the  protection 
of  railroads,  no  pools  would  be  necessary. 
We  are  common  carriers,  and  it  is  proper 
enough  that  the  Government  should  exer- 
cise supervision  over  us;  but  it  should  at 
the  same  time  protect  us  by  proper  laws. 
Under  the  general  railroad  law  of  Penn- 
sylvania and  its  recent  amendments,  the 
railroads  of  the  State  are  at  the  mercy  of 
speculators.  Under  the  law  any  one  can 
build  a  railroad  and  issue  stocks  and 
bonds  to  an  unlimited 
rate  to  the  amount  of 
the  cost  of  the  road, 
solid.      The  road 


are 


extent,  and  at  any 

four  or  five  times 

These   securities 

the 

goes  into 

company 


cannot   earn 


interest  on  its  securities,  and 
bankruptcy.  No  responsible 
can  compete  with  an  irresponsible  com- 
pany. No  company  managed  by  its 
owners  can  compete  with  one  managed 
by  a  receiver.  It  makes  no  difTerence 
to  the  receiver  whether  the  road  he 
manages  earns  5  cents  or  $5."  It  is  be- 
lieved by  the  author  that  there  is  but  one 
way  of  preventing  the  issue  of  fictitiously 
paid  up  stock.  The  law  should  prohibit 
all  issues  of  stock  for  labor,  property,  or 
contract  work,  unless,  before  such  issue. 


CH.m.]  ISSUE   OF   FICTITIOUSLY  PAID   UP  STOCK.       [§§27,28. 


§  27.  Statutes  mailing  it  void. — Many  of  the  States  have 
statutes  affecting  the  validity  of  stock  issued  as  paid  up,  when  its 
par  value  has  not  been  actually  paid  in.^  In  New  York,  under 
the  statute  allowing  the  incorporation  of  manufacturing  com- 
panies, it  has  been  held  that  an  issue  of  stock  as  paid  up  for  cash, 
at  less  than  its  par  value,  is  void.^  In  Ohio,  by  statute,  an  issue 
of  stock  to  a  director,  directly  or  indirectly,  for  less  than  the  par 
value  thereof,  is  void.^  In  some  cases  where  the  issue  of  paid  up 
stock,  in  similar  corporations,  was  for  property  taken  at  an  over- 
valuation, it  was  assumed  that  the  statute  did  not  make  the  issue 
void.'* 

§  28.  English  statutes.— lu  England,  in  1863,  the  Companies 
Clauses  Consolidation  Act^  prohibited  the  issue  of  new  stock 
for  a  price  less  than  its  par  value.  An  amendment  thereto  in 
186!i  ^  struck  out  this  prohibition,  and  gave  power  to  the  directors 


it  shall  have  been  decided  by  a  cominis- 
sion  appointed  by  a  specified  court,  that 
the  labor,  property,  or  contract  work  so 
received  is  equal  in  value  to  the  par  value 
of  the  stock  issued  for  it.  The  method 
of  procedure,  appointment,  powers,  and 
duties  of  such  a  commis.sion  could  be 
made  to  correspond  largely  with  those  of 
commissions  appointed  to  condemn  prop- 
erty under  tlie  power  of  eminent  do- 
main. 

I  Gen.  Stat,  of  Mo.,  ch.  62,  §  11,  p.  328  ; 
2  Rev.  Stat,  of  N.  Y.  50*7.  §  49 ;  504, 
§38;  r)05,§^4(),  41 ;  N.  Y.  Session  Laws, 
1848,  ch.  40,'  §§  38,  40,  41,  49.  In  Wis- 
consin the  following  remarkable  statute 
exists,  R.  S.,  1878,  t^  115S,  as  amended 
by  ch.  93, Laws,  1881  :  "No  corporation 
shall  issue  any  stock,  or  certificate  of 
stock,  except  in  consideration  of  money, 
or  labor,  or  property,  estimated  at  its 
true  money  value,  actually  received  by  it, 
equal  to  the  par  value  thereof  .  .  . 
and  all  stocks  and  bonds  issued  contrary 
to  the  provisions  of  this  section,  and  all 
stock  dividends,  or  other  fictitious  in- 
crease of  the  capital  stock  of  any  corpora- 
tion shall  be  void,  provided,  however, 
that  any  corporsition  whose  stock  or  bonds 
have  been,  or  shall  hereafter  be  admitted 
to  the  stock  exchange  of  Chicago,  New 
York,  Boston,  or  Philadelphia,  or  of  eitlier 
of  said  cities,  may  sell  such  stock  or  bonds 
so  admitted  at  the  best  price  or  j)rices 
current  for  the  time  being  fiij; ainable 
therefor  on  any  of  the  said  exchanges  at 
which  the  same  shall  be  offered  for  sale." 


'  Spring  Co,  v.  Knowlton,  103  U.  S, 
49  (1880);  Knowlton  v.  Congress  <fe  Em- 
pire Spring  Co.,  14  Blatchf.  304  (1877)  ; 
Knowlton  v.  Congress  &  Empire  Spring 
Co.,  57  N.  Y.  518  (1874).  These  three 
decisions  arise  from  the  litigation  of  a 
single  case.  After  being  reversed  in  the 
New  York  court,  it  was  removed  into  the 
Federal  court.  In  all  three  decisions  the 
invalidity  of  the  stock  was  conceded  by 
both  parties.  The  Federal  courts  diftVred 
from  the  State  courts,  and  held  that  a 
person  partly  paying  for  such  illegal  stock 
may  recover  back  such  payment,  although 
he  had  allowed  the  stock  to  be  forfeited 
for  non-payment  of  further  calls. 

3  Section  3,313  of  the  Revised  Statutes 
of  Ohio  sets  forth  that  "  all  capital  stocks, 
bonds,  notes,  or  other  securities  of  a  com- 
]»any  purchased  of  a  company  by  a  direc- 
tor thereof,  either  directly  or  indirectly, 
fur  less  than  the  par  value  thereof,  shall 
be  null  and  void."  In  Zabriskie  v.  Cleve- 
land C.  &  C.  R.  R.  Co  ,  23  How.  381 
(1859),  this  provision  was  held  not  to 
affect  the  liability  of  a  guarantor  of  such 
bonds.  Under  the  fore(;losure  proceed- 
ings of  the  Nickel  Plate  Railroad,  now 
pending  in  Mic  court  at  Cleveland,  Ohio, 
the  stockholders  seek  to  avoid  the  bonds 
and  mortgage  by  the  ajiplication  of  this 
statute. 

■*  Sec  g  34. 

"  Sec  8  <fe  9  Vic.  c.  10,  i^  21. 

6  See  32  &  33  Vic.  c.  48,   J5  5. 


27 


§  29.]  ISSUE   OF   FICTITIOUSLY  PAID   UP   STOCK.  [CH.  m. 

to  issue  stock  on  such  terms  and  conditions  as  they  saw  fit.  The 
Railway  Companies  Act^  of  1867  is  to  the  same  effect.  Never- 
theless, there  seems  to  be  no  English  case  holding  that  an  issue  of 
stock  at  a  discount  is  a  transaction  which,  under  all  circumstances, 
is  legal,  valid,  and  binding  on  all  parties. 

§  29.  Fictitious  stock  may  ie  voidable. — Is  stock  voidable 
when  fraudulently  issued  as  paid  up  ?  There  are  few  cases  on 
this  question,  but  the  tendency  of  the  courts  is  to  hold  that  such 
issues  of  stock  may  be  avoided  by  a  withdrawal  of  the  issue  and 
a  cancellation  of  the  certificates.  Thus  a  court  of  eG[uity,  on  the 
application  of  a  dissenting  stockholder,  has  decreed  that  stock 
falsely  issued  as  paid  up  stock  should  be  delivered  up  to  the  cor- 
poration for  cancellation.^  Where,  however,  the  stock  has  passed 
into  the  hands  of  ho?ia  fide  purchasei'S  for  value,  such  purchasers 
are  entitled  to  retain  the  stock.  Some  cases  intimate  that  the 
stock  fictitiously  issued  may  be  cancelled,  except  a  part  whose  par 
value  would  equal  the  amount  actually  paid  in  by  the  persons 
receiving  it.^  Many  cases  hold  also  that  the  transaction  is  in  the 
nature  of  a  fraudulent  contract,  and  that  it  may  be  rescinded  for 
fraud,  in  which  case  the  stock  would  have  to  be  returned  to  the 
corporation. 

So  far  as  the  right  of  the  corporation  to  issue  stock  below  par 
is  concerned,  the  courts  have  frequently  held  that  the  issue  is  an 
liltra  vires  act.*  But  an  ultra  vires  act  is  not  always  void  abso- 
lutely, and  it  is  voidable  only  at  the  instance  of  persons  standing 


'  See  30  <t  31  Vie.  c.  127,  §  2*7.  court  says:  "  It  is  i!ot  a  question  of  good 

■^  Gilman,  Clinton  &  Springtield  R.  R.  faith,  or  of  honest  intention,  or  of  wise 

Co.  V.  Kelly,  77  111.  426  (1875).     In  this  policy,  or  skillful    or    discreet  manage- 

case  it  was  admitted  tliat  the  stock  was  ment  on  the  part  of  the  directors.     It  is 

issued    gratuitously,    and    for   the    pur-  a  question  of  power."    In  West.,  Ac.,  R.  v. 

pose  of  enabling  the  construction  com-  Mowatt,   12  Jur.   pt.    1,  407  (1848),  the 

pany  to  own  a  majority  of  the   stock,  court  sustained  a  demurrer  to  a  bill  for 

thereby  controlling  the  corporation.  specific  performance  of  a  contract  to  take 

^  .Sturges  V.  Stetson,  1  Biss.  246-254  shares  from  the  corporation  at  a  discount, 

(1858).      The  court  said,  in  a  cZ/c^mw,  that  the  court  holding  that  the  contract  was 

stock  taken  at  less  than  par  with  knowl-  ultra  vires.     In  lix  parte  Daniell,  1    De 

edge,  is  subject  to  the  right  of  other  stock-  Gex  &  Jones,  372,  the  court  say    •.  "It 

holders,  being  such  at  the  time  of  its  is-  w"as  very  properly  admitted    .     .     .    that 

sue,  "to  have  it  reduced  to  the  charter  the    directors   of  the   company   had    no 

value  of  the  shares.      This  would  take  power  to  pass  the  resolution  "    issuing 

from  him  nearly  one  third  of  his  shares."  the  stock  for  less  than  its  par  value.     In 

In  Fosdick  v.  Sturgis,  1  Biss.  255  (1858),  Brown's  Case,  2  De  Gex,  F.  &  J.  275-295 

the  court  says  there  can  be  no  question  (1860),  it  is    held    to  be    "beyond   the 

that  this  remedy  is  available.  functions  and  in  excess  of  the  powei's  "  of 

^  Fisk  V.  Chicago,  Rock  Island  &  Pac.  the  directors. 
R.  R.  Co.,  53  Barb  513  (1868),  where  the 

28 


en.  III.]  ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK.      [§§30-32. 


in  a  certain  relation  towards  the  act.     Who  can  avoid  the  act  will 
be  explained  hereafter. 

§  30.  First  method  of  issue— By  discount  in  cas1i.—A^& 
already  stated,  paid  np  stock  may  be  improperly  issued  in  three 
different  methods:  by  part  cash  payment;  by  taking  property  at 
an  overvaluation  ;  by  an  invalid  stock  dividend. 

An  issue  of  paid  up  stock  for  cash,  upon  payment  of  only  part 
of  the  par  value  of  the  stock,  is  not  often  made,  inasmuch  as  the 
real  nature  of  the  transaction  is  readily  discovered  and  easily 
remedied.  Sometimes  the  corporation  makes  the  issue  under  a 
contract  with  those  receiving  it,  that  no  more  than  a  certain  per- 
centage of  the  par  value  will  be  called  for.  Again,  the  release  is 
sometimes  made  by  a  resolution  of  the  directors  or  stockholders, 
after  subscriptions  have  been  made  and  partly  paid,  discharging 
the  subscribers  from  any  furtiier  liability  on  such  subscriptions. 
The  proceedings  are  generally  spread  upon  the  corporate  records; 
certificates  are  issued,  asserting  on  their  face  that  they  are  paid 
up;  and  all  inquiries  at  the  corporate  ofiice  are  answered  by  a 
substantiation  of  that  assertion. 

§  31.  Dangers  attending  this  method. — There  are  various 
dangers  and  liabilities  growing  out  of  such  a  transaction.  The 
stock  is  liable  to  be  cancelled.^  The  person  to  whom  it  was 
issued,^  or  his  transferee  with  notice,''  or  the  corporate  officers 
participating  in  the  act*  may,  under  certain  circumstances,  each 
be  held  liable  personally  for  the  unpaid  par  value  of  the  stock. 
They  may  be  liable  to  the  corporation  itself,^  or  to  the  corporate 
creditors,"  or  to  honajide  transferees  of  the  stock.'' 

A  ho7ia  fide  transferee  of  such  stock,  however,  is  not  liable.^ 
r>ut  it  has  been  held  that  the  corporation  may  refuse  to  allow  a 
transfer  on  the  corporate  transfer  book  of  stock  so  issued.^ 

§  32.  Uule  in  England  sustaining  issues  below  par.  —  In 
England  entirely  difi'erent  rules  prevail  on  tliis  subject  so  far  as 
corporate  creditors  are  conceraed.^"  It  is  lield  that  where  a  con- 
tract for  the  issue  of  stock  for  cash  at  a  discount  is  regularly  reg- 


'  See  %  29. 

•^  See  ^§5  46,  47,  and  Chap.  X. 

=•  See  §  4J). 

*  See  §  48. 

«  See  §  38. 

«  See  Kij  42-44. 


'  See  §  40. 
s  See  g  50. 

»  People  V.  Sterling  Mfg.  Co.,  82  111. 
457  (1870). 
'"  See  §  44. 


21) 


§§  33,  34.]       ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK.  [CH.  m. 

istered  with  the  public  registrar,  as  provided  by  statute,  then  the 
person  to  whom  the  stock  is  thus  issued  by  contract  as  paid  up 
stock  is  not  liable  to  the  corporation,  nor  corporate  creditors,  nor 
any  other  person  for  the  unpaid  par  value  of  the  stock,  and  his 
transferee  is  likewise  protected.^  In  England  such  issues  of  stock 
are  looked  upon  as  matters  of  contract  between  the  corporation 
and  the  })erson  receiving  the  stock.  Such  a  contract  is  valid  as 
against  the  corporation  and  corporate  creditors.  Probably  the 
only  persons  who  could  disturb  it  would  be  dissenting  stockhold- 
ers, being  such  at  the  time  of  the  issue  of  the  stock. 

§  33.  Second  method — Issue  of  stocli  for  pro2)erty  taken  at 
an  overvaluation. — A  second  method  of  issuing  stock  as  paid  up, 
when  it  is  not  actually  paid  up,  is  by  its  issue  for  property  taken  at 
an  overvaluation.  This  method  is  the  most  frequently  employed, 
the  most  difficult  to  prove,  and  the  least  easy  to  remedy.  A 
large  amount  of  litigation  and  confusion  has  been  experienced 
and  gone  through  with,  in  determining  the  principles  of  law 
which  should  govern  such  transactions.  The  two  questions 
which  have  perplexed  the  courts  were,  first,  wdiat  constituted  an 
overvaluation  sufficient  to  invalidate  the  contract ;  second,  what 
remedy  should  be  applied  when  the  contract  was  invalidated. 

§  34.  Neiv  York  rule. — In  New  York  the  Court  of  Appeals 
was  at  first  in  doubt  whether  proof  of  a  mere  overvaluation  of 
the  property  w^as  sufficient  to  set  aside  the  payment  as  a  full  pay- 
ment, or  w^hether  it  was  necessary  for  the  plaintiff  to  prove  also 
that  the  overvaluation  was  intentional  and  fraudulent.^ 

1  Re  Ince  Hall  Rolling  Mills  Co.,  80  subscribed  for  "paidnp"  shares,  but  had 

W.  R.  945  (1882),  the   court  refused  to  paid  no  part  of  the  par  jalue  thereof, 

hold  liable  the  person  receiving  the  stock.  The  court  held  him  not  liable.     In  this 

but  in  a  dictum  said:    "Assuming  that  case  the  corporation  had  authority  to  is- 

the  contract  was  ultra  vires,  what  would  sue  ordinary  shares  for  cash,  and  "  paid 

be  the  result  ?     If  it  is  ultra  vires  it  must  up"  shares  for  property  or  services.     Ex 

be  set  aside  m  !fo(!o,  the  consequence  being  pa7-te   Daniell,   1  I)e  Gex  &  Jones,  372 

that  these  gentlemen  would  be  entitled  to  (IBS'?),  is  not  strictly  in  accordance  with 

be  relieved  of  their  shares  and   receive  the  preceding  authorities,  but  in  Daniell's 

back  the  money  paid  upon  them."     In  the  case  the  issue  was  to  a  director  who  was 

case  of  Guest  v.  Worcester  R.  R.  Co.,  L.  acting  in  a  fiduciary  capacity.     The  case 

R.  4  C.  P.  9  (1868),  where  stock  had  been  is  so  distinguished  in  Carling's  Case,  Lr 

issued  as  paid  up  stock  to  a  corporate  R.  1  Ch.  D.  115  (1876). 

creditor  as  security  for  his  debt,  nothing  '-  Boynton    v.   Hatch,  47    N.    Y.    225 

having  been  paid  on  such  stock,  the  court  (1872).     Three  of  the  judges  held  that 

said  it  did    "  not  entertain  a  shadow  of  a  proof  of  fraud  was  necessary,  and  three 

doubt,"  and  that  the  holder  was  not  liable  that  it  was  not  necessary.     All  concurred 

thereon.     In  Baron  De  Beville's  Case,  L.  in  holding  that  proof  of  overvaluation  was 

R.  7  Eq.  Cas.  9  (1868),  "paid  up"  shares  competent  and  necessary, 
had  been  issued  to  De  Beville,  who  had 

30 


CH.  ni.]  ISSUE   OF  FICTITIOUSLY   PAID   UP   STOCK. 


[§34. 


Later  cases,  however,  as  well  as  cases  in  other  States,  have 
firmly  established  the  principle  that  not  only  must  proof  be  given 
that  there  was  an  overvaluation  of  the  property  or  services  ren- 
dered, but  proof  also  must  be  given  that  such  overvaluation  was 
intentional  and  consequently  fraudulent.^  The  property  is  not  to 
be  considered  as  overvalued  merely  because,  subsequently,  it  turns 
out  to  be  so.  The  various  circumstances  under  which  the  valua- 
tion was  made  should  be  considered  in  determining  the  lona  fides 
of  the  transaction.^ 

Tiie  questions  as  to  whether  there  was  an  overvaluation  of  tlie 
property,  and  whether  that  overvaluation  was  intentional  and 
fraudulent  are,  generally,  questions  of  fact  to  be  submitted  to  the 
jury.^  Where,  however,  the  overvaluation  is  so  great  as  to  bear 
evidence  upon  its  face  that  it  was  intentional  and  fraudulent,  the 
court  will  hold  that,  unless  the  transaction  is  reasonably  explained, 
there  is  no  question  of  fact  for  the  jury,  but  that,  as  a  matter  of 
law,  the  overvaluation  was  fraudulent.* 


»  Douglas  V.  Ireland,  73  N.  Y.  100 
(1878):  Schenck  v.  Andrews,  57  N.  Y. 
133.(1874);  Boynton  v.  Andrews,  63  N. 
Y.  93  (1875);  Lake  Superior  Iron  Co.  v. 
Drexel,  90  N.  Y.  87  (1882);  Brant  v. 
Ehlen,  59  Md.  1  (1882).  In  the  last  case 
the  court  said:  "So  long  as  the  transac- 
tion stands  unimpeached  for  fraud,  courts 
will  treat  as  a  payment  that  which  the 
partii'S  themselves  have  agreed  shall  be 
a  payment,  and  this  too  in  cases  where 
the  rights  of  creditors  are  involved." 
New  Haven,  <fec.  Co.  v.  Linden  Spring 
Co.,  6  Eastern  Rep.  663  (Mass.  1886). 

«  Schenck  v.  Andrews,  57  N.  Y.  133 
(1874 ).  In  Coit  v.  North  Car.  Gold  Amal. 
Co.,  14  Fed.  Rep.  12  (1882),  the  court 
said  corporators  "  ought  not  to  be  made 
■  liable  individually  for  the  debts  of  the 
company  at  the  instance  of  creditors,  be- 
cause, at  a  later  day,  the  estimate  fairly 
put  upon  the  property  at  that  time  has 
become  modified  by  subsequent  events, 
and  will  not  amount  to  the  value  which 
they  set  upon  it."  In  Carr  v.  Le  Fevre, 
27  Pa.  St.  413  (1856),  the  court  said  if  the 
directors  "  took  lands  at  a  prospective 
value,  never  realized,  it  is  nothing  more 
than  many  individuals  and  corporations 
have  done  before.  Such  an  error  in 
management  or  in  their  judgment  of  tlie 
value  of  a  piirciiase.  made  without  fraud, 
forms  no  ground  for  rescinding  the  Cf)n- 
trdct."  See  also  Sciiroder's  Case,  L.  R. 
11  Eq.  Cas.  131(1870). 


s  Boynton  v.  Hatch,  47  N.  Y.  225 
(1872);  Lake  Superior  Iron  Co.  v.  Drexel, 
90N.  Y.  S7  (1882). 

■»  Thus,  where  stock  for  $300,0(iO  was 
issued  for  property  which  the  jurj?^  found 
to  be  worth  $64,(i00,  the  court  held,  as  a 
presumption  of  law,  that  the  transaction 
was  fraudulent.  Douglas  v.  Ireland,  73 
N.  Y.  100  (1878).  In  another  case,  in- 
volving the  same  facts,  the  trial  court  sub- 
mitted the  question  to  the  jury.  Brock- 
way  V.  Ireland,  61  How.  Pr.  372  (188o). 

In  another  case,  where  stock  for 
$100,000  was  issued  fcf  property  worlh 
not  more  than  $50,000,  the  court  held, 
that  in  the  absence  of  evidence  to  explain 
the  presumption  of  fraud,  tliere  was  no 
question  for  the  jury,  and  that  the  trans- 
action was  frauilulent  upon  its  iace. 
Boynton  v.  Andrews,  63  N.  Y.,  93(1875). 
An  issue  of  $190,000  of  stock  for  proper- 
ty worth  $27,500,  was  held  to  be  a  fraud- 
ulent overvaluation,  as  a  matter  of  law. 
Osgood  V.  King,  42  Iowa,  478  (1876). 
The  case  of  Lake  Superior  Iron  Co.  v. 
Drexel,  90  N.  Y.  87,  tends  to  make  the 
valuation  of  the  property  a  question  tor 
the  jury  exclusively.  In  that  case,  stock 
for  $2,500,000  was  issued  for  property  in 
a  patent.  $900,000  of  the  stock  was  re- 
turned to  the  corporation  as  a  gift.  The 
C(jurt  lield  tiiat  the  question  of  fraud  was 
for  the  jurj'.  This  case  was  followed  in 
Draper  ?.'.  Beadle,  16  Weekly  Dig.  476 
(1883),  Supm.  Ct.  N.  Y.  Gen.  t.     In  Bolz 

31 


# 


§  35.]  ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK.  [CH.  III. 

§  35.  Enxjlisli  statute  and  rides.— In  England,  the  issue  of 
stock  for  property  or  services  is  largely  regulated  by  statute.  On 
account  of  tlie  many  frauds  perpetrated  upon  the  public  by  the 
issue  of  stock  for  property  taken  at  a  gross  overvaluation,  parlia- 
ment, in  1867,  passed  an  act  requiring  all  contracts  whereby  stock 
was  issued  for  property  or  services,  to  be  publicly  registered, 
under  penalty  of  the  payment  being  void.^  Difficulty  then  arose 
as  to  what  was  the  status  and  liability  of  a  person  receiving  stock 
for  property,  in  case  the  contract  therefor  was  not  publicly  regis- 
tered, as  required  by  Act  of  Parliament.  The  courts  finally  de- 
cided that  if  the  sums  due  reciprocally  were  expressly  offset,  then 
that  the  stock  was  to  be  deemed  paid  for,  notwithstanding  the 
statute.^  But  a  mere  general  understanding  that  the  property  is 
payment  for  the  stock  is  insufficient.  The  prohibition  in  the 
statute  then  applies,  and  payment  in  cash  will  have  to  be  made 
upon  a  winding  up.^  The  point  decided  by  these  cases  seems  to 
have  been  misapprehended  in  a  few  American  cases.* 

In  England,  also,  many  cases  sustain  the  rule  that  where  fraud 
enters  into  an  issue  of  stock  for  property,  the  party  receiving  the 
stock  cannot  be  held  liable  for  the  par  value  thereof.  The  trans- 
action, like  other  fraudulent  agreements,  may  be  set  aside,  and 
the  parties  restored  to  their  original  positions,  but  it  must  be  re- 
scinded in  ioto  or  adopted  in  toto? 

•p.  Ridder,  19  Weekly  Dig.  463(1884),  N.  'Pell's   Case,   L.   R.   5    Ch.    App.    11 

Y  Com.  PL,  the  remarkable  rise  in  value  (1869);  Ex,  parte  Clarke,  L.  R.  1  Eq.Cas. 

of  a  patent  right  from  $1,000  to  $100,000.  550(1869);    Nicoll's  Case,    L.   R.   7  Ch. 

when  sold  for  stock  issued  in  payment  Div.  533  (l878).     See  also  Chap.  II.     In 

therefor, Nvas  held  to  be  only  presumptive-  Spargo's   Case,    L.    R.    8    Ch.   App.   407 

ly  fraudulent,  and  may  be  explained  suf-  (1873),  the  court  said :  "  If  the  parties  ac- 

ficiently  to  raise  a  question  for  the  jury,  count   with   each    other,    and    sums    are 

The  directors  in  estimating  the  value  "of  stated  to  be  due  on  one  side,  and  sums  to 

property  may  take  the  opinion  of  experts,  an  equal  amount  due  on  the  other  side  on 

and  rely  thereon.     Brockway  v.  Ireland,  that  account,  and  those  accounts  are  set- 

61  How.  Pr.  372  (1880).     See  also  Thurs-  tied  by  both  parties,  it  is  exactly    the 

ton    V.   Duffv,  38   Hun,    327  (1885);  cf.  same  thing  as  if  the  sums  due  on  both 

Knowles  v.  Duffy,  40  Hun,  485  (1886),  sides  had  been  paid."    See  also  Maynard's 

properly  holding  differently  from  the  last  Case,  22  Week.  R.  119  ;  Re  Vulcan  Iron 

case  on  the  same  facts.  Works,  Law  Times,  May,  1885,  p.  61. 

1  30  (fe  31  Vict.  ch.  131,  §  25.  "  Every  '  Dent's  Case,  L.  R.  15  Eq.  Cas.  407 

share  in   any  company  shall  be  deemed  (1873);  Fothergill's  Ca«e,  L.  R.  8  Ch.  App. 

and  taken  to  have  been  issued  and  to  be  270  (1873);    Crickmer's  Case,  L.  R.    10 

held  subject  to  the  payment  of  the  whole  Ch.  App.    614  (1875);    Rowland's  Case, 

amount  thereof  in  cash,  unless  the  same  42  L.  T.,  N.  S.,  785  (1880). 

shall  have  been  otherwise  determined  by  ■»  See  Wetherbee  v.  Baker,  35  N.  J.  Eq. 

a  contract  duly  made,  in  writing,  and  filed  501  (1882). 

with  the  Registrar  of  Joint-Stock  Compa-  ^  See  §§  47,  48. 
nies  at  or  before  the  issue  of  such  shares." 

32 


CH.  m.]  ISSUE  OF  FICTITIOUSLY  PAID  UP  STOCK.       [§§36,37. 

§  36.  Dangers  of  this  method. — "When  it  has  been  established 
that  the  overvaluation  of  the  property  taken  in  payment  of  stock 
was  intentional  and  fraudulent,  and  that  the  transaction  was  in- 
valid, the  questions  then  arise,  what  liability  has  been  incurred, 
who  is  liable,  and  what  is  the  remedy?  The  directors  participat- 
ing in  the  transaction  may  be  held  liable  to  the  corporation  for  a 
breach  of  trust,  but  their  liability  is  not  to  the  extent  of  the  par 
value  of  the  stock,  less  the  actual  value  of  the  property  received, 
but  is  limited  to  the  profit  received  by  them,  or  by  what  the  stock 
would  actually  have  sold  for  in  the  market,  less  the  value  of  the 
property  received.^  As  regards  the  person  receiving  the  stock  for 
property  taken  at  an  overvaluation  fraudulently  made,  the  con- 
tract may  be  set  aside  for  fraud,  thereby  returning  to  him  the 
property  and  requiring  from  him  the  stock  or  its  actual  market 
value,  but  he  is  not  liable  for  the  par  value  of  the  stock  less  the 
actual  value  of  the  j)roperty  received  from  him.^ 

§37.  Who  may  comi)lain  of  an  issue  of  stock  as  ^'paid  up" 
when  it  has  not  heen  fully  paid  f-~{a.)  The  State.— As  already 
indicated,  the  issue  of  stock  as  paid  up,  when  not  actually  paid  up, 
is  an  act  ultra  vires  of  the  corporation.  The  commission  of  2iltra 
vires  acts  by  a  corporation,  to  the  detriment  of  the  public,  renders 
its  charter  liable  to  forfeiture,  at  the  instance  of  the  State. 

The  issue  of  fictitiously  paid  up  stock,  with  a  view  to  defraud- 
ing the  public,  might  constitute  a  misuse  of  the  corporate  rights 
and  privileges.  In  such  a  case  it  is  not  clear  but  that  the  State 
might  proceed  to  forfeit  the  charter  of  the  corporation.^ 

Again  it  is  a  principle  of  law  that  when  a  corporation  is  guilty 
of  an  ultra  vires  act,  and  such  act  is  detrimental  to  the  interests 
of  the  public,  it  is  competent  for  the  Attorney-General  to  tile  an 
information  for  the  purpose  of  enjoining  or  setting  aside  such 
act.'* 

Under  this  rule,  it  would  seem  that  the  Attorney-General 
might  effectively  enjoin  or  set  aside  an  irregular  issue  of  paid  up 
stock. 


'  i^ee  g  48.  8u1)scribinf^,  thereby  perpetrating  ft  fraud 

'  See  §^  46,  47.  on  the  public.    See  also  Jersey  City  G.  L. 

^  In  Holman  v.  State,  <fec.,  5  Northeast.  Co.  v.  Dwi^ht,  29  N.  J.  Kq.  212 ;  Erie  Ry. 

Rep.  (Ind.  1886)  tiie  State  caused  a  char-  Co.  v.  Casey,  26  Pa.  St.  R.  287-318(1856). 

tor  to  be  forfeited  because  the  subscribers  ■*  Green's  Brice's  Ultra  Vires,  3d  ed. 

for  stock  were  insolvent  at  the  time  of  pp.  708,  709. 

[31  33 


§  38.]  ISSUE   OF   FICTITIOUSLY  PAID   UP   STOCK.  [CH.  m. 

§  38.  (&.)  The  corporation  itself. — The  corporation  itself, 
after  issuing  its  stock  as  paid  up  stock,  and  declaring  it  so  to  be, 
cannot  subsequently  repudiate  that  declaration  and  agreement  and 
proceed  to  collect  tlie  unpaid  part  of  the  par  value,  either  from 
the  person  receiving  the  stock,  or  his  transferee.  It  is  estopped 
from  so  doing,^ 

"Where,  however,  fraud  enters  into  the  transaction,  then,  it 
seems,  the  corporation  is  not  estopped  from  having  the  agreement 
set  aside.  The  person  receiving  the  stock  can  then  be  compelled 
to  return  the  stock,  or  its  market  value,  and  take  back  that  which 
he  gave  to  the  corporation  for  it.  The  corporation  cannot  hold 
him  liable  for  the  par  value  of  the  stock.^ 

The  corporation  has  also  a  remedy  herein  against  its  direc- 
tors who  issued  the  stock  either  fraudulently  or  in  an  ultra  vi7'es 
manner.^  This  liability  is  similar  to  their  general  liability  to  the 
corporation  for  fraudulent,  negligent,  or  ultra  vires  acts  on  their 
part.*  The  measure  of  their  liability,  herein,  is  not  the  par  value 
of  the  stock,  less  the  value  actually  received  therefor  by  the  cor- 
poration, but  it  is  the  actual  value  of  the  stock,  generally  the 
market  value,  less  the  property  or  cash  actually  received  by  the 
corporation  on  the  stock  so  issued. 

It  has  also  been  held  that  the  corporation  cannot,  in  a  court 


'  In  the  case  of  Scoville  v.  Thayer,  the   stockholders    acquiesced   and  there 

105  U.  S.  143  (1880),  the  court  said,  in  a  were  no  creditors'  rights  involved,   the 

dictum  :    "  No  call  could  have  been  made  court  held  that  the  corporation  could  not 

by  the  company  under  its  agreement  with  hold  the  directors  liable  for  the  profits 

the  shareholders,  unless  to  pay  its  cred-  made  by  them.     In  Zirkel  v.  Joiiet  Opera 

iters.     .      .      .      The  shares  were  issued  House  Co,  19  111.  334  (1875)  the  corpora- 

as  paid  up,  on  a  fair  understanding,  and  tion  had  released  the  subscriber  after  the 

that  bound  the  company."    The  issue  had  subscription  had  been  made.    The  release 

been  at  a  discount.  being  without   consideration,  and  not  a 

See  also  Union,  <fec.,  Co.  v.  Frear,  (fee,  contract,  was  held  void,  and  the  corpora- 
Co.  9*7  111.  537  (1881),  dictum.  In  the  case  tion  was  allowed  to  recover.  The  case 
of  Granite  Roofing,  <fec.,  Co.  v.  Michael,  of  The  Society  of  Prac.  Knowl.  v.  Abbott, 
54  Md.  65  (1880),  stock  was  issued  as  paid  2  Beav.  559  (1840),  was  distinguished  in 
up  for  cash,  although  not  actually  paid.  Me  British  S.  P.  B.  Co.,  L.  R.  17  Ch.  D. 
The  corporation  passed  under  the  control  467  (1881),  the  latter  case  holding  that  no 
of  purchasers  of  the  stock,  who  caused  the  one  is  liable  on  fictitiously  paid  up  stock 
corporation  to  sue  the  original  subscribers  where  all  acquiesced  and  there  was  no  in- 
fer the  unpaid  par  value  of  the  stock,  tent  to  bring  in  new  stockholders,  even 
The  court  said:  "  While  the  law  may  re-  though  new  ones  were  subsequently 
ject,  as  illegal  and  fraudulent,  that  which  brought  in.  See  also  Flinn  v.  Bagley,  7 
the  parties  have  agreed  upon,  .  .  .  Fed.Rep.785 (1881);  i^eGlenlron  Works, 
it  will  not  arbitrarily  incorporate,  in  lieu  17  Fed.  Rep.  24  (1883);  cf.  People  v.  Ster- 
thereof.  terms  in  the  contract  to  which  ling  Mfg.  Co.  82  111.  457  (1876). 
the  parties  have  never  assented."  In  the  ^  See  ^§  47,  48. 
case  He  Ambrose  L.  T.  &  C.  Mining  Co.  ^  gge  1 48. 
L.  R.  14  Ch.   Div.  390  (1880),  where  all           <  ggg  part  IV. 

34 


CH.  m.]  ISSUE   OF  FICTITIOUSLY   PAID   UP   STOCK.       [§§  39, 40. 

of  equity,  compel  a  person,  who  agreed  to  take  stock  at  a  dis- 
count, to  carry  out  the  contract,  inasmuch  as  it  is  ultra  vires} 

%  39.  (c.)  StocMolders  participating  in  the  act  cannot  com- 
plain.— Stockholders  in  a  corporation,  who  participate  or  aid  in 
the  issue  of  paid  up  stock,  upon  payment  of  less  than  its  par 
value,  or  who  have  knowledge  of  the  act  and  acquiesce  therein, 
cannot  afterwards  complain  of  the  transaction,  either  in  their  own 
behalf  or  in  behalf  of  the  corporation.  They  are  bound  by  es- 
toppel or  acquiescence.^ 

The  cases  are  in  conflict  on  the  question  whether  the  party  re- 
ceiving stock  at  a  partial  discount  of  its  par  value,  may  repudiate 
the  transaction  and  recover  from  the  corporation  the  money  he 
has  already  paid  thereon.^  Where  the  stockholders  participating 
in  the  issue  disagree  among  themselves  as  to  the  division  of  the 
stock,  the  courts  will  not  render  aid  to  one  as  against  the 
others.* 

§  40.  (d.)  Transferees  of  participating  stocMolders. — Not 
only  the  participating  and  acquiescing  stockholders,  but  also  their 
transferees  are  bound  by  the  participation  or  acquiescence.  The 
transferee  cannot  claim  to  have  greater  rights  than  his  tranferer, 
as  regards  a  general  remedy  invalidating  the  whole  transaction. 
He  cannot  bring  suit  in  behalf  of  the  corporation  and  other  stock- 
holders against  the  party  or  parties  participating  in  the  issue,  in- 


'  West.  R.  R.  Co.  V.  Mowatt,  12  Jur.  ^  The  case  of  Clarke  v.  Lincoln  Lum- 

pt.  I,  407  (1848).  ber  Co.  49  Wis.  655  (1884),  holds  that  a 

-  In   lie  Gold  Co.  L.  R.    2  Ch.  Div.  participating  subscriber  cannot  withdraw 

701-712,  the  court  says  :    "  It  could  not  and  recover  back  sums  already  paid.    See 

be  a  fraud  upon,  or  a  wrong  to  the  exist-  also  Goff  v.   Hawkeye  P.  <fe  W.  Co.   62 

ing   stockholders,  because  every   one  of  Iowa,  691  (1883).    Knowlton  v.  Congress 

them  was  a  party  to  the  transaclion."  See  &  Empire  Spring  Co.  57  N.  Y.   518-537 

also  Scoville  v.  Tliayer,   105   U.   S.  143  (1874),  holds  the  same,  the  court  saying: 

(1881).     But  in  the  case  of  Knowlton  w.  "  Such  parties  are  left  in  the  position  they 

Congress  (fe  Empire  Spring  Co.  14  Blatchf.  have  placed  themselves."    Tlie  latter  case 

364-368  (1877),  the  court  said,  in  a  die-  was    decided    otherwise   in   the   Federal 

turn  :  "  Can  there  be  any  doubt  that  up  courts  (14  HIatchf.  364,  and  103  U.  S.  49), 

to  the  time  of  the  abandonment  of  the  it  being  there  held  that  a  recovery  might 

scheme   by   the   defendant,    the    plaintiff  be  had,  where  others  are  repaid, 

couhl  have  resorted  to  a  court  of  equity  Mandamus  will  not  issue  to  compel 

and   restrained    further  proceedings  and  the  issue  of  stock  at  a   discount,  iu  per- 

vacated  the  proceedings  already  taken  ?  formance  of  a  resolution  by  the  stock- 

The  cases  are  numerous  where  courts  of  holders  that  such  issue  shall  be  made, 

equity  have  interfered  to  prevent  the  con-  Equity  will   not  aid  the  fraud.     State  v. 

summation  of  a  wrong,  upon   the  motion  Timken  (N.  J.  1886),  3  Central  Rep.  212. 

of  a  party  who  was  instrutiiental  in  its  ■•  Tobey    v.    Robinson,     99     111.    202 

inception.""     Affi'd,    103   U.    S.  49.     The  (1881). 
issue  of  stock  in  that  case  was  held  to  bo 
absolutely  void  by  statute. 

35 


§  40.] 


ISSUE  OF  FICTITIOUSLY  PAID  UP  STOCK. 


[CH.  in. 


asmucb  as  his  own  title  is  tainted  with  tlie  same  fraud.^  Nor  can 
he  bring  an  action  against  the  corporation.^  But  the  transferee 
is  by  no  means  without  a  remedy.  He  may  bring  an  action  for 
damages  against  those  who,  knowing  the  facts,  induced  him  to  pur- 
chase, or  those  who  made  it  possible  for  the  fraud  to  be  practiced, 
or  who  actually  assisted  in  perpetrating  the  fraud  upon  him.^ 

The  transferee  has  other  remedies.  If  the  transfer  to  him 
was  from  one  of  the  participants,  he  may  rescind  the  transfer  and 
recover  back  the  price  paid  by  him  ;^  or,  if  the  contract  of  pur- 
chase is  not  yet  completed,  he  may  refuse  to  take  the  stock.^ 


'  Parsons  v.  Hays,  14  Abb.  N.  C.  419 
(Super.  Ct.  1883);  Nott  v.  Clews,  14 
Abb,  New  Cases  (N.  Y.),  43t ;  Flagler  Co. 
V.  Flagler,  19  Fed.  Rep.  468  (1884,  Circ. 
Ct.  Mass.);  s.  o.  14  Abb.  New  Cases  (N. 
Y.),  435.  See  also  Langdou  v.  Fogg,  18 
Fed.  Rep.  5  (1883).  In  the  late  case  of 
Foster  v.  Seymour,  23  Fed.  Rep.  65 
(1885,  U.  S.  Circ.  Ct.  Wallace,  J.),  an  is- 
sue of  stock  for  property  at  an  overvalua- 
tion is  distinctly  held  to  be  no  fraud  upon 
the  corporation,  nor  upon  the  stockhold- 
ers, all  of  whom  participated.  "  A  pur- 
chaser of  the  stock  would  not  be  injured 
by  the  transaction  imless  he  paid  more 
for  it  than  it  was  worth  ;  and  every  pur- 
chaser would  stand  upon  the  particular 
circumstances  of  his  purchase."  A  suit 
against  the  guilty  parties,  who  were  the 
directors,  to  compel  them  to  account  for 
a  fraudulent  disposition  of  corporate  prop- 
erty will  not  lie.  The  fraud  is  not  corpo- 
rate ;  it  is  personal. 

«  In  Re  Gold  Co.  L.  R.  11  Ch.  D.  701 
(1879),  the  court  said:  "It  was  not  a 
wrong  done  by  the  company  or  to  the 
company."  In  Re  Ambrose  Lake  T.  &  C. 
Min.  Co.  L.  R,  14  Ch.  D.  390-397  (1880), 
the  court  says :  "  There  would  be  no  lia- 
bility oil  the  part  of  the  company,  as  such." 

^  The  leading  case  on  this  principle  of 
law  is  Cross  v.  Sackett,  6  Abb.  Pr.  R.  247 
(1858),  argued  by  eminent  counsel  and 
decided  by  learned  judges.  A  bona  fide 
purchaser,  in  open  market,  from  an  inno- 
cfut  holder,  of  stock  issued  as  paid  up  for 
property  taken  at  an  overvaluation,  sued 
a  director,  being  also  an  original  stock- 
holder, for  damages.  The  court  held : 
"  When  a  party  projects  and  publicly 
promulgates  the  scheme  of  a  joint  stock 
company;  when  he  causes  the  usual  books 
to  be  opened,  and  allows  or  causes  the  in- 
scription of  a  person  as  an  owner  of  an 
interest  to  a  definite  amount  and  value 

36 


therein,  which  is  false  within  his  own 
knowledge  ;  when  he  embodies  such  false 
statements  in  a  certificate  of  this  right 
directly  issued  and  of  the  same  effect  as  if 
signed  by  himself ;  when  he  accompanies 
that  certificate  by  a  written  power  au- 
thorizing a  transfer  at  large,  by  the  party 
to  whom  he  has  given  the  certificate ; 
when  that  representation  induces  an  inno- 
cent person  to  advance  iiis  money — the 
defendant's  own  individual  act  has  created 
the  privity  of  contract  .  .  .  and 
he  must  be  held  responsible  to  any  one 
who  has  been  deceived." 

The  plaintiff  must  prove  that  a  repre- 
sentation was  made  that  the  stock  was 
paid  up,  and  that  he  relied  thereon,  and 
that  the  representation  was  false  and 
fraudulent.  McAleer  v.  McMurray,  58 
Penn.  St.  126  (1868);  Priest  v.  White,  84 
Alb.  L.  J.  298  (1886). 

The  court  in  In  re  Ambrose  Lake  Tin 
&  Cop.  Min.  Co.  L.  R.  14  Ch.  D.  390-397 
(1880),  said  that  the  transferee  has  a  rem- 
edy against  the  person  who,  in  any  way, 
made  the  misrepresentations  to  him.  Re 
Gold  Co.  L.  R.  1 1  Ch.  D.  701,  pp.  713,  714, 
is  to  the  same  effect.  In  Barnes  v.  Brown, 
80  N.  Y.  527  (1880),  the  plaintiff,  being 
under  contract  to  receive  paid  vip  stock 
from  defendants,  received  such,  and  after- 
wards discovered  that  its  par  value  had 
not  been  paid  in  to  the  corporation.  The 
court  held  that  he  could  recover  damages 
from  the  defendant  for  the  fraud,  in  which 
he  had  participated. 

■»  Fosdick  V.  Sturges.l  Biss.  255  (1858). 
In  this  case  the  certificate  was  brought 
into  court  to  be  disposed  of  as  the  court 
should  direct. 

*  Sturges  V.  Stetson,  1  Biss.  246-253 
(1858),  the  court  holding  that  an  action 
for  the  price  of  such  stock  is  in  the  nature 
of  a  bill  in  equity  for  the  specific  perform- 
ance of  a  contract,  and  the  defendant  may 


CH.  III.]  ISSUE   OF   FICTITIOUSLY  PAID    UP    STOCK.       [§41,42. 

§  41.  {e.)  StocMolders  dissenting  at  the  time  of  the  issue 
may  complain. — Stockholders,  being  such  when  an  issue  of  }iaid 
up  stock  is  improperly  made,  and  not  assenting  to  or  acquiescing 
in  it,  may  bring  suit  in  a  court  of  equity  to  annul  and  set  aside 
the  whole  transaction,^  It  has  been  held  that  the  issue  may  be 
cancelled.^  The  dissenting  stockholders'  rights  and  remedies 
herein,  in  their  scope  and  details,  are  similar  to  the  rights  and 
remedies  of  stockholders  in  other  cases  of  ultra  vires  acts  or  fraud 
to  the  injury  of  the  corporation,  a  subject  fully  treated  in  the 
fourth  part  of  this  work. 

§  42.  (/.}  Corporate  creditors  as  complainants  ivliere  the 
issue  is  for  money. — According  to  well  established  rules  of  law 
in  America,  corporate  creditors  may  object  to  certain  transac- 
tions, which,  as  between  the  corporation  and  its  stockholders 
and  third  persons,  may  be  valid  and  binding.  This  right  of  cor- 
porate creditors  is  an  essentially  American  doctrine.  It  is  based 
on  the  principle,  first  enunciated  by  Judge  Story,  that  the  capital 
stock  of  the  corporation  is  a  trust  fund,  to  be  preserved  for  tlie 
benefit  of  corporate  creditors.  That  principle  of  law,  when  ap- 
plied to  a  transaction,  whereby  stock  is  issued  as  paid  up,  when 
it  is,  in  fact,  not  paid  up,  enables  corporate  creditors  to  ob- 
ject to  the  act,  and,  in  certain  cases,  to  undo  what  has  been 
done,  and,  in  other  cases,  to  compel  payment  of  the  actually 
unpaid  part  of  the  par  value  of  the  stock.  Where  the  issue  of 
stock  was  for  cash,  under  an  agreement  that  only  part  of  the  par 
value  need  be  paid,  corporate  creditors  may  compel  the  persons 
receiving  the  stock  to  pay  the  unpaid  full  pai*  value.^ 


defeat  it  by  avoiding  the  contract  alto-  '  Campbell  v.  Morgan,  4  Bradw.  (III.) 
gether,  although  the  certificates  have  been  100  (1879);  Oilman,  Peoria  &  Spring, 
transferred  to  him.  To  same  effect,  Cool-  R.  R.  Co.  v.  Kelly,  77  111.  426  (1875). 
idge  V.  God<lard,  77  Me.  579.  ^  The  leading  case  on  this  point  is 
'  In  Fisk  V.  Chicago  &  Rock  Isl.  R.  Sagorv  v.  Dubois,  '6  Sandf.  Ch.  Rep.  46fi- 
R.  Co.,  53  Barb.  513  (1868),  the  court  499  (r84(;),  where  the  court  said:  "The 
enjoined  any  tran-fer  of  the  stock,  and  defendant  being  li-ible  by  force  of  his  sub- 
appointed  a  receiver  to  receive  what  tlie  scription  for  the  stock,  the  resolution  of  the 
corporation  had  realized  from  the  stock,  directors  .  .  .  not  to  make  any  fur- 
and  to  use  the  funds  in  retiring  the  stock  ther  calls  upon  the  shares,  was  unavailing 
and  paying  damages  caused  tliereby.  In  to  discharge  his  liability  in  respect  of  the 
Slurgesv.  Stetson,  1  Biss.  246-254  (1858),  association  and  its  creditors."  In  Sco- 
and  "Fosdick  v.  Sturges,  1  Biss.  255-259  ville  v.  Thayer,  105  U.  S.  143  (1881),  the 
(1858),  tiie  court  in  dida  said  that  the  court  said  that  a  contract  whereby  stock- 
issue  could  be  withdrawn,  leaving  witii  holders  are  to  pay  but  paH  of  the  par 
the  guilty  party  so  mucli  stock  as  the  value  of  their  stock  to  tlie  corporation, 
mouey  paid  by  them  would  equal  the  par  "though  binding  on  the  company,  is  a 
value  thereof.  fraud  in  law  on  its  creditors,  wliich  tliey 

37 


§43.] 


ISSUE   OF   FICTITIOUSLY  PAID   UP   STOCK.  [CH,  in. 


But  the  amount  collected  must  be  to  the  extent  and  for  the 
purpose  of  paying  corporate  creditors'  claims  only.^  A  resolu- 
tion discharging  stockholders  from  all  liability  on  stock,  after 
thirty  per  cent,  of  the  par  value  has  been  paid,  and  then  suffering 
a  forfeiture  of  the  stock,  is  void  so  far  as  corporate  creditors  are 
concerned.^  In  New  York,  this  liability  to  corporate  creditors 
is  embodied  in  the  statutes.^  In  order  to  enforce  this  liability  it 
is  not  necessary  to  prove  that  fraud  entered  into  the  transaction, 
where  the  issue  was  for  cash,  since  there  is  no  possibility  of  mis- 
taken judgment  in  the  value  of  the  thing  received  in  payment.* 
Where  the  capital  stock  of  the  corporation  is  increased,  the  in- 
crease is  not  a  trust  fund  for  the  benetit  of  corporate  creditors, 
who  were  such  before  the  increase  was  made.^  It  has  been  held 
that  the  custom  of  the  country  will  exempt  stockholders  from 
liability  on  stock  issued  as  paid  up,  when  it  was  not  paid  up. 
Such  a  decision,  however,  is  inconsistent  with  the  great  weight 
of  authority  and  must  be  considered  poor  law.^ 

§  43.  In  England  an  entirely  different  rule  prevails  as  regards 
the  right  of  corporate  creditors  to  collect  the  unpaid  par  value 
of  stock  issued  for  cash.  Corporate  creditors  in  England  cannot 
enforce  any   liability  which  the  corporation  itself   is  estopped 


can  set  aside ;  when  their  rights  intervene 
and  their  claims  are  to  be  satisfied,  the 
stockholders  can  be  required  to  pay  their 
stock  in  full."  Upton  v.  Tribilcock,  91 
U.  S.  45  (1875),  is  the  first  of  a  series 
of  cases  growing  out  of  the  failure  of  the 
Great  Western  Insurance  Co.  of  Illinois. 
The  other  cases  are  Sanger  v.  Upton,  91 
U.  S.  56  (1875);  Webster  ?j.Upton,  91  U. 
S.  65  (1875);  Chubb  v.  Upton,  95  U.  S. 
666  (1877);  Pullman  v.  Upton,  96  U.  S. 
328  (1877);  Hawley  «;.  Upton,  102  U.  S. 
314(1880);  Upton  v.  Burnham,  3  Biss. 
481(1873);  s.  c.  3  Biss.  52ii,  and  Upton  i^. 
Hansbrough,  3  Biss.  417  (1873).  This 
series  of  cases  established  for  the  Federal 
courts  the  rule  given  above.  See  also 
Flinn  v.  Bagley,  7  Fed.  Rep.  785  (1881), 
giving  full  review  of  the  American  and 
English  doctrine  herein.  In  re  Glen  Iron 
Works,  17  Fed.  Rep.  374  (1883);  Union 
M.  L.  Ins.  Co.  V.  Frear  Stone  Mfg.  Co., 
97  111.  537  (1881),  also  reviewing  the  doc- 
trine; Hickling  v.  Wilson,  104  111.  54 
(1882);  Northrop  v.  Bushnell,  38  Conn. 
498  (1871);  Fisher  v.  Seligman,  7  Mo. 
App.  383  (1879);  Eyerman  v.  Krieckhaus, 
7  Mo.  App.  455  (1879) ;  Skrainka  v.  Allen, 

38 


7  Mo.  App.  434  (1879);  Pickering  v. 
Templeton,  2  Mo.  Apjx  424(1876);  Christ- 
ensen  v.  Eno,  21  Weekly  Dig.  202  (1885) , 
Mann  v.  Cooke,  20  Conn.  178  (1850); 
Myers  v.  Suley,  10  Natl.  Bank.  Reg.  411. 
As  affecting  corporate  creditors  herein, 
the  Statute  of  Limitations  does  not  com- 
mence to  run  until  judgment  is  recovered 
by  the  corporate  creditors  against  the 
corporation.  Christensen  v.  Quintard,  36 
Hun,  334  (1885). 

'  Scoviile  V.  Thayer,  105  U.  S.  143- 
155  (1881). 

2  Slee  V.  Bloom,  19  Johns.  Rep.  456 
(1822). 

3  1  R.  S.,  Ch.  18,  Title  3,  g  5 ;  N.  Y. 
Session  Laws,  1850,  Ch.  140,  §  10;  Id. 
1854,  Ch.  282,  §  16. 

■*  Flinn  v.  Bagley,  7  Fed.  Rep.  785 
(1881). 

5  Coit  V.  North  Car.  Gold  Amal.  Co., 
14  Fed.  Rep.  12(1882). 

^  Re  South  Mountain  Consol.  Min. 
Co.,  7  Sawyer,  30  (1881).  In  this  case  it 
is  stated  that  corporate  creditors  were 
protected  "  by  the  personal  liability  of 
each  shareholder  for  his  pro  rata  share  of 
the  indebtedness  of  the  corporation." 


CH.  III.]  ISSUE   OF  FICTITIOUSLY  PAID   UP   STOCK.  [§  44. 

from  enforcing.^  The  principle  of  law,  that  the  capital  stock  of 
a  corporation  is  a  trust  fund,  to  be  preserved  for  the  benefit  of 
corporate  creditors,  is  a  distinctively  American  doctrine,  and 
has  never  been  recognized  in  England.  Formerly  the  English 
courts  were  inclined  to  bold,  that  where  paid  up  stock  is  issued 
under  an  agreement  that  but  part  of  its  par  value  need  be  paid, 
payment  being  in  cash,  that  such  agreement  could  be  disregarded 
and  the  full  par  value  collected.  Later  decisions  repudiate  this 
rule,  and  hold  that  there  is  no  liability  for  the  unpaid  par  value, 
and  that  the  issue  under  the  agreement  is  valid,  unless  impeached 
for  actual  fraud,  and  in  that  case  it  must  be  rescinded  in  toto  or 
not  at  all.^  In  England,  where  the  issue  is  for  property  taken  at 
an  overvaluation,  the  rights  and  remedies  of  the  parties  are  the 
game  as  in  America.^ 

§  44.  Corporate  creditors  as  complainants  ivliere  the  issue 
is  for  property  or  construction  ivork. — Tlie  rights  of  corporate 
creditors  are  not  clear  and  certain  where  paid  up  stock  was  issued 
in  consideration  of  property  taken  at  an  overvaluation.  In  order 
to  reach  the  person  receiving  paid  up  stock  for  property,  the  cor- 
porate creditor  must  prove  three  things.  He  must  prove  that 
the  property  was  overvalued,  and  unreasonably  overvalued,  since, 
if  the  estimate  was  a  fair  one  when  made,  subsequent  events  can- 
not impeach  it,  even  for  the  benefit  of  corporate  creditors.* 

The  corporate  creditor  must  also  prove  that  the  overvaluation 
was  intentional  and  fraudulent.  Until  that  is  done  the  courts 
refuse  to  interfere  with  or  set  aside  the  discretion  which  has  been 
exercised  by  the  corporate  authorities  in  valuing  the  property 
received.^     In  the  third  place,  the  corporate  creditor  must  prove 


'  In  Ee  Dronfield  Silkstone  Coal  Co.,  what  is  to  be  paid  by  the  shareholders 

L.  R.,  17  Ch.  Div.  76(1880),  on  p.  97,  the  is  to  be  recovered  in  that  right."     Of. 

court  says:  "If  the  company  could  not  remarks  of  the  Lord  Chancellor,  p.  32. 
question  it,  neither  can  a  creditor,  for  he  '^  See  §  32. 

can  obtain  nothing  but  what  the  com-  ^  See  §  35. 

pany  can   get    from   the   sliareholders."  ''  Coit  v.  North  Car.  Gold  Amal.  Co., 

See  also  Jie  Ambrose  Lake  T.  &  C.  Min.  14  Fed.  Rep.  12  (1882).     See  also  §  34. 
Co,    L.    R.,    14  Ch.   D.    390  (1880);  Me  ^  !„  phelan  «^.  Hazard,  3  Dill.  45  (1878), 

Ince  Hall  Rolling  Mills  Co.,    30  W.   R.  Judge  Dillon  thoroughly  reviews  the  au- 

945(1882),  where    the    court    said    the  thorities,  and  says:  "The  contract  is  valid 

same  as  in  the  preceding  case.     In  Water-  and  binding  upon  the  corporation  and  the 

house  V.  Jamieson,  L.  R.,  2  H.  L.  (Sc.)  29,  original  shareliolders  unless  it  is  rescinded 

the  court  said,  p.  37:   "I  take  it  to  be  or  set  aside  for  fraud,  and     .     .     .     while 

quite  settled  that  the  rights  of  creditors  the    contract    stands    unimpeachcd,   the 

against  the  shareholders  of  a  company,  courts,  even  where  the  rights  of  creditors 

■when  enforced  by  a  liquidator,  must  be  are  involved,  will  treat  (hat  as  a  payment 

enforced  by  him  in  right  of  the  company ;  which  the  parties  have  agreed  should  be 

39 


§§  45,  46.]        ISSUE  OF  FICTITIOUSLY   PAID  UP  STOCK.  [CH.  in. 

that  the  person  so  receiving  the  stock  has  made  a  profit  there- 
from. The  transaction,  being  a  fraudulent  one,  is  rectified  by  the 
corporation  returning  the  property,  and  the  stockholder  returning 
the  stock  or  the  real  market  or  actual  value  thereof.  He  cannot 
be  made  liable  for  the  par  value  of  the  stock  less  the  real  value  of 
the  property.^ 

§  45.  Wlio  is  liable,  and  the  character  of  the  UaMlity.  {a.) 
The  corporation. — The  corporation  itself,  it  has  been  intimated,  is 
not  liable  to  any  person  by  reason  of  the  issue  of  its  stock  as  full- 
paid  stock,  when,  as  a  matter  of  fact,  it  has  not  been  fully  paid.^ 
It  is  very  certain  that  the  stockholder  has  no  remedy  herein  against 
the  corporation,  since  his  remedy  is  against  the  corporate  ofiicers, 
as  in  other  cases  of  breach  of  trust  by  them.  As  regards  corporate 
creditors,  they  cannot  complain  provided  the  corporation  remain 
solvent  and  able  to  pay  its  debts.  If,  on  the  other  hand,  it  be- 
comes insolvent,  it  would  be  no  object  to  bring  suit  against  the 
corporation. 

§  46.  (&.)  Persons  receiving  the  stoclifrom  the  corporation. — 

These  are  the  ones  against  whom  suit  is  generally  brought.  Their 
liability,  under  the  various  circumstances  of  the  particular  issue 
of  stock  has  been  explained  elsewhere.  Where  the  issue  was  for 
cash,  they  are  liable,  in  America,  to  corporate  creditors  for  the 
unpaid  par  value  of  the  stock.^  In  England  they  are  not  so 
liable.'*  In  either  country  the  transaction  may  be  rescinded  and 
set  aside  in  toto  for  fraud.  Where  the  issue  was  for  property 
taken  at  an  overvaluation,  the  rules  in  America  and  England  are 
the  same.  The  transaction  stands,  and  no  liability  is  incurred 
unless  an  intentional  overvaluation  is  proved.^     In  that  case  a 


payment."      See  also  Brant  v.  Ehlen,  59  not  a  wrong  done  by  the  company  or  to 

Md.  1  (1882),  fully  explaining  the  meaning  the  company."     It  has  been  held,  how.- 

of  the  term  trust  fund  as  applied  here-  ever,  in  general,  that  "A  corporation  may 

in.      Crawford   v.   Rohrer,    59   Md.   599  be,  in  a  legal  sense,  guilty  of  a  fraud.     As 

(1882).  a  mere  legal  entity  it  can  have  no  will 

'  See  §§  47,  48.  and  cannot  act  at  all,  but  in  its  relations 

"^  In  the  case  of /w  re  Ambrose  L.  T.  &  to  the  public  it  is  represented  by  its  offi- 

Cop.  Min.  Co.,  L.  R.  14  Ch.  D.  390-397  cers  and  agents,  and  their  fraud  in  the 

(1880),  the  court  says:  "  There  would  be  course  of  the  corporate  dealings  is  in  law 

no  liability  on  the  part  of  the  company  as  the  fraud  of  the  corporation."     Cragie  v. 

such."     /nreGoldCo.,L.  R.  llCh.D.  701  Hadley,  99  N.  Y.  131  (1885).      See   also 

(1879),  where  the  proceeding  was  to  com-  Lewis  v.  Meier,  14  Fed.  Rep.  311  (1882). 

pel  a  winding  up  of  the  company  on  ac-  ^  See  §  42. 

count  of  an  improper  issue  of  paid  up  *  See  §  43. 

stock.     The  court  refused  to  support  the  ^  See  §  34  et  seq.     For  the  remedy  in 

proceeding,  and  said,  pp.  713-14,  "  it  was  that  case  see  §  44. 

40 


CH.  m.]  ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK.  [§  47. 

dissenting  stockholder,  being  such  at  the  time  of  the  issue,  may 
have  the  transaction  set  aside,  and  the  person  receiving  the  stock 
compelled  to  return  it  or  pay  over  its  actual  or  market  value,  less 
the  value  of  property  given  for  it.^  A  corporate  creditor  in 
America  may  likewise  bring  an  action  for  that  purpose  upon  the 
insolvency  of  the  corporation.^  The  person  receiving  stock  at  a 
discount  is  liable  also  to  a  hona  fide  transferee  of  that  stock.^  A 
representation  of  the  corporate  agents  to  the  person  receiving  the 
stock,  that  full  payment  will  not  be  required,  is  immaterial,  and 
constitutes  no  defense.* 

§  47.  Many  attempts  have  been  made,  in  cases  where  stock 
was  issued  for  property  taken  at  an  overvaluation,  to  hold  the 
party  receiving  such  stock  liable  for  its  full  par  value,  less  the 
actual  value  of  the  property  received  from  him.  These  attempts 
have  not  been  successful.  As  already  seen,  the  transaction  is  up- 
held as  legal,  valid,  and  binding  on  all  parties  and  persons,  unless 
there  is  an  overvaluation,  and  that  overvaluation  is  shown  to  have 
been  fraudulent.  When  this  is  proved,  then  the  contract  is  to  be 
treated  like  other  fraudulent  contracts.  It  is  to  be  adopted  in 
toto,  or  rescinded  in  toto  and  set  aside.  Each  party  is  to  be 
restored  as  nearly  as  possible  to  their  original  positions.  The 
property  or  its  value  is  to  be  returned  to  the  person  receiving  the 
stock,  and  he  must  return  the  stock  or  its  real  value.  Its  real 
value  is  ascertained,  not  by  its  par  value,  but  by  its  selling  market 
value.  Frequently  actions  herein  are  against  corporate  officers 
who  directly  or  indirectly  received  the  stock.  Yet,  notwithstand- 
"""ittg  that  a  breach  of  trust  is  thereby  added  to  the  fraud,  the  prin- 
ciples stated  above  have  been  uniformly  applied.^ 


'  See  §  41.  an  extent  as  to  say,  tliough  you  Iiave  bar- 

"  See  ^  44.  gained  for  paid  up  shares,  we  will  change 

^  See  §  40,   and   Fisher  v.  Seligman,  7  that  into  a  bargain  to  take  shares  not  {)aid 

Mo.  App.  383  (1879).  up,  and  put  you  on  the  list  of  coiitribu- 

*  Upton    V.  Tribilcock,   91    U.   S.   45  tories  on  that  ground.     .     .     .     If  you  set 

(1875);  Ogilvie  i;.  Knox  Ins.  Co.,  22  How.  aside  this  allotment  of  shares,  you  must 

380  (1859).  set  it  aside  altogether,  and   then  you  can- 

'  In  Anderson's  Case,  L.  R.  7  Ch.  D.  not  make  thim  a  contributory  ;  and  if  you 

76,  stock  was  issued  to  a  promoter  for  do  not  set  it  aside  altogether  you  must 

property  taken  at  an  overvaluation.  Tliis  a(lof)t  it,  and  the  utmost  you  can  do  is,  as 

action  was  to  render  hiin   liable  for  the  I  said  before,  that  you  can  take  away  an}' 

par  value  of  the  stock,  less  the  real  value  profit  from  the  person  who  has  improper- 

of  the  property.     The  court  said,  pp.  94,  ly  made  it."     In  Currie's  Case,  3  De  G.,  J. 

96-104:   "I  am  not  going  to  alter  men's  <fe  S.  3C7  (18G3),  the  court  said  that  the 

contracts  unless  tlie  provisions  of  an  Act  transaction  "  was  either  valid  or  invalid. 

of  Parliament  compel  me  to  do  so.     .     .  If  valid,  it  is  clear  that  neither  he  [the 

You    cannot  alter  the  contract  to   such  person  receiving  the  stock]  nor  his  alien- 

41 


§48.] 


ISSUE   OF  FICTITIOUSLY  PAID   UP   STOCK. 


[CH.  III. 


§  48.  (c.)  The  officers  of  the  corporation. — Corporate  officers 
who  aid  in  tlie  issue  of  stock  as  paid  up,  when  in  fact  its  par  value 
has  not  been  fully  paid,  are  liable  to  the  corporation  itself  for  a 
breach  of  trust  in  the  performance  of  their  corporate  duties.  Or- 
dinarily the  extent  of  his  liability  is  the  excess  of  the  real  or  mar- 
ket value  of  the  stock  over  the  value  received  for  it  in  its  issue  at 
a  discount.  But  where  the  director  or  officer  participated  in  the 
profits  of  the  issue,  he  then  is  liable  to  the  corporation  for  the 
profits  which  he  has  received.^     The  officers  of  a  corporation  par- 


ees  can  be  called  upon  to  contribute  in 
respect  of  those  shares.  If  invalid,  I  can- 
not see  my  way  to  hold  that  either  a  court 
of  law  or  a  court  of  equity  could  do  more 
than  treat  the  purchase  as  void,  and  un- 
do the  transaction  altogether.  It  could 
not,  as  I  apprehend,  be  competent  either 
to  a  court  of  law  or  to  a  court  of  equity 
to  alter  the  terms  of  the  purchase,  or  treat 
as  shares  not  paid  up,  shares  which  were 
given  as  paid  up  shares  in  part  considera- 
tion of  the  purchase.  Fraud,  assuming 
there  was  fraud,  would  of  course  warrant 
the  court  in  treating  the  purchase  as  void, 
or  in  undoing  it;  but  it  could  not,  I  con- 
ceive, authorize  any  court  to  substitute 
other  terms."  See  also  Barnett's  Case, 
L.  R.  18  Eq.  SOT  (1874),  where  the  issue 
had  been  cancelled  by  the  corporation. 
In  Van  Cott  v.  Van  Brunt,  82  N.  Y.  535 
(1880),  a  case  very  similar  in  its  facts  to 
those  of  the  preceding  case,  the  court  said: 
"  The  conclusion  of  law  was  erroneous 
that  the  scheme  was  fraudulent  as  against 
the  company  and  against  the  creditors, 
and  that  the  defendants  were  only  entitled 
to  credit  for  the  actual  outlay,  paid  or  in- 
curred, and  were  liable  for  the  amount 
unpaid  on  the  stock.  The  result  must  be 
that  the  defendant  was  not  liable  to  pay 
the  par  value  of  the  stock  received  by 
him  under  the  contract  for  building  and 
equipping  a  portion  of  the  road,"  p.  542. 
This  case  has  been  severely  criticised  as 
being  contrary  to  established  principles 
of  law.  It  would  seem,  on  tlie  contrary, 
that  it  not  only  is  in  accordance  with 
general  principles  of  law  governing  the 
rescission  of  contracts,  but  that  it  is  in 
strict  accordance  with  the  authorities  and 
cases  on  the  subject  of  paid  up  stock.  See 
also  Continental  Telegraph  Co.  v.  Nelson, 
18  Weekly  Dig.  48  (1883) ;  s.  c.  49  N.  Y. 
Super.  Ct.  197;  Crawford  v.  Rohrer,  59 
Md.  599  (1882);  Brant  v.  Ehlen,  59  Md.  1 
(1882).  Judge  Dillon,  in  Phelan  v.  Haz- 
ard, 5  Dill.  45,  reviewed  the  authorities 

42 


and  sustained  the  principles  enunciated 
herein.  Before  any  recovery  can  be  had 
in  this  class  of  cases  the  transaction  must 
be  set  aside.  Scoville  v.  Thayer,  105  U. 
S.  143-156  (1881);  Wood's  Claim,  9  W. 
R.  366  (1861).  It  has  been  held  that  the 
person  then  receiving  the  stock  then  be- 
comes liable  for  profits  made  by  him. 
Four  Mile  V.  R.  R.  Co.  v.  Bailey,  18  0. 
St.  208  (1868).  A  few  cases  seem  to  be 
in  conrflict  with  the  above  authorities,  but 
only  apparently  so.  Thus,  in  Wetlierbee 
V.  Baker,  35  N.  J.  Eq.  501  (1882),  the  de- 
fendant neither  owned  nor  conveyed  to 
the  corporation,  the  property  which  he 
alleged  constituted  payment.  In  Jackson 
V.  Traer,  20  Northw.  Rep.  n.  s,  764  (1884), 
overruling  s.  c.  16  Northw.  Rep.  n.  s,  120 
(1884),  the  stock  was  not  issued  to  the 
construction  company  for  the  purpose  of 
constructing  the  corporate  works,  but  was 
issued  after  the  construction  was  finished, 
and  a  cash  debt  was  due  them,  which  was 
paid  by  an  issue  of  the  stock  to  pay  that 
debt  already  due.  Savage  v.  Ball,  17  N. 
J.  Eq.  142  (1864),  held  that  the  validity 
of  an  election  is  not  affected  by  the  ques- 
tion whether  the  stock  voted  was  issued 
for  value  or  not.  In  Chisholm  Bros.  v. 
Forney,  65  Iowa,  140  (1884),  where  full 
paid  stock  was  issued  for  a  patent  right, 
in  good  faith,  but  the  patent  right  subse- 
quently turned  out  to  be  worthless,  the 
stockholders  were  held  liable  to  corporate 
creditors  as  though  no  payment  had  been 
made.  This  case  does  not  coincide  with 
the  authorities,  although  it  seems  to  ac- 
cord with  the  tendency  of  the  Iowa  deci- 
sions. 

'  In  Douglass  v.  Ireland,  73  N.  Y.  100 
(1878),  where  the  person  receiving  the 
stock  divided  the  profits  of  the  transac- 
tion with  the  directors,  the  court  held 
that  the  facts  went  very  far  in  proving  a 
breach  of  trust  on  the  part  of  the  direc- 
tors. In  Anderson's  Case,  L.  R.  7  Ch.  D. 
75-94,  the  court  held  that  if  shares  were 


CH.  III.]  ISSUE  OF   FICTITIOUSLY   PAID   UP  STOCK.       [§§  49,  50. 


ticipating  in  the  issue  of  stock  as  paid  up,  when  it  has  not  been 
fully  paid,  are  liable  also  to  persons  purchasing  such  stock,  for 
damage  thereby  suffered.^  In  Massachusetts,  by  statute,  corporate 
officers  are  made  liable  for  corporate  debts,  if  they  issue  stock  for 
property  at  an  unfair  valuation  of  the  latter.^ 

§  49.  {d.)  Persons  imrcliasing  tlie  stock  loitli  notice. — It 
seems  to  be  generally  assumed,  as  a  matter  of  course,  that  persons 
purchasing  stock,  with  notice  that  it  had  not  been  paid  up,  al- 
though, in  fact,  it  had  issued  as  paid  up,  are  liable  on  such  stock 
to  the  same  extent  that  their  tranferers  were  liable.^ 

§  50.  (e.)  Bona  fide  transferees  witliout  notice. — A  honafide 
purchaser  for  value  and  without  notice  of  stock  issued  by  a  cor- 


improperly  issued  to  a  director  at  a  dis- 
count, the  contract  might  be  set  aside  and 
the  consideration  returned,  or  the  profits 
realized  by  him  might  be  recovered.  In 
Curi-ie's  Case,  3  De  Gex,  J.  &  S.  367 
(1863),  where  shares  were  taken  both  di- 
rectly and  indirectly  by  the  corporate  of- 
ficers for  property  and  services  grossly 
overvalued,  the  court  held  that  the  trans- 
action might  be  undone  altogether  for 
fraud,  but  there  was  no  liability  on  their 
part  to  contribute  anything  on  the  shares. 
The  only  remedy  is  to  set  aside  the  trans- 
action and  recover  the  profits  thereof.  In 
Carling's  Case,  L.  R.  1  Ch.  D.  115  (1875), 
where  the  person  receiving  stock  for  prop- 
erty taken  at  an  overvaluation  gave  part 
of  it  to  a  corporate  director,  the  court 
held  that  the  corporation  could  demand  of 
the  director  either  the  stock,  or  the 
profits  realized  by  him,  or  the  profits 
thereby  lost  by  the  corporation,  but  could 
not  compel  him  to  pay  tlie  full  par  value 
of  the  stock.  In  I)e  Ruvigne's  Case,  L. 
R.  5  Ch.  D.  316  (1876),  where  shares  of 
etock  were  issued  as  paid  up  to  a  person 
for  services  palpably  overvalued,  and  he 
transferred  a  part  of  the  stock  to  a  direc- 
tor, De  Ruvigne,  the  court  said:  "  If  the 
company  attempt  lo  make  the  appellant 
[director]  a  contributory,  and  they  al- 
lege fraud  in  the  original  agreement  by 
which  he  was  to  talce  the  shares,  they 
must  eitlier  throw  over  the  agreement  al- 
togetlier,  or  tiiey  must  take  it  altogetlier; 
they  cannot  adopt  it  as  to  one  part  and 
reject  it  as  to  the  rest."  The  court  said 
the  director  could  be  held  liable  for 
breach  of  trust  and  be  made  to  [jay  to  the 
corporation  the  selling  value  of  the  shares, 


and  since  some  of  the  stock  was  sold  at 
par,  he  was  chargeable  with  the  par  value 
of  the  stock  so  received  by  him.  See  also 
Osgood  V.  King,  42  Iowa,  478  (1876); 
Flagler  Engr.  Machine  Co.  v.  Flagler,  19 
Fed.  Rep.  468  (1884);  Nott  v.  Clews,  14 
Abb.  New  Cases  (N.  Y.),  437;  Continen- 
tal Tel.  Co.  V.  Nelson,  49  N.  Y.  Superior 
Ct.  Rep.  197  (1884);  and  compare  Lang- 
don  V.  Fogg,  18  Fed.  Rep.  5  (1883);  s.  c. 
14  Abb.  New  Cases  (N.  Y.),  435.  In  the 
case  of  Re  Ambrose  Lake  T.  <fe  C.  Min. 
Co.,  L.  R.  14  Ch.  D.  390  (1880),  it  was 
held  that  where  all  the  stockholders  ac- 
quiesced, and  there  were  no  creditors' 
rights  involved,  the  corporation  cannot 
recover  from  its  directors  profits  realized 
by  them  from  shares  issued  to  them  as 
paid  up  in  consideration  of  property 
taken  at  a  gross  overvaluation.  The  cor- 
poration was  held  to  be  in  no  position  to 
complain.  In  Van  Colt  v.  Van  Brunt,  82 
N.  Y.  535  (1880),  where  the  facts  were 
very  much  the  same  as  in  the  preceding 
case,  the  court  said:  "  If  the  defendant 
[director  and  president]  had  realized  a 
sum  beyond  the  amount  actually  expend- 
ed, there  might  have  been,  perhaps,  some 
ground  for  claiming  that  Ihe  arrangement 
would  enure  to  and  for  the  benefit  of  the 
company,"  p.  641.  This  remedy,  it  seems, 
is  the  surest  and  most  just. 

'  Cross  V.  Sackett,  6  Abb.  Pr.  247 
(1858);  Re  Gold  Co.,  11  Ch.  D.  701, 
t<48. 

•-'  Statutes  of  Mass.,  Acts  of  1875,  Ch. 
177,  g  2. 

•'  Upton  V.  Tribilcock,  91  U.  S.  46 
(1875). 

43 


§50.] 


ISSUE    OF  FICTITIOUSLY   PAID   UP   STOCK.  [CH.  m. 


poration  as  paid  up,  cannot  be  held  liable  on  such  stock  in  any 
way,  either  to  the  corporation,  corporate  creditors,  or  other  per- 
sons, should  it  be  found  that  the  stock  was  not  actually  paid  up  as 
represented.  Such  a  purchaser  has  a  right  to  rely  on  the  repre- 
sentations of  the  corporation  that  the  stock  is  paid  up.  Difficulty 
sometimes  arises  in  determining  what  will  constitute  a  sufficient 
representation  that  the  stock  is  paid  up.  A  representation  by  the 
corporate  agents  that  the  full  par  value  will  not  be  required  is  in- 
sufficient.^ The  word  "  non-assessable  "  stamped,  or  printed,  or 
written  on  the  face  of  the  certificate,  is  not  a  sufficient  represen- 
tation that  the  stock  is  paid  up,  so  as  to  protect  a  bojia  fide  pur- 
chaser thereof.^ 

Where,  however,  a  statement  is  made  on  the  face  of  the  certif- 
icate that  it  represents  paid  up  stock,  the  hona  fide  purchaser  of 
the  certificate  need  not  inquire  further,  but  may  rely  on  tliat 
representation,  and  is  protected  thereby  against  liability.' 

A  purchaser  of  stock  is  entitled  to  rely  on  statements  in  the 
corporate  books  that  the  stock  is  paid  up.*  A  few  cases  go  still 
farther,  and  hold  that  where  a  person  in  open  market,  in  good 
faith  and  without  notice,  purchases  certificates,  such  stock  is  to  be 


1  Webster  v.  Upton,  91  U.  S.  65 
(1875) ;  Upton  v.  Tiibikock,  91  U.  S.  45 
(1875). 

^  Upton  V.  Burnham,  3  Biss.  431 
(1873). 

3  In  Waterhouse  v.  Jamieson,  L.  R.  2 
H.  L.  (Sc),  29,  where  the  stock  was  pur- 
chased in  open  market,  the  court  said : 
"  Here  the  appellant  is  a  bona  fide  hold- 
er of  shares,  upon  which,  no  doubt,  there 
was  a  false  statement  made  by  the  compa- 
ny, of  which  he  had  no  knowledge,  and  as 
to  which  he  was  under  no  obligations  to 
inquire,  and  therefore  he  cannot  be  sub- 
jected to  liability  by  having  imputed  to 
him  a  knowledge  of  the  falsehood."  In 
Brant  v.  Ehlen,  59  Md.  1  (1882),  the  court 
said :  "  Where  shares  are  issued  by  the 
company  to  the  subscriber  as  full  paid 
shares,  and  are  sold  by  the  subscriber  as 
such,  there  is  no  ground  on  which  a 
promise  can  be  implied  on  the  part  of  the 
purchnser  without  notice,  to  be  answera- 
ble either  to  the  company  or  its  creditors, 
should  the  representations  on  the  faith  of 
which  he  purchased  prove  to  be  false.  He 
could  not  be  held  liable  on  the  ground  of 
contract,  because  he  never  agreed  to  pur- 
chase   any    other   shares   than  full  paid 

44 


shares;  and  if  it  be  said  that  the  shares 
were  fraudulently  issued,  he  could  not  be 
held  liable  on  the  ground  of  fraud,  because 
he  was  in  no  sense  a  party  to  the  fraud."  In 
Steacy  v.  Little  Rock  &  Ft.  Smith  R.  R. 
Co.,  5  Dill.  348  (1879),  Judge  Dillon  exam- 
ined, at  considerable  length,  the  reasons  of 
the  rule  protecting  6oHa ^Repurchasers  of 
stock  issued  as  paid  up,  and  sustained  the 
rule  itself.  See  also  Burkinshaw  v.  Nich- 
ols, L.  R.  3  App.  Cas.  1004  (1878).  One 
case,  Myers  v.  Seeley,  10  Nat'l  Banlrr. 
Reg.  411,  lays  down  a  different  doctrine. 
The  court  saj's :  "  The  assignee  of  shares 
can  be  in  no  better  condition  than  the  as- 
signor. .  .  .  The  question  is  simply 
whether  the  stock  lias  been  really  paid  in 
full  to  the  corporation.  The  assignee  may 
have  paid  for  it  to  the  assignors,  and  may 
have  relied  on  the  representations  of  the 
latter,  and  of  officers  of  the  company, 
that  the  shares  bought  were  fully  paid  ; 
yet  creditors  are  not  bound  thereby,  and 
if  the  stock  was  not  fully  paid,tlie  holder 
is  liable  to  creditors  for  the  amount  re- 
maining unpaid."  This  case  must  be  con- 
sidered poor  law. 

*  Erskine  v.  Loewenstein,  11  Mo.  App. 
595  (1884). 


CH.  m.]  ISSUE  OF   FICTITIOUSLY   PAID    UP   STOCK. 


[§  '0. 


deemed  "paid  up"  in  his  bands,  and  he  is  protected  as  a  lona 
fide  purchaser,  even  though  there  is  nothing  on  the  face  of  the 
certificate  stating  that  they  are  paid  up.^  This  can  hardly  be 
said  to  be  the  established  rule.^  Yet  it  is  based  on  sound  public 
policy,  favoring,  as  it  does,  the  transfer  of  personal  property,  and 
the  quasi  negotiability  of  stock,  and  discountenancing  secret  liens 
and  constructive  notice.  A  ])urchaser  in  open  market  of  stock 
represented  to  be  paid  up  by  a  statement  to  that  effect  on  the  cer- 
tificate, is  presumed  to  be  a  bona  fide  purchaser.  Hence,  there 
has  arisen  the  well  established  rule,  both  in  America  and  Eng- 
land, that  a  hona  fide  purchaser  for  value,  and  without  notice,  of 
stock  issued  as  paid  up,  is  not  liable  for  any  part  of  the  par  value 
which  may  not  have  been  paid.^ 


'  Keystone  Bridge  Co.  v.  McCheney, 
8  Mo.  App.  496  (1880);  Foreman  v. 
Bigelow,  4  ClifiF.  508  (1878),  as  explained 
in  8  Mo.  App.  496;  Johnson  v.  Sul- 
livan, 15  Mo.  App.  55  (1884),  where 
the  court  says:  "If  any  presumption  of 
fact  arises  from  the  face  of  a  stock  certif- 
icate in  customary  form,  as  was  the  one 
in  this  case,  it  is  that  the  stock  .  . 
is  fully  paid  up."  See  also  Erskine  v. 
Loewenstein,  82  Mo.  3t)l  (1884), 

'  Burkinshaw  v.  Nicolls,  L.  R.,3  App. 
Cas.  1004-1017  (1878).  In  Brant  v. 
Ehlen,  59  Md.  1  (1882),  the  court  says: 
"  The  purchaser  is  not  bound  to  suspect 
fraud,  when  everything  seems  fair.  .  . 
Any  otlier  doctrine  would  virtually  de- 
stroy the  transferable  nature  of  such 
shares,  and  paralyze  the  whole  of  the 
dealings  in  the  stock  of  the  corpora- 
tions." 

'  In  Re  British  Farmers  Pure  Linseed 
Cake  Co.,  L.  R.,  7  Ch.  D.  533  (1880); 
affi'd  L.  R.  3  App.  Cas.  1004  (1878),  the 
court  held  that  if  the  bona  fide  purchaser 
were  not  protected  "  no  person  buying 
shares  in  the  market,  as  paid  up  shares, 
would  be  safe,  for  he  would  get  nothing 
more  than  a  certificate  to  show  they  are 
paid  up.  .  .  .  Obviously  such  a  con- 
struction would  destroy  the  transferable 
nature  of  shar'-s  altogether."  See  also 
Foreman  v.  Bigelow,  4  Cliff.  508  (1878) ; 
McCracken  v.  Mclntyre,  1  Duv.  (Can.) 
479 ;  Stacey  v.  Little  Rock  <fe  Ft.  S.  R. 
R.  Co.,  5  Dill.  348  (1878);  Jackson  v. 
Sligo,  <fec.,Co.,  1  Lea  (Teiin.),  210;  Brant 
V.  Khlcn,  69  Md.  1  (1883);  Waterhoime 
V.  J;anie3on,  L.  R.,  2  II.  L.  (Sc.)  29;  cf. 
Crickmer's  Case,  L.  R.,  10  Ch.  App.  614. 
Contra,  Myers  i».  Seeley,  10  Natl.  Bank 


Reg.  411.     It  is  immaterial  that  the  pay- 
ment in  stock  issued  as  paid  up  turns  not 
to  have  been  valueless.      The  bona  fide 
purchaser  is  protected  and  the  corpora- 
tion  must  allow  registry  by  him.     Pro- 
tection Life  Ins.  Co.  v.  Osgood,  93  111.  69 
(1879).      In  the  case  of  Wintringham  v. 
Rosenthal,  25  Hun,  580  (1881),  the  court 
held  that  a  bona  fide  purchaser  of  stock, 
which  he  purchased  supposing  it  to  be 
paid  up,  is  not  liable  for  the  unpaid  par 
value.     The  stock  was  issued  by  a  bank, 
evidently  on  a  cash  subscription.     Prac- 
tically overruling  Mann  v.  Currie,  2  Barb. 
294  (1848).     The  general  railroad  act  of 
New  York  (Laws  1850,  ch.  140,  §  10),  pre- 
scribes that  each  stockholder  shall  be  liable 
"  to  an  amount  equal  to  the  amount  unpaid 
on  the  stock  held  by  him."    In  the  case  of 
Tasker  v.  Wallace,  6  Daly,  364-374  (1876), 
the   court   held    that  under  this  statute, 
"  as    between  a  stockholder  and  a  cred- 
itor, it  is  wholly  immaterial  whether  he 
was  a  bona  fide  and  innocent  purchaser  of 
stock  which  the  vendor   assured  him  had 
been  paid."     This  remark  was,  it  seems, 
a  dictum,  and  being  by  an  inferior  cuort, 
is  doubtful  as  an  authority.     The  repre- 
sentation, moreover,  was  not  on  the  face 
of  the  certificate,  nor  was  it  made  by  the 
cori)oratiim.     In  the  case  of  Hubbell   v. 
Meig.s,   60  N.  Y.  480-489  (1872),  where 
the     pui-chaser    of    Wisconsin     railroad 
stock,  sued  his  vendor  for  damages  for 
deceit  on  the  ground,   among  others,  that 
the  stock  had  been   issued   tictitidusly  as 
paid  up,  the   court  said :   "It  is  unncces- 
sary  to  determii.e  whether  the  corpora- 
tion was  autliorizud  by  its  charter  (o  sell 
its  stoi.'k  at  less  than   par,  or  whotlier,  in 
so  selling,  its  officers  did  not  violate  their 

45 


§51.] 


ISSUE   OF   FICTITIOUSLY   PAID   UP   STOCK. 


[CH.  in. 


Where  a  subscriber  who  has  not  yet  taken  out  his  certificate 
of  stock  instructs  the  corporation  to  issue  the  certificates  to 
a  designated  transferee,  the  latter  is  held  to  be  the  original  al- 
lottee of  that  stock,  and  if  the  stock  was  irregularly  issued  as  paid 
up  stock,  he  cannot  claim  to  be  a  Ijona  fide  transferee  without 
notice.^ 

§  51.  Third  metliod  issued  hy  stoclc  dividends. — The  third 
method  of  issuing  fictitiously  paid  up  stock  is  by  a  wrongful  use 
of  the  power  to  issue  stock  dividends.  It  seems  to  be  generally 
conceded  that  if  the  capital  stock  and  the  actual  property  of  the 
corpoi'ation  is  not  permanently  increased  to  the  extent  of  the  par 
value  of  the  stock  distributed  as  a  dividend,  then  that  the  issue 
of  stock  by  such  dividend  is  irregular,  and  under  certain  circum- 
stances fraudulent.^  In  some  of  the  States  stock  dividends  are 
prohibited  by  constitutional  or  statutory  provisions.^ 


duty.  The  plaintiff  was  a  bona  fide  pur- 
chaser, and  being  such,  acquired  a  valid 
title  to  the  stock  transferred  to  him." 

1  Rowland's  Case,  42  L.  T.,  N.  S.,  785 
(1880);  Potter's  Appeal,  Weekly  Notes, 
1878,  p.  81 ;  i?e  Vulcan  Iron  Works,  Law 
Times,  1885,  p.  61.  A  contrary  doctrine 
is  laid  down  in  Car  ling's  Case,  L.  R.,  1 
Ch.  D.  115  (1875). 

-  In  Williams  «.  Western  Union  Tel. 
Co.,  93  N.  Y.  189  (1883),  the  court  said 
that  a  stock  dividend  "  could  be  declared 
by  a  corporation  without  violating  its 
letter,  its  spirit,  or  its  purpose.  .  .  . 
There  is  no  public  policy  which,  in  all 
cases,  condemns  such  dividends.  .  .  . 
No  harm  is  done  to  any  person,  provided 
the  dividend  is  not  a  mere  inflation  of  the 
stock  of  the  company,  with  no  corre- 
sponding values  to  answer  to  the  stock 
distributed.  ...  So  long  as  every 
dollar  of  stock  issued  by  a  corporation  is 
represented  by  a  dollar  of  property,  no 
harm  can  result  to  individuals  or  the 
public  from  distributing  the  stock  to  the 
stockholders."  Howell  v.  Chicago  <fc 
Northw.  R'way  Co.,  51  Barb.  378  (1868), 
is  to  the  same  effect.  In  Bailey  v.  Rail- 
road Co.,  22  Wall.  604,  the  court  said 
that  net  earnings,  however  expended  or 
invested,  "  belongs  to  the  stockholders, 
and  may  be  distributed  as  they  may  direct, 
in  dividends  of  stock  or  by  a  sale  of  prop- 
erty."    See  also  Chapter  on  Dividends. 

=  111.  Con.,  Art.  XI,  §  13.  In  Wis- 
consin by  Statute.     R.  S.,  1878,  §  1753; 

46 


am'd  by  ch.  93,  Laws  1881.  So  in  Mas- 
sachusetts. Pub.  Stat.,  ch.  112,  §  61.  In 
one  point  of  view  a  stock  dividend  is 
objectionable.  They  are  issued  to  repre- 
sent the  increased  value  of  the  corporate 
property  as  it  stands.  In  the  case  of 
railroads  this  increase  of  value  arises  very 
largely  from  the  increased  value  of  the 
eminent  domain  franchises  which  the 
corporation  is  using.  These  franchises 
belong  to  the  people,  and  the  people  are 
entitled  to  the  increased  value  of  them. 
Such  an  increased  value  could  be  readily 
secured  to  the  people  by  a  reduction  of 
railroad  charges.  But  by  stock  dividends 
based  on  this  increased  value  of  the  fran- 
chise, the  railroad  is  able,  by  increasing 
its  stock,  to  divide  all  profits  and  yet  not 
declare  more  than  a  six  or  eight  per  cent, 
dividend.  The  smallness  of  the  dividend 
prevents  a  legislative  reduction  of  rates. 
If,  however,  no  stock  dividend  were 
allowed,  and  the  increased  earning  capaci- 
ty of  the  railroad  gave  large  profits,  such 
profits  would  have  to  be  employed  in 
improving  the  property  or  in  making  ex- 
travagant dividends  which  would  justify 
a  reduction  of  railroad  rates.  It  is  urged, 
in  reply  to  this  view,  that  about  three  out 
of  four  of  railroad  enterprises  are  the  cause 
of  total  loss  to  their  projectors,  and  that 
the  fourth  should  be  made  to  pay  more 
largely,  by  reason  of  the  risk  incurred; 
also  that  large  capital  and  great  ability 
in  managing  enterprise  of  such  magnitude 
should  be  more  fully  compensated. 


CHAPTER  IV. 

THE  FORMATION  OF  THE  CONTRACT  OF  SUBSCRIPTION. 


g  52-54.  Generally  no  formalities  neces- 
sary. 
55-56.  Cases  in  which  the  subscriber  was 
held  not  bound  by  reason  of  irreg- 
ularity or  informality. 

57.  The  EDglish  rule. 

58.  Statutory  rules  as  to  the  formation 

of  the  contract  of  subscription. 

59.  Subscriptions  to  commissioners. 

60.  Who  is  competent  to  subscribe  for 

stock.  —  Corporations      generally 
not. 

61.  Commissioners,  directors,  partners, 

(fee,  as  subscribers. 

62.  Married  women  as  subscribers. 

63.  Infant  as  subscriber. 

64.  Agent  as  subscriber. 

65.  Subscriptions  made  by  an  unauthor- 

ized aoent  of  the  subscriber. 


§66. 

6Y. 

68. 

69. 

10. 
11. 
72. 

73. 

74. 

75. 
76. 


Subscriptions  taken  by  an  unauthor- 
ized agent  of  the  corporation. 

Agreements  to  subscribe  made  be- 
fore organization. 

In  New  England  an  express  promise 
necessary. 

A  subscription  for  shares  is  an  im- 
plied promise  to  pay  for  them. 

Consideration  for  such  agreements. 

Subscriptions  delivered  in  escrow. 

Subscriptions  in  excess  of  the  capi- 
tal stock. 

Proof  of  subscription. 

Liability  of  the  corporation  for  re- 
fusal to  issue  stock. 

Substitution  of  stockholders  before 
the  issue  of  the  stock. 

Right  to  recover  back  money  ad- 
vanced on  shares  upon  a  failure  to 
organize  the  company. 


§  52.  Generally  no  formalities  necessary. — The  contract  of 
subscription  for  shares  of  stock  in  an  incorporated  company  may 
be  entered  into  in  various  ways.  Whenever  an  intent  to  become 
a  subscriber  is  manifested,  the  courts  incline,  without  particular 
reference  to  formality,  to  hold  that  the  contract  of  subscription 
subsists.  It  is,  as  in  the  case  of  other  contracts,  very  much  a  ques- 
tion of  intent.  Accordingly,  formal  rules  are  for  the  most  part 
disregarded,  and  whenever  it  is  shown  that  a  person  intended  to 
subscribe,  and  manifested  such  intention  by  some  express  or  overt 
act,  the  court  will  usually  hold  the  person  a  subscriber.  Mere 
irregularity  of  form,  or  informalities  in  the  manner  of  the  sub- 
scription, will  not,  as  a  rule,  operate  to  release  a  subscriber.^  In 
general  a  contract  of  subscription  may  be  made  in  any  way  in 
which  other  similar  contracts  may  be  lawfully  made.^ 

Any  agreement  by  which  a  person  shows  an  intention  to  be- 


'  Mexican  Gulf,  <fec.,  R.  R.  Co.  v.  Via- 
vant,  6  Rob.  (Lji.)  liOf)  (1  84:j)  ;  Boston, (fee, 
R.  R.  Co.  V.  Wellington,  W.i  Mass.  79 
(1873) ;  Fry  v.  Lexington,  &c.,  R.  R.  Co. 
2  Mete.  (Ky.)  314  (1859);  Oakes  v.  Tur- 
quand,  L.  R.  2  U.  of  L,  326  (1867). 


^  Its  validity  commonly  depends  upon 
the  law  of  the  State  creating  the  corpora- 
tion, unless  payment  is  to  bo  made  else- 
where. Penobscot,  <fec.,  Co.  v.  Bartlett,  78 
Mass,  244  (1858). 

47 


§52.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH. 


IV. 


come  a  stockholder  is  sufficient  to  bind  both  him  and  the  cor- 
poration.^ Where  one  accepts,  or  assumes,  the  position  and 
duties,  and  claims  the  rights  and  privileges  and  emoluments  of  a 
stockholder,  and  the  corporation  accepts  or  acquiesces  therein, 
such  person  is  estopped  to  deny  that  he  is  bound  thereby  and  sub- 
ject to  the  obligations  of  a  subscriber,  although  there  may  have 
been  something  irregular,  or  defective,  in  the  form  or  manner  of 
his  subscription,  or  even  if  there  have  been  no  subscription.^ 
In  the  absence  of  a  formal  subscription,  a  mere  promise  to  subscribe 
for  a  certain  amount  of  stock  in  a  corporation  for  the  purpose  of 
inducing  the  selection  of   a  particular  route  for  a  road  has  been 


1  Wellersburg,  <fec.,  Co.  v.  Young,  12 
Md.  476  (1858);  Dutcliess,  Ac,  Co.  v. 
Mobbett,  58  N.  Y.  397  (1874);  Blunt  v. 
Walker,  11  Wis.  334  (1800) ;  Gill  v.  Ken- 
tucky, <fec.,  Co.  7  Bush,  635  (1870);  Oler 
7:.  Bkltimore,  &c.,  R  R.  Co.  41  Md.  583 
(1874);  Schaeffer^^.  Missouri,  Ac,  Co.  46 
Mo.  248  (1870);  Fry  v.  Lexinoton,  <fec., 
R.  R.  Co.  2  Mete.  (Ky.)  314  (1859). 

2  Sanger  v.  Upton,  91  U.  S.  56  (1875); 
Upton  V.  Tribilcock,   91   Id.  45   (1875); 
Wheeler  v.  Millar,  90  N.  Y.,  353  (1882)  ; 
Hamilton,  <fec.,  Co.  v.   Rice,  7  Barb.  159 
(1849) ;    Dorris  v.  French,  4   Hun,   292 
(1875);  Sheffield,  &c.,  Co.   v.  Woodcock, 
7  Mee.  <fe   W.  574 ;    Ex  parte  Besley,  2 
Mac.  &  G.  176  (1850);   Burnes  v.  Pennell, 
2  H.  of  L.  Cas.  497  (1849);    Clark  v.  Far- 
rington,   11  Wis.   306  (1860);    Jewell  v. 
Rock  River,  &o.,  Co.,  101  111.  57  (1881); 
Haynes  v.  Brown,  36  N.  H.   545  (1868); 
Chaffin  V.  Cummings,  37   Me.    76  (1853); 
Chester,  <fec.,  Co.  v.  Dewey,  16  Mass.  94 
(1819) ;'  Chase  v.  Merrimack  Bank,  36  Id. 
564  (1837) ;  Griswold  v.  Seligman,  72  Mo. 
110(1880);  Boggs  v.  Olcott,  40  111.303 
(1866);    Musgrave  v.  Morrison,   54  Md. 
161  (1880) ;  South  Bay,  &c.,  Co.  v.  Gray, 
30  Me.  547  (1849);    Phoenix,   Ac,   Co.  v. 
Badger,  67  N.  Y.  294  (1876) ;  s.  c.  6  Hun, 
293(1875);  Palmer  v.  Lawrence,  3  Sandf. 
161(1849);    Fisher  v.    Seligman,  75  Mo. 
13  (1881);  Phila.,  &c.,  R.  R.  Co.  v.  Cow- 
ell,  28Penn.  St.  329(1857);  Gouthwaite's 
Case,  3  De  G.  <fe  Sm.  258  (1850) ;  Burlin- 
son's  Case,  3  Id.  18  (1849)  ;    Cheltenham, 
&c.,  Ry.  Co.  V.  Daniel,  2  Q.  B.  781;  Straf- 
fon's  Case,  1  De  G.,  M.  &  G.  576  (1852); 
Maguire's  Case,  3  DeG.  <fe  Sm.  31  (1849); 
Harward's  Case,  L.  R.  13  Eq,  30  (1871); 
Hoare's  t'ase,  2  John.  &  H.  229  (1862); 
Cromford,  Ac,  Ry.  Co.  v.  Lacey,  3  Younge 
&  J.,  80  (1829).     And  see  the  dissenting 
opinion  of  Lord  St.  Leonards  in  Spack- 

48 


man  v.  Evans,  L.  R.  3  H.  of  L.  Cas.  171, 
197  (1868) ;  Harrison  v.  Heathorn,  6  Man. 
&  G.  81  (1843). 

Where  a  director  is  required  to  be  a 
stockholder,  the  act  of  serving  as  a  direc- 
tor is  an  implied  subscription  for  stock  to 
the  amount  required  in  order  to  be  a  di- 
rector. See  Pearson's  Case,  L.  R.  5  Ch. 
Div.  336  ;  McCoy's  Case,  L.  R.  2  Ch.  Div. 
1 ;  Hay's  Case,  L.  R.  10  Ch.  593-604 ; 
Luke's  Case,  L.  R.  6  Ch.  469  ;  Harwai  d's 
Case,  L.  R.  13  Eq.  30;  Stephenson's  Case, 
45  L.  J.  (Ch.)  488  ;  De  Ruvigne's  Case,  L. 
R.  5  Ch.  Div.  306-322;  He  Englefield 
Colliery  Co.  L.  R.  8  Ch.  Div.  388. 

Where,  however,  the  names  of  certain 
persons  were  published  as  members  of  a 
board  of  directors  of  a  banking  corpora- 
tion, with  their  knowledge,  but  without 
any  act  of  assent  on  their  part,  and  with- 
out either  of  them  owning  any  stock  in 
the  bank,  or  participating  in  any  way  in 
the  management  of  its  aflfairs,  it  was  held, 
after  the  failure  of  the  bank,  that  the 
creditors  had  no  right  of  action  against 
them,  inasmuch  as  they  had  done  nothing 
actively  to  lead  the  creditors  to  believe 
that  tliey  were  directors.  Hume  v.  Com- 
mercial Bank,  9  Lea,  728  (1882);  cf. 
McHose  V.  Wheeler,  45  Penn.  St.  32 
(1868).  Contra,  Thompson  v.  Reno  Sav- 
ings Bnnk,  10  Am.  &  Eng.  Corp.  Cases, 
203  (Nev.  1885). 

The  certificate  is  no  necessary  part  of 
the  contract,  and  it  is  by  no  means  essen- 
tial that  one  be  issued  in  order  to  make 
the  contract  of  subscription  valid  and 
binding.  Hawley  v.  Upton,  102  U.  S.  314 
(1880);  Buffalo,  Ac,  R.  R.  Co.  v.  Dudley, 
14  N.  Y.  336,  347  (1856);  New  Albany, 
Ac,  R.  R.  Co.i).  McCoimick,  10  Ind.  499 
(1858);  8.  c.  71  Am.  Dec  337  (note); 
Mitchell  V.  Beckraan,  64  Cal.  117  ;  Agri- 
cultural Bank  v.  Wilson,  24  Me.  273. 


en.  IT.] 


CONTRACT   OF   SUBSCRIPTION. 


[§52. 


held  valid,  if  accepted  by  the  company,  and  enforceable  against 
the  promisor,^  and  it  has  been  elsewhere  held — and  it  is  the  better 
rule — that  a  mere  informal  subscription  or  promise  to  take  stock, 
prior  to  the  signing  of  the  articles  of  association  has,  standing 
alone,  no  legal  validity.^  The  question  whether,  in  a  given  state 
of  circumstances,  the  defendant  intended  to  subscribe,  is  for  the 
jnry.^ 

It  has  been  held  that  a  contract  of  subscription  mnst  be  in 
writing,  and  that  it  cannot  be  entered  into  by  parol.*  Doubtless 
this  is  the  rule  where,  by  a  statute,  or  by  the  act  of  incorpo- 
ration, any  particular  form  for  the  contract  of  subscription  is  pre- 
scribed. If  a  form  of  subscription  is  authorized,  and  particularly 
if  it  is  expressly  required  that  the  contract  be  in  writing,  a  sub- 
stantial compliance  with  the  rule  declared,  and  the  signature  of 
the  subscriber  will  be  held  necessary  to  the  validity  of  the  under- 
taking.     Without  the  substantial  compliance,  and   the  written 


'  Rhey  v.  Evensburg,  &c.,  Co.,  27 
Penn.  St.  261  (1856) ;  West  Cornwall,  <fec., 
Ry.  Co.  V.  Mowatt,  15  Q.  B.  521  (1850). 
Cf.  Drover  v.  Evans,  59  Ind.  454. 

^  New  Brunswick,  <fec  ,  Co.  v.  Mngger- 
idge,  4  Hurl.  &  N.  160  (1859);  Troy,  Ac, 
R.  R.  Co.  V.  Tibbits,  18  Barb.  297(1854); 
Troy,  &c..  R.  R.  Co.  v.  Warren.  18  Id.  310 
(1854);  Clark  v.  Continental,  <fec.,  Co.,  57 
Ind.  135  ;  Thrasher  v.  Pike  Co.  R.  R.  Co., 
25  111.  393  (1861);  Charlotte,  (fee,  R.  R. 
Co.  V.  Blakely,  3  Strobh.,  245  (1848); 
McClelland  v.  Whiteley,  11  Biss.  444 
(1883);  Tilsonburg,  Ac,  Co.  y.  Goodrich, 
8  Ontario  (Q.  B.  Div.),  665. 

^  Galveston,  <fec.,  Co.  v.  Bolton,  46 
Texas,  633(1877);  Phila.,  <fec.,  R.  R.  Co. 
V.  Cowell,  28  I'enn.  St.  329  (1851).  In  an 
old  case  in  Massachusetts  it  was  held  that 
a  declamatory  statement,  at  a  })ublic 
meeting  of  the  corporation,  by  one  of  the 
stockholders,  that  he  would  spend  half 
his  estate,  or  enough  of  it  to  make  the  en- 
terprise undertaken  by  ihe  corporation  a 
success,  did  not  render  him  liable  for  a 
failure  to  do  so.  Andover,  (fee,  Co.  v. 
Hay,  7  Mass.  102  (1810). 

But  where  an  actual  subscription  is 
made,  with  a  view  to  influencing  other 
BubscriptioDS.  but  the  number  of  shares  to 
be  taken  is  left  blank,  so  that  the  sub- 
scription itself  might  be  subsequently  with- 
drawn, it  was  held  that  the  corporate 
agents  might  fill  up  the  blank,  and  there- 
by bind  the  subscriber.  Jewell  v.  Rock 
River,  (fee,  Co.,  101  111.  57  (1881). 


And  where  one  took  a  book  for  sub- 
scriptions from  an  agent  of  the  corpora- 
tion, and  subscribed  himself  and  per- 
suaded others  to  subscribe,  and  kept  the 
book  some  months,  but  finally,  because 
of  a  difference  with  the  agent  about  the 
payment  for  his  services,  cut  his  name 
out  of  the  book  and  returned  it  to 
the  company,  it  was  held,  in  an  ac- 
tion by  the  company  for  the  amount  of 
his  subscription,  that  he  was  bound  there- 
on just  as  though  he  had  left  his  name  on 
the  list  of  subscribers.  Greer  v.  Chartiera 
R.  R.  Co.,  96  Penn.  St.  391  (1880).  See 
also  Railroad  Co.  v.  White,  10  S.  C.  155 
(1878). 

It  has  been  held  liowever.in  New  York, 
that  where  the  statutory  certificate  re- 
quired by  law  to  be  filed  in  order  to  obtain 
incorporation  remains  in  the  hands  of  a 
subscriber,  or  cither  of  them,  a  subscriber 
may  erase  or  modify  his  subscription  as 
he  sees  fit,  even  though  he  had,  previous- 
ly, induced  others  to  subscribe.  Burt «. 
Farrar,  24  Barb.  518  (1857). 

"  Pittsburgh,  (fee,  K.  R.  Co.  v.  Gaz- 
zam,  32  Penn.  St.  340  (1858);  Vreelnnd 
V.  New  Jersey,  (fee,  Co.,  29  N.  J.  Iq.  188 
(1878);  Tliarae.«,  (fee,  Co.  v.  Sheldon,  6 
Barn.  &  C.  341  (1827);  Faniiin<,r  v.  Insur- 
ance Co.  37  Ohio  .St.  339  (1881);  (ialvcs- 
ton,  (fee,  Co.,  V.  Bolton,  46  Texas,  633 
(1877);  Brown  «.  Apjilcby,  1  Sandf.  170 
(1847).  See  also  I'hoenix,  (fee,  Co.  v. 
Badger,  C7  N.  Y.  294  (1876). 


[4] 


49 


§§  53,  'A.]  CONTRACT  OF  SUBSCRIPTION.  [CH.  IV. 

subscription,  the  contract  is  invalid.^  But,  as  already  stated,  tlie 
contract  of  subscription  may  arise,  witliout  an  express  agreement, 
either  oral  or  written.  The  acts  of  the  parties  are  by  themselves 
sufhcient  to  constitute  one  a  subscriber  for  stock.  This  rule  is 
based  on  estoppel  and  a  wise  public  policy.  It  often  is  necessary, 
also,  to  protect  corporate  creditors. 

§  53.  A  subscription  in  a  small  pocket  memorandum  book  has 
been  held  sufficient  to  bind  the  subscriber.  Xo  proof  of  the 
transfer  of  such  a  subscription  to  the  corporate  records,  nor  of  its 
acceptance  by  the  corporation  is  necessary,^  So,  a  subscription 
on  a  single  sheet  of  paper  maybe  binding,^  even  though  the  char- 
ter provides  for  the  opening  of  books.*  A  signature  to  the  cer- 
tificate required  by  statute  to  be  filed  in  order  to  obtain  the  char- 
ter of  incorporation,  with  the  number  of  shares  placed  opposite  to 
the  signature,  is  a  sufiicient  subscription  to  bind  both  the  corpora- 
tion and  the  subscriber.^  Where  duplicate  sets  of  articles  are 
used  for  the  purpose  of  obtaining  subscriptions,  and  one  set, 
signed  by  several  persons,  and  accompanied  by  the  proper  affidavit, 
is  filed  in  the  office  of  the  secretary  of  State,  while  the  other  set, 
subscribed  by  different  individuals,  is  not  so  filed,  the  subscribers 
to  the  latter  paper  have  been  held  not  to  become  members  of  the 
corporation,  and  are  not  liable  upon  their  subscriptions;^  but  it 
is  doubtful  whether  this  is  good  law. 

§  54.  The  contract  of  subscription  may  also  be  entered  into, 
and  a  liability  thereon  created,  by  merely  accepting  and  holding 

1  See,  in  addition  to  the  three  cases  =  Phoenix,  <fec.,  Co.  v.  Badger,  67  N.  Y. 

last  cited,  Dutchess,   &e.,   R.    R.  Co.    v.  294(1876);  s.  c.  6  Hun,  295  ;    Nulton  v. 

Mabbett,  58  K  Y.  397  (1874);  Carlisle  w.  Clayton,  54  Iowa,  425  (1880). 

Saginaw,   <fec.,  R.  R.   Co.   27  Mich.   315  «  Erie,  (fee,  R.  R.    Co.    v.    Owen,   32 

(1873);  Fanning  !'.  Insurance  Co.  37  Ohio  Barb.  616  (1860).     In  this  case  it  is  said 

St.  328  (1881);    Troy,   (fee.  R.  R.   Co.  v.  that  there  are  two  modes  in  which  a  per- 

Tibbits,  18  Barb.  297  (1854);  Troy,  (fee,  son,  under  the  general  railroad  act  of  the 

R.  R.  Co.  V.  Warren,  18  Id.  310  (1854).  State  of  New  York,  may  become  a  stock- 

*  Buffalo,  (fee,  R.  R.  Co.  v.  Gifford,  87  holder  in  a  railroad  corporation,  viz.,  by 

a.  Y.  294  (1882);  Brownlee  v.  Ohio,  (fee,  siibscribingthe  articles  of  association,  and 

E.   R.   Co.,  18  Ind.  68(1862).      But  see  becoming  a  member  of  the  corporation  as 

JilcClellandv.Whiteley,ll  Bis3.444(1883).  the  act  provides  (§g  1  and  2),  or  by  sub- 

3  Iowa,  (fee,  R.  R.  Co.  v.  Perk-ins,  28  scribing  to  the  capital  stock,  in  the  book 
Iowa,  281  (1869);  Hamilton,  (fee,  v.  Rice,  opened  by  the  directors,  after  the  corpo- 
7  Barb.  157  (1849).  Cf.  Bucher  v.  Dills-  ration  is  in  existence,  and  that  no  one 
burg,  (fee,  R.  R.  Co.,  76  Penn.  St.  306  who  has  only  signed  the  articles  of  asso- 
(1874) ;  Hawley  v.  Upton,  102  U.  S.  314  ciation,  before  the  corporation  came  into 
(1880).  being,  is  a  corporator  or  member  of  the 

4  Mexican  Gulf,  (fee,  R.  R.  Co.  v.  corporation,  unless  the  articles  so  signed 
Viavant,  6  Rob.  (La.)  305  (1843);  Ashta-  by  him  have  been  duly  filed  in  the  office 
bula,  (fee,  R.  R.  Co.  v.  Smith,  16  Ohio  St.  of  the  secretary  of  State,  as  required  by 
528  (1864).  the  statute. 

50 


CH.  ir.] 


CONTRACT  OF  SUBSCRIPTION. 


[§55. 


a  certificate  of  stock.^  And  it  is  also  the  rule  that  an  acceptance 
of  a  certificate  of  stock  is  a  waiver  of  all  informalities,  or  irregu- 
larities as  to  the  subscription,  except  a  defect  of  jurisdiction.^  So 
where  the  name  of  an  individual  appears  upon  the  stock  book  of 
a  corporation  as  a  stockholder,  the  presumption  is  that  he  is  regu- 
larly and  lawfully  the  holder  and  owner  of  the  stock,  and,  in  the 
absence  of  evidence  that  the  stock  has  come  to  him  by  transfer, 
that  he  was  regularly  a  subscriber.^  Immaterial  irregularities  or 
defects  in  the  subscription  paper  will  not  avail  to  avoid  the  sub- 
scription, as,  for  example,  where  a  subscription  paper  does  not 
correctly  designate  the  termini  of  a  railroad  already  built.*  And 
while  on  the  one  hand  the  legislature  has  no  power  to  constitute 
one  a  member  of  a  private  corporation  without  his  consent,  or  in 
opposition  to  his  wishes,^  it  may,  on  the  other  hand,  cure,  by 
amendment  of  the  charter  or  otherwise,  mere  irregularities  with 
respect  to  the  subscriptions,  so  that  the  subscribers  cannot  take 
advantage  of  them  subsequently.^ 

§  55.  Cases  in  ivhieh,  iy  reason  of  irregularity  or  infor- 
mality, tlie  suhscriher  has  been  held  not  hound. — While  it  is 
the  conceded  tendency  of  the  law  to  look  rather  to  the  intent  of 
the  parties  than  to  the  form  of  the  subscription,  and  to  overlook 
and  disregard  mere  irregularities  and  informalities,  still  there  are 


•  Upton  V.  Tribilcock,  91  U.  S.  45 
(ISVS);  McLoughlin  v.  Detroit,  etc.,  R. 
R.  Co.,  8  Mich.  100  (1860);  In  re  South 
Mountain,  die,  Co.,  7  Sawyer,  30  (1881). 
Cf.  McHose  V.  Wheeler,  45  Penn.  St.  32 
(1863).  See  also  Clarke  v.  Continental, 
<fec..  Co.,  57  Ind.  135,  138. 

*  Hamilton,  (fee,  Co.  v.  Rice,  7  Barb.- 
157(1849);  Lone  v.  Brainerd,  30  Conn. 
665  (1862). 

'  Pittsburgh,  <fec.,  R.  R.  Co.  v.  Apple- 
gate,  21  WestVa.  172  (1882);  Turnbull 
V.  Payson,  95  U.  S.  418  (1877);  Hoare's 
Case,  2  John.  &  H.  229  (1862);  Taylor?/. 
Hughes,  2  Jones  &,  Lat.  (Irish  Chan.)  24, 
55  (1844);  McHose  v.  Wheeler,  45  Penn. 
St.,  32(1863). 

■•  Boston,  (fee,  R.  R.  Co.  n. Wellington, 
113  Mass.  79  (1873);  Cayuga,  &.C.,  R.  R. 
Co.  V.  Kyle,  64  N.  Y.  185  (1876).  Seo 
also  Phoenix,  (fee,  Co.  v.  Badger,  67  Id. 294 
(1876);  Burlington,  (fee,  R.  R.  Co.  v. 
Palmer,  42  Iowa,  222  (1876);  Clark  v. 
Continental,  «fec.,  Co.,  57  Ind.  135. 

'  Richmond,  (fee,  Co.  v.  Clarke,  61  Me. 
351  (1873). 


^  Rice  V.  Rock  Island,  (fee,  R.  R.  Co., 
21  m.  93.  In  The  Thames  Tunnel  Com- 
pany V.  Sheldon,  6  Barn.  &  C.  341  (1827), 
Bajiey,  J.,  held  that  the  word  "  sub- 
scriber," in  this  connection,  is  to  be  ap- 
plied to  those  only  who  hare  stipulated 
that  they  will  make  payment,  and  not  to 
those  who  have  already  advanced  money, 
and  consequently,  that  one  whose  name  is 
mentioned  in  an  act  of  parliament  as  one  of 
the  original  proprietors  and  who  has  paid 
a  deposit  on  certain  shares,  but  has  not 
signed  any  contract,  is  not  a  "  subscriber," 
and  not  liable  to  be  sued  by  the  directors. 
In  the  opinion  in  this  case  the  word  is 
elaborately  defined,  and  it  is  held  to  mean 
only  such  persons  as  have  entered  into  an 
express  contract  to  t;ike  up  a  certain  defi- 
nite number  of  shares.  See,  also,  a  defi- 
nition at  some  length  by  Cooley,  J.,  in 
Peninsular,  tte,  R.  R.  Co.  v.  Duncan,  28 
Mich.  130  (1878).  Cf.  Franklin  Glass  (Jo. 
V.  Alexander,  2  N.  H.  330  (1849);  s.  c.  9 
Am.  Dec.  92,  and  the  note,  96-104  ;  Hart- 
ford, (fee,  R.  R.  Co.  V.  Kennedy,  12  Conn. 
500  (1838). 

51 


55.] 


CONTRACT  OF   SUBSCRIPTION. 


[CH.  IV. 


many  cases  in  which  informalities  and  irregularities  as  to  the 
form  or  substance  of  a  subscription  have  been  held  sufficient  to 
destroy  the  validity  of  the  undertaking,  and  to  release  the  sub- 
scriber from  his  obligation  thereunder.  Thus  a  subscription  to 
an  incomplete  copy  of  the  articles  of  association  will  not  bind  the 
subscriber^;  and  where  articles  are  materially  altered  without  the 
consent  of  all  the  subscribers,  after  their  subscription  and  before 
the  complete  organization  of  the  company,  such  articles  are  not 
binding  upon  the  non-consenting  subscribers.^  Again,  a  subscrip- 
tion paper  in  which  the  names  of  directors  were  left  blank  has 
been  held  not  enforceable  against  a  subscriber  after  the  blank  has 
been  filled  without  his  consent  or  concurrence.^  Equity  will  not, 
however,  in  the  absence  of  fraud,  relieve  a  subscriber  merely  upon 
the  ground  that  he  by  mistake  subscribed  for  more  stock  than  he 
intended,'  in  a  case  where  he  suffered  the  corporation  to  act  upon 
the  faith  of  his  subscription.^  But  if  one  signs  an  agreement  to 
subscribe,  on  a  subscription  paper,  entirely  misunderstanding  the 
nature  of  the  contract  he  is  entering  into,  his  subscription  must, 
on  general  principles,  be  treated  as  null  and  void  for  want  of 
mutual  consent.  Cases  of  this  nature  may  arise  without  involv- 
ing the  question  of  fraud,^ 


1  Dutchess,  &c.,  R.  R.  Co.  v.  Mabbett, 
58  N.  Y.  397  (1874) ;  Bucher  v.  Dillsburg, 
<fec.,  R.  R.  Co.,  76  Penn.  St.  306. 

'^  Burrows  v.  Smith,  10  N.  Y.  550 
(1853);  Tikonburg,  &c.  Co.  v.  Goodrich, 
8  Ontario  (Q.  B.  Div.)  565  (1885).  See  also 
Eakright  v.  Logansport,  &c.  R.  R.  Co.,  13 
Ind.  404  (1851));  and  compare  Reed  v. 
Richmond,  <fec.,  R.  R.  Co.,  50  Ind.  342 
(1875) ;  Kansas,  &c.  R.  R.  Co.  v.  Hunt,  57 
Mo.  126  (1874). 

s  Dutchess,  (fee.  R.  R.  Co.  v.  Mabbett, 
58  N.  Y.  397  (1874),  the  court  saying: 
"  A  signature  to  an  incomplete  paper, 
■wanting  in  any  substantial  particular, 
when  no  delegation  of  authority  is  con- 
ferred to  supply  the  defect,  does  not  bind 
the  signer  without  further  assent  on  his 
part  to  the  completion  of  the  instrument." 
To  same  effect,  Consol's  Ins.  Co.  v.  New- 
all,  3  Foster  &  F.  130  (1862),  where  the 
number  of  shares  was  left  in  blank.  In 
the  cnse  of  a  subscription  after  organiza- 
tion it  has  been  held  that  the  subscriber 
does  not  become  a  stockholder  until  the 
company  has  issued  a  certificate  to  liim, 
or  in  some  other  jjroper  manner  recog- 
nized him  as  a  member.     Sewall  v.  East- 

52 


ern  R.  R.  Co.,  9  Cush.  5  (1851);  Carlisle 
V.  Saginaw,  <fec.  R.  R.  Co.,  27  Mich.  S15 
(1873);  Parker  v.  Northern,  <fec.  R.  R.  Co., 
33  Id.  23  (187."i);  St.  Paul,  <fec.  R.  R.  Co. 
V.  Robbins,  23  Minn.  439  (1877) ;  Clark  v. 
Continental,  &c.  Co.,  57  Ind.  135.  Cf. 
Tlirasher  v.  Pike  Co.  R.  R.  Co.,  25  111.  393 
(1861).  The  case  of  Clark  v.  Continental, 
etc.  Co.,  57  Ind.  134,  held  that  an  agree- 
•ment  to  pay  in  instalments  a  certain  sum 
to  a  contractor  as  the  work  progresses,  in 
consideration  of  stocks  to  be  delivered  by 
the  corporation,  after  full  payment  has 
been  made  in  this  way,  was  not  a  subscrip- 
tion to  capital  stock,  and  that  the  maker 
of  such  an  agreement  was  not  a  sub- 
scriber. 

*  Diman  v.  Providence,  die.  R.  R.  Co., 
5  R.  I.  130(1858). 

5  County  of  Schuylkill  v.  Copley,  67 
Penn.  St.  386(1871);  Jackson  v.  Hayner, 
12  Johns.  469  (1815);  Smith  v.  Reese, 
&c.  Co.,  L.  R.  2  Eq.  264  (1866).  Cf. 
Thronghgood's  Cnse,  2  Rep.  9  ;  Foster  v. 
Mackinnon,  L.  R.  4  C.  P.  704  (1869); 
Rockford,  <fec.  R.  R.  Co.  v.  Schunick,  65 
111.  223  (1872). 


CH.  IV.] 


CONTRACT   OF   SUBSCRIPTION. 


[§56. 


§  56.  A  subscriber  to  the  capital  stock  of  an  incorporated 
company  is,  in  general,  bound  to  know  the  legal  effect  of  his  sub- 
scription,^ and  false  aud  even  fraudulent  representations  made  to 
him  at  the  time  of  taking  his  subscription,  as  to  the  legal  effect 
of  his  contract  of  subscription,  are  not  sufficient  to  release  him. 
This  doctrine  has  been  well  established  by  the  Supreme  Court  of 
Indiana.^  A  defendant,  it  is  said,  however,  who  is  sued  on  a  sub- 
scription absolute,  may  show  tliat  he  agreed  orally  to  subscribe 
conditionally,  and  placed  liis  name  on  blank  paper,  and  that  the 
secretary  of  the  corporation  subsequently,  without  his  knowledge, 
subscribed  the  name  unconditionally  to  a  subscription  paper.^ 
And  it  is  held  that  when  a  corporation  invites  and  accepts  sub- 
scriptions as  a  loan,  to  be  repaid  in  full  and  the  subscription  can- 
celled, it  cannot  repudiate  such  a  contract  and  treat  the  subscrip- 
tion so  induced  as  absolute.*  But  where  the  corporation  con- 
tracts with  the  subscriber  to  give  him  indefinite  time  in  which  to 
pay  for  his  stock,  the  subscription  is  void.^  It  is  otherwise  when 
only  a  reasonable  credit  is  given  .^  It  has  been  held  that  a  sub- 
scription may  be  withdrawn  at  any  time  before  the  filing  of  the 
articles  of  incorporation ' ;  but  the  better  rule  is  that  when  a  sub- 


'  Ellison'?;.  Mobile,  &c.,  R.  R.  Co.,  36 
Miss.  572  (1858);  Wight  z).  Shelby  R.  R. 
Co.,  16  B.  Mod.  4  (1855);  Selma,  &c.  R. 
R.  Co.  V.  Anderson,  51  Miss.  829,  833 
(1816);  Smith  v.  Reese,  <fec.  Co.,  L.  R.  2 
Eq.  264  (1866).  See  also  Bailey  v.  Han- 
nibal, (fee,  R.  R.  Co.,  17  Wall.  96  (1872). 
Cf.  Vicksburg,  <fec.,  R.  R.  Co.  v.  McKean, 
12  La.  Ann.  638  (1857). 

-  Clem  V.  Newcastle,  &c.  R.  R  Co.,  9 
Ind.  488  (1857);  New  Albany,  <fec.  R.  R. 
Co.  V.  Fields,  10  Id.  187  (1858)  ;  Thorn- 
burgh  V.  New  Castle,  <fec.  R.  R.  Co.,  14 
Id.  499  (1860).  "The  contract  of  sub- 
scription," said  the  High  Court  of  Errors 
and  Appeals  of  Mississippi,  in  speaking 
to  the  point,  "  nocessarily  had  reference 
to  the  charter  of  the  company,  which  was 
the  great  law  both  of  the  liability  and  of 
the  rights  of  the  stockholder.  He  must 
be  held  to  have  subscribed  for  stock,  sub- 
ject to  the  rules  therein  declared  and  to 
the  powers  therein  expressly  granted  or 
necessarily  implied  ;  and  no  consideration 
cm  be  permitted  to  enter  into  and  form 
a  part  of  the  contrnct  of  subscription 
which  is  incompatible  with  the  powers 
granted  in  the  charter,  or  which  may  be 


prejudicially  affected  by  the  exercise  of 
the  legitimate  powers  and  duties  apper- 
taining to  the  company  under  its  charter. 
So  far  as  the  nature  and  obligation  of  his 
contract  are  defined  and  secured  by  ex- 
press stipulation  in  the  charter,  he  has  the 
right  to  insist  upon  the  strict  law  as  form- 
ing the  basis  of  his  contract  ;  but  when, 
from  the  nature  of  the  provisions  of  the 
charter,  a  general  power  is  conferred 
upon  the  company,  the  exercise  of  which 
may  operate  to  his  inconvenience  or  dis- 
advantage, he  is  to  be  presumed  to  have 
contracted  with  that  view,  and  must  sub- 
mit to  its  operation."  Ellison  n.  Mobile, 
(fee.  R.  R.  Co.,  36  Mi'^s.  572,  588  (1858). 

»  Tonica,  &c,  R.  R.  Co.  v.  Stein,  21  111. 
96(1859).  Cf.  Bucher?'.  Dillsburg,  &c.  R. 
R.  Co.,  76  Penn.  St.  306(1874);  Brewers, 
(fee.  Ins.  Co.  y.  Burger,  10  Him,  56(1877). 

•*  Nellis  V.  Coleman,  98  Penn.  !St.  465 
(1881). 

■'  McComb  ;;.  Credit  Mobilier,  (fee.  Co., 
13  Phila.  468;  Van  Allen  v.  Illinois,  &c. 
R.  li.  Co.,  7  Bosw.  515  (1861). 

«  Mitchell  V.  Beckman,  64  Cal.  117. 

■"  Garrett  v.  Dillsburg,  Ac.  K.  R.  Co., 
78  Penn.  St.  465  (1876);  Holt  i).  Wintiold 

53 


§  ST.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH.  IV. 


scription  is  made  with  full  knowledge  of  the  scope  and  purpose 
of  tlie  undertaking,  in  the  absence  of  fraud,  it  is,  especially  when 
it  has  been  acted  upon  either  by  the  corporation  or  the  otiier 
subscribers,  irrevocable  and  absolutely  binding  upon  the  sub- 
scriber.^ 


§  57.  The  English  rule. — In  England  the  contract  of  sub- 
scriptioij  for  shares  is  entered  into  in  a  somewhat  more  technical 
or  formal  manner.  An  application,  in  the  first  instance,  is  made 
in  writing  for  a  specified  number  of  shares,  which  application  is 
held  to  be  a  mere  offer,  open  for  acceptance  by  the  corporation 
for  only  a  limited  time.^  If  the  application  be  accepted,  the  cor- 
poration formally  allots  to  the  applicant  the  desired  number  of 
shares,  and  gives  him  a  notice  of  the  allotment.  The  notice  is  of 
the  essence  of  tlie  contract.  An  allotment  without  notice  is  not 
sufficient  to  bind  the  applicant  as  a  contributory  or  a  shareholder.^ 
If  the  notice  of  allotment  is  sent  by  mail,  the  allottee  becomes 
bound  from  the  time  of  posting  the  letter,  whether  he  received  it  or 


Bk.,  25  Fed.  Rep.  812  (1885);  Cook  v. 
Chittenden  Bk.,  25  Fed.  Rep.  544  (1886), 
allowing  a  withdrawal  where  no  others 
have  subscribed  in  reliance  thereon,  nor 
creditors'  debts  incurred.  GafFv.  Flesher, 
33  O.  St.  lOV  (187*7) ;  Gulf  C.  &c.  Ry.  Co. 
V.  Neely,  64  Texas,  344  (1885),  holding 
that  there  can  be  no  withdrawal  after  an 
acceptance  by  the  corporation.  Cy.  Til- 
sonburg,  &c.  Co.  v.  Goodrich,  8  Ontario 
(Q.  B.  Div.),  565  (1885);  Ross  v.  San  An- 
tonio, (fee,  R.  R.  Co.,  31  Tex.  49  (1868) ; 
and  see  Chapter  X  on  Defense  of  Cancel- 
lation of  Subscription. 

^  Hughes  V.  Antietam,  <fec.  Co.,  34  Md. 
316  (1870);  Hutchins  v.  Smith.  46  Barb. 
235 ;  Kidwelly,  <fec.  Co.  v.  Raby,  2  Price 
(Exch.),  93  (1816);  New  Albany,  &c.  R. 
R.  Co.  V.  McCormick,  10  Ind.  499  (1858). 
A  line  of  cases  may  also  be  found  in  which  it 
is  held  that  acceptance  by  the  corporation 
is  essential  to  the  validity  of  the  contract, 
and  that  contracts  of  subscription  become 
binding  only  when  they  have  been  accept- 
ed by  the  corporation.  New  Albany,  <fec. 
R.  R.  Co.  V.  McCormick.  10  Ind.  499 
(1858);  Spear  v.  Crawford,  14  Wend.  20 
(1835);  Payne  v.  Bullard,  23  Miss.  88 
(1851):  Instone  v.  Frankford  Bridge  Co., 
2  Bibb,  576  (1812);  Brownlee  v.  Oliio, 
&c.  R.  R.  Co.,  18  Ind.  72  (1862).   Of.  Cin- 

54 


cinnati,  (fee.  R.  R.  Co.  v.  Pearce,  28  Ind. 
608  (1867);  Lincoln  v.  State,  36  Id.  163 
(1871);  Beaver  V.  Hartsville  University, 
34  Id.  248  (1870) ;  Branham  v.  Record,  42 
Id.  198  (1873);  Slipher  v.  Earhart,  83  Id. 
178  (1882). 

'■'  Ranisgate,  (fee.  Co.  v.  Montefiore,  L. 
R.  1  Exch.'^109  (1866) ;  /n  re  Bowron,  L. 
R.  5  Eq.  428  (1868),  and  the  cases  gener- 
ally cited,  infra,  in  this  section. 

3  Hebbs'  Case,  L.  R.  4  Eq.  9  (1867); 
Gunn's  Case,  L.  R.  3  Chau.  40(1867);  In 
re  Peruvian  Ry.  Co.,  L.  R.  4  Chan.  322 
(1869);  Pellatt's  Case,  L.  R.  2  Chan.  527 
(1867);  Ward's  Case,  L.  R.  10  Eq.  659 
(1870);  Harris'  Case,  L.  R.  7  Chan.  587 
(1872);  Household,  (fee.  Co.  v.  Grant,  L. 
R.  4  Exch.  Div.  216  (1879),  The  mere 
act  of  signing  the  memorandum  of  asso- 
ciation does  not  make  one  a  stockholder. 
Mackley's  Case,  L.  R.  1  Ch.  Div.  247 
(1875).  A  mere  allotment  without  an 
entry  of  the  name  on  the  stock  registry 
does  not  render  the  person  liable  as  a 
stockholder.  •  Nicoll's  Case,  L.  R.  29  Ch. 
Div.  421  ( 1 883).  Nor  is  one  a  stockhold- 
er unless  he  signs  the  deed  of  settlement. 
Irish  Peat  Co.  v.  Phillips,  1  Best  &  S. 
598  (1861).  Nor  will  a  certificate  be  is- 
sued till  then.  Wilkinson  v.  Anglo,  (fee. 
G.  M.  Co.,  18  Q.  B.  728  (1852). 


en.  n-.] 


CONTRACT   OF   SUBSCRIPTION. 


[§58. 


not.^  And  if  the  allottee  knew  in  fact  of  the  allotment,  and  especial- 
ly if  he  acted  or  suffered  others  to  act  upon  the  assumption  that  he 
was  a  shareholder,  a  formal  notification  may  he  unnecessary  to 
bind  liira.2  The  application,  being  in  the  nature  of  an  offer  or  a 
proposition,  may  be  withdrawn  at  any  time  before  it  has  been 
reo-ularly  accepted,  and  it  must  be  accepted  within  a  reasonable 
time,  or  the  party  making  it  cannot  be  held  bound  ;^  and  although 
the  application  should  be  in  writing,  the  withdrawal  of  it  may  be 
oral.*  It  seems  to  be  well  settled  in^England,  that  in  order  to 
make  the  contract  to  take  up  shares  completely  binding,  there 
must  be  the  application  in  writing,  the  allotment  of  the  shares  to 
the  applicant,  and  a  communication  to  him  of  notice  of  the  allot- 
ment.^ 

§  58.  Statutory  rules  as  to  the  formation  of  the  contract 
of  subscription. — Frequently,  the  manner  of  forming  the  con- 
tract of  subscription  in  these  cases  is  fixed  by  statute,  but  even 
then  non-conformity  with  the  statutory  regulations  will  not 
necessarily  vitiate  the  subscription.^  A  substantial  compliance, 
in  good  faith,  with  the  provisions  of  the  charter,  or  the  act  of 
incorporation  regulating  the  matter  of 'subscriptions,  will  sufiice.' 


1  Harris' Case,  L.  R.  'ZChan.  5 8*7  (18V2); 

Household,  <fec.  Co.  v.  Grant,  L.  R.  4  Exch. 

Div.  216  (1879);  Townsend's  Case,  L.  R. 

13  Eq.  148  ;  Hebbs'  Case,  L.  R.  4  Eq.  9 

(1867).  CW<>-a,British,  <fec.  Telegraph  Co. 

t».  Colson,  L.  R.  6  Exch.  108(1871);  In 

re  Constantinople,  Ac.  Co.,  19  W.  R.  219 

(1870). 

^Levita'sCase.L.  R.  3  Chan.  36(1867); 

In  re  Peruvian  Ry.  Co.,  L.  R.  4  Chan.  322 

(1869);  Richards  v.  Home,  <fec.  Assoc,  L. 

R.  6  C.  P.  591  (1 871) ;  Pellatfs  Case,  L.  R. 
2  Chan.  527(1867). 

»  W  ard's  Case,  L.  R.  10  Eq.  659  ( 1 870) ; 
Best's  Case,  2  De  G.,  J.  &  S.  650  (1865) ; 
Ramsgate,  <fec.  Co.  v.  Moritefiore,  L.  R.  1 
Exch.  109  (1866):  Chapman's  Case,  L.  R. 
2  Eq.  567(1866);  Ritso's  Case,  L.  R.  4 
Chan.  Div.  774  (1877);  Wilson's  Case,  20 
L.  T.  (N.  S.)  962  (1869). 

•«  Wilson's  Case,  20  L.  T.  (N.  S.)  962 
(1869). 

f' Adam's  Case,  L.  R.  13  Eq.  474; 
Hebbs'  Case,  L.  R.  4  Eq.  9  (1867);  Pel- 
latfs Case,  L.  R.  2  Chan.  527  (1867); 
Roger's  Case,  L.  R.  3  Chan.  637  (1868); 
Tucker's  Case.  20  W.  R.  89(1871).  (Jf. 
Bloxam's  Case,  33  lieav.  529,  distin- 
gaished  in  Pellatt's  Case,  supra.     But  un- 


der the  23d  section  of  the  Companies  Act 
of  1862,  the  decisions  are  uniform  that 
whenever  one  signs  the  memorandum  of 
association  he  becomes  a  shareowner,  and 
must  be  put  on  the  list  of  contributories, 
although  no  shares  may  have  been  allot- 
ted to  him.  In  re  London,  <kc.  Co.,  L.  R. 
5  Chan.  Div.  525  (1877);  Evan's  Case,  L. 
R.  2  Chan.  427(1867);  Sidney's  Case,  L. 
R.  13  Eq.  228  (1871);  Levick's  Case,  40 
L.  J.  (Chan.)  180  (1870);  Hall's  Case,  L. 
R.  5  Chan.  707  (1870),  distinguishing 
Snell's  Case,  L.  R.  5  Chan.  22  (1869). 

•^  London,  <fec. ,  Ry.  Co.  v.  Fairclongh, 
2  Man.  &  G.  674  (1841);  Id.  v.  Freeman, 

2  Id.  606  (1841);  Birmingham,  dec,  Ry. 
Co.  V.  Locke,  1  Q.  B.  256  (1841);  Wolver- 
hampton, &c.,  Co.  V.  Hawksford,  11  C. 
B.  (N.  S.)  456  (1861);  Gunn's  Case,  L.  R., 

3  Chan.  40  (1867);  Peninsular,  <fec.,  R. 
R.  Co.  V.  Duncan,  28  Mich.  130  (1873). 

^  People  V.  Stockton,  <fec. ,  R.  R.  Co., 
45  Cal.  3U6  (1873) ;  Ashtabula,  Ac,  R.  R. 
Co.  V.  Smith.  15  Ohio  St.  328  (18(;4); 
Brownlee  v.  Ohio,  &c.,  R.  R.  Co.,  18  Ind. 
68  (1862);  Buffalo,  &c.,  R.  R.  Co.  v. 
Gilford,  87  N.  Y.  294  (1882);  Harris  v. 
Mc(;regor,  29  Cal.  124  (1865).  So,  for 
example,  although  the  statute  provides 

55 


§  59.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH.  rv. 


§  59.  Subscriptions  to  commissioners. — But  where  the  stat- 
ute provides  for  subscription,  either  by  an  original  subscription 
to  the  articles  of  association  or,  after  the  incorporation,  by  a 
subscription  in  books  to  be  opened  by  commissioners,  it  has  been 
held  that  a  subscription  in  any  other  way,  or  to  any  other 
subscription  paper,  is  not  binding.^  A  better  rule,  however,  is 
that  a  statute  providing  for  subscriptions  through  commissioners 
does  not  necessarily  invalidate  subscriptions  taken  in  some 
other  way.^  The  commissioners  may,  ex  mero  motu,  limit  the 
amount  of  stock  which  any  one  subscriber  may  take,  and  will,  in 
a  proper  case,  be  sustained  therein  on  grounds  of  public  policy, 
although  the  power  so  to  act  is  not  specifically  conferred  upon 
them  by  the  statute.^  The  commissioners  may  themselves  be  sub- 
scribers to  the  stock,*  but  they  can  have  no  priority  of  right  to 
subscribe  over  others,  and  no  subscriptions  can  lawfully  be  taken 
with  closed  doors.  The  books  must  be  open,  and  the  public 
must  have  an  opportunity  to  subscribe.^  The  commissioners 
have  only  such  general  powers  as  are  necessary  to  validate  the 
subscriptions  to  the  stock.  Their  authority  and  functions  cease 
upon  the  organization  of  the  corporation.^ 


for  subscription  books,  yet  a  subscription 
on  a  subscription  paper  will  be  valid. 
Hamilton,  &c.,  Co.  v.  Rice,  7  Barb.  157 
(1849) ;  Stuart  v.  Valley  R.  R.  Co.,  32 
Gratt.  146  (1879);  Mexican  Gulf,  Ac,  R. 
R.  Co.  V.  Viavant,  6  Rob.  (La.)  305  (1843) ; 
Woodruff?).  McDonald,  33  Ark.  97  (1878). 
Especially  where  the  loose  sheets  are  sub- 
sequently bound  up  into  a  volume  and 
make  part  of  the  records  of  the  corpora- 
tion. Woodruff  V.  McDonald,  33  Ark.  97 
(1878). 

"  Troy,  &c.,  R.  R.  Co.  v.  Tibbits,  18 
Barb.  297  (1854).  See  also  Parker  v. 
Northern,  <fec.,  R.  R.  Co.,  33  Mich.  23 
(1875);  Unity  Insurance  Co.  v.  Cram,  43 
N.  H.  636  (1862);  Field  v.  Cooks,  16  La. 
Ann.  153  (1861). 

-  Buffalo,  &c.,  R.  R.  Co.  v.  Gifford,  87 
N.  Y.  294  (1882) ;  Stuart  v.  Valley  R.  R. 
Co.,  32  Gratt.  146  (1879).  But  when  the 
statute  provides  for  commissioners,  it  is 
said  that  they  must  all  be  present  in  order 
to  the  valid  performance  of  the  judicial 
duties  assigned  to  them.  Crocker  v. 
Crane,  21  Wend.  211  (1839).  It  is  said 
that  in  the  taking  of  subscriptions,  the 
commissioners  act  ministerially,  but  in 
the  distribution  or  allotment  of  shares 
they  act  judicially,  and  that  a  distribu- 

5G 


tion  of  shares  by  commissioners,  not  suf- 
ficient in  number  to  constitute  a  legal 
board,  is  coram  non  judice  and  void. 
Crocker  v.  Crane,  supra. 

°  Brower  v.  Passenger  R.  R.  Co.,  3 
Phila.  161  (1858).  And  accordingly  fic- 
titious subscriptions  for  the  purpose  of 
evading  such  a  limitation  of  the  amount 
of  stock  to  be  taken  by  a  single  subscriber, 
are  illegal  and  void.  Perkins  v.  Savage, 
15  Wend.  412(1836). 

*  Walker  v.  Devereaux,  4  Paige,  229 
(1833).     See  §  61. 

^  Brower  v.  Passenger  Ry.  Co.,  3 
Phila.  161  (1858).  When  the  amount  of 
tlie  subscription  is  not  limited,  the  com- 
missioners, in  the  absence  of  other  ex- 
press provision,  may  usually  decide  when 
enough  stock  has  been  subscribed,  and 
their  decision  is  practically  conclusive, 
as  an  exercise  of  discretion.  Saugatuck, 
(fee,  Co.  V.  Westport,  39  Conn.  337,  348 
(1872).  Their  failure  to  take  the  statu- 
tory oath  will  not  invalidate  the  subscrip- 
tions taken  hj  them,  if  they  are  in  other 
essential  respects  regular.  Hollman  v. 
Williamsport,  <fec.,  Co.,  9  Gill  <fe  J.  462 
(1838). 

^  James  v.  Cincinnati,  (fee,  R.  R.  Co., 
2  Disney  (Cin.  Super.  Ct.),  261  (1868); 


CH.  IT.] 


CONTRACT   OF  SUBSCRIPTION. 


[§60. 


§  60.  Who  is  competent  to  subscribe  for  stock. — Corporations 
generally  not. — Upon  general  common  law  principles,  any  one 
who  is  competent  to  enter  into  ordinary  contracts  may  make  a 
valid  subscription  for  stock  in  an  incorporated  company.  A  sub- 
scription for  stock  properly  made  is  a  contract,  and  in  general 
any  one  who  can  contract  may  subscribe.  The  corporation  itself, 
however,  cannot  be  a  subscriber  to  its  own  stock.^  It  is  con- 
clusively settled  that  municipal  corporations  may  lawfully  sub- 
scribe for  the  stock  of  private  corporations.^  It  is  not  equally 
clear  that  one  private  corporation  may  subscribe  for  the  stock  in 
another  such  corporation.  On  the  contrary,  such  subscriptions  are 
ultra  vires  and  void,  unless  clearly  within  the  ordinary  objects  and 
business  of  the  subscribing  corporation.^  A  railroad  corporation 
cannot  subscribe  for  shares  of  stock  in  another  railroad  company  ;* 
nor  can  a  steamship  company  be  held  liable  upon  a  subscription 
for  stock  in  a  dry  dock  company ;  ^  nor  can  a  manufacturing  com- 
pany legally  invest  its  funds  in  the  stock  of  a  bank,  for  the  pur- 


Pcninsular,  <fec.,  R.  R.  Co.  v.  Duncan,  28 
Mich.  130(1873);  Hardenbur^h  v.  Farm- 
ers, <fec.,  Bank,  3  N.  J.  Eq."68  (1834); 
Walker  v.  Devereaux,  4  Paige,  229  (1833); 
Crocker  v.  Crane,  21  Wend.  211  (1839); 
W^ellersburg,  <fec. ,  Co.  v.  Hoffman,  9  Md. 
559  (1834);  Smith  v.  Bangs,  15  111.  399 
(1854);  State  v.  Lehre,  7  Rich.  Law, 
234  (1854). 

'  Thus,  where  a  number  of  individuals 
attempted  to  organize  a  corporation  witli 
a  capital  stock  of  72,500  shares,  of  the 
par  value  of  $100  each,  and  six  different 
persons  subscribe  for  one  sliare  each,  and 
one  jierson  then  subscribes  for  the  cor- 
poration as  follows;  "Oregon  Central 
Railroad  Company,  by  G.  L.  Wood, 
Chairman,  seventy  thousand  shares,  seven 
million  dollars,"  it  was  held  that  this 
subscription  was  void,  and  that  the  cor- 
poi-ation  could  not  be  created  by  such 
subscriptions.  Tlolladay,  v.  Elliott,  8 
Oregon,  84  (1879).  And  ajjain  it  has 
been  held  that,  where  tlie  directors  of  a 
company,  in  order  to  make  up  tiie  re- 
quired amount  of  capital  stock,  subscribed 
as  trustees  for  tlie  corporation  itself,  they 
are  liable  for  calls  on  the  amount  so  sub- 
scribed. But  in  the  same  case  a  bill  by 
a  member  of  the  corporation  on  hchalf  of 
himself,  and  all  the  other  members  ex- 
cept the  defendants,  praying  that  this 
transaction,  although   it   had   been   sanc- 


tioned unanimously  at  a  meeting  of  the 
company,  might  be  declared  fraudulent 
and  void,  was  sustained,  although  some 
of  the  members,  on  behalf  of  whom  the 
bill  was  filed,  had  been  present  and  voted 
at  that  meeting.  Preston  v.  Grand  Col- 
liery, &c.,  Co.,  11  Sim.  327  (1840). 

■■*  Sharpless  v.  The  Mayor,  21  Penn. 
St.  147  (1853),  and  the  long  train  of  de- 
cisions following.  The  matter  of  muni- 
cipal subscriptions  is  fully  considered  in 
Chapter  VI. 

^  Thus,  for  example,  a  banking  cor- 
poration cannot  lawfully  subscribe  for 
stock  in  a  railway  corporation.  Nassau 
Bank  v.  Jones,  95"  N.  Y.  115  (1884).  Nor 
for  stock  in  any  other  corporation,  tlie 
business  of  which  is  wholly  other  tiian 
banking.  Franklin  Co.  v.  Lewiston  Bank, 
fiS  Me.'  43  (1877);  Mechanics'  Bank  v. 
Meriden  Agency,  24  Conn.  159  (1855); 
Talmage  v.  Pell,  7  N.  Y,  328  (1852).  Cf. 
First  National  Bank  v.  National  Exchange 
Bank,  92  U.  S.  122  (1875);  and  see  Royal 
Bank  of  India's  Case,  L.  R.,  4  Chan.  252 
(18()9);  Joint  Stock,  Ac,  Co.  v.  Brown, 
L.  R.,  8  Eq.  381   (18t;9). 

^  Maunsell  v.  Midland,  Great  Western 
Ry.  Co.,  i  Hem.  <fe  M.  130  (1863);  and 
see  Ch.  XIX. 

'  New  Orleans,  <fec..  Steamship  Co.  v. 
Dry  Dock  Co.,  28  La.  Ann.  173. 

57 


§§  61,  62.]  CONTRACT   OF  SUBSCRIPTION.  [CH.  IV. 

pose  of  carrying  on  the  banking  business.^     All  such  contracts 
are  in  general  ultra  vires  and  void.^ 

§  61.  Commissioners y  directors,  partners,  c&c,  as  siibscriJ)- 
ers. — Commissioners,  as  we  have  seen,^  may  be  subscribers  to 
the  capital  stock.^  So  also  may  directors  and  corporate  officers 
subscribe,  and  a  director,  in  the  absence  of  fraud  or  fraudulent 
intent,  may  subscribe  for  the  whole  of  the  unscribed  stock,  in  his 
own  name  and  for  his  own  benefit.^  A  partner,  if  the  act  be 
within  the  scope  of  the  partnership  business,  may  bind  his  firm 
by  a  subscription  in  the  firm  name.^  But  if  it  is  not  within  the 
scope  of  the  partnership  business,  the  person  so  signing  is  liable 
personally,  and  whether  or  not  the  subscription  was  within  the 
scope  of  the  partnership  business  is  a  question  for  the  jury.'' 

§  62.  Married  tvomen  as  suhscribers. — At  common  law,  a 
married  woman  could  not  subscribe  for  stock,  and  any  person 
subscribing  in  her  name  was  himself  personally  liable  on  the  sub- 
scription.^ But  now,  in  England,  and  generally  in  the  United 
States  by  statute,  a  married  woman  may  bind  her  separate  estate 
by  such  a  subscription,^  and  when  it  appears  that  the  contract  was 
plainly  with  the  wife,  having  been  made  directly  and  solely  with 


1  Sumner  v.  Marcy,  3  Woodb.  &  M.  Curry  v.  Scott,  54  Penn.  St.  2Y0  (1867), 
105.  See  also  Elysville,  &c.,  Co.  v.  has  any  priority  of  right,  in  the  absence 
Okisko,  (fee,  Co,,  1  Md.  Chan.  392  (1849),  of  a  statutory  provision,  over  the  other 
affi'd  5  Md.  152,  where  a  railway  com-  subscribers,  or  the  public  generally,  in 
pany,  without  a  special  authority  of  law,  the  matter  of  subscription  for  untaken 
assumed  to  purchase  a  steamboat  to  be  stock.  And  a  corporation  may  be  held 
run  in  connection  with  their  road.  The  liable  for  improperly  refusing,  by  its  di- 
notes  given  for  the  purchase-money  were  rectors,  to  permit  an  individual  to  sub- 
held  void  by  the  Supreme  Court  of  the  scribe  for  its  stock.  Union  Bank  v.  Mc- 
United  States,  and  the  holder  could  not  Donough,  5  La.  63  (1833).  Of.  Walker  v. 
recover  on  them  against  the  corporation.  Mobile,  &c.,  R.  R.  Co.,  34  Miss.  245,  256 
Pearce  v.  Madison,   <fec.,   R.   R.   Co.,  21  (185'7). 

How.  441  (1858).    Cf.  Central  R.  R.,  &c.,  «  Maltby  v.  Northwestern,  &c.,  R.  R. 

Co.  V.  Smith,  76  Ala.  572  (1884);  s.  c.  52  Co., 16  Md.422  (1860);  Ogdensburgh,  <fec.. 

Am.  Rep.  353;  Wheeler  v.  Santa  Fe,  <fec.,  R.  R.  Co.  v.  Frost,  21  Barb.  541  (1856); 

R.  R,  Co.,  31  Cal.  46  (1866);  Downing  Union  Hotel  Co.  v.  Hersee,  79  N.  Y.  454 

V.  Mt.  Washington  R.  R.  Co.,  40  N.  H.  230  (1880). 

(186(1).  ''  Union  Hotel  Co.  v.  Hersee,  supra. 

■  See  Part  IV.  «  Pugh  &  Sharman's  Case,  L.  R.,  13 

s  §  59.  Eq.  566  (1872) ;  s.  c.  41  L.  J.  (Chan.)  580. 

*  Walker  v.  Devereaux,  4  Paige,  229  ^  Mrs.   Matthewman's  Case.  L.  R  ,   3 

(1833).  Eq.  781  (1866) ;  Luard's  Case,  1  De  G.,  F. 

6  Sims  V.  Street  Railroad  Co.,  37  Ohio  <fe  J.  633  (1860) ;  Pugh  <fe  Sharman's  Oase, 

St.  556  (1882);   s.  c.  4  Am.  <&  Eng.  R.  R.  supra;  Butler  v.  Cumpston,  L.  R.,  7  Eq. 

Cases,  132(1882).     But  neither  the  com-  16   (1868);    In  the  Matter  of  the  Reci- 

missioners,  Brower  v.  Passenger  Ry.  Co.,  procity  Bank,  22  N.  Y.  9  (1860). 
3  Phila.  161,  nor  any  original  stockholder, 

58 


CH.  IV.]  CONTRACT   OF   SUBSCRIPTION.  [§  63. 

her,  the  husband  is  not  boiind.^  The  recourse  of  the  corporation, 
or  the  corporate  creditors  is,  in  such  a  ease,  only  to  her  separate 
estate.^  In  EngLind,  a  husband  has  been  held  liable  on  his  wife's 
subscription  to  the  capital  stock  of  an  incorporated  company, 
the  subscription  having  been  made  before  marriage.^ 

§  63.  Infant  as  subscriber. — A  subscription  for  stock  by  an 
infant  is  a  contract  to  be  governed  by  the  general  rules  of  law 
that  apply  to  the  contracts  of  infants  in  respect  of  other  similar 
matters.  In  general  the  contracts  of  infants,  in  matters  of  this 
nature,  are  voidable  rather  than  void.  The  infant  is  not  bound 
by  the  contract.  He  may  repudiate  it  at  majority,  and  thereby 
entirely  escape  liability,  or  he  may  ratify  it,  and  thereby  become 
as  fully  bound  as  though  the  subscription  had  been  made  after 
majority.*  Accordingly  it  is  a  settled  rule,  that  where  one  sub- 
scribes for  shares  in  the  name  of  an  infant,  he  is  liable  personally 
to  the  corporation  or  the  corporate  creditors  on  the  subscription.^ 

The  corporation  may,  moreover,  refuse  to  receive  an  infant 
as  a  stockholder,  even  though,  upon  coming  of  age,  he  expresses 
his  willingness  to  ratify  and  confirm  the  subscription  or  transfer, 
or  the  corporation  may  even  repudiate  his  subscription,  after  ac- 
cepting it,  upon  learning  of  the  disability,  unless  they  are  es- 
topped.^    An  infant's  subscription  must  be  repudiated  within  a 


'  Angas' Case,    1    De  G.    <fe    Sm.  560  (1868);  Ebbett's  Case,  L.  R.,  5  Chan,  302 

(1849) ;  Daltori  v.  Midland,  &c.,  Ry.  Co.,  (1870);  Baker's  Case,  L.  R.,  7  Clian.  115 

13  C.  B.  474  (1853);  s.  c.  22  L.  J.  (C.  T.)  (1871);  Maj^uire's  Case,   3   De  G.  &  Sm. 

177  ;  Luard's  Case,  supra.  31  (1849);  Mitchell's  Case,  L.  R.,    9  Eq. 

'  Biggart  v.  City  of  Glasgow  Bank,  6  363  (1870);  Wilson's  Case,  L.  R.,  8  Eq. 

Rettie  (Scotch  Ct.  of  Sessions  Cases),  470  240  (1869) ;  Hart's  Case,  L.  R.,  6  Eq.  512 

(1879);  Mrs.  Matthewman's  Case,  L.  R.,  3  (1868). 

Eq.  781  (1866);  Ness  v.  Angas,  3  Exch.  *  This  is  upon  the  theory,  it  seems, 

805  (1849).  that  such  a  subscription  is  a  tVnud  on  the 

"White's  Case,  3    De  G.   <fe   Sm.  157  other  subscribers  and  the  creditors  <if  the 

(1850) ;  Luard's  Case,  1  DeG.,F.  <fe  J.  533  company.     Castleman  v.  Holmes,  4  J.J. 

(I860) ;  Burlinson's  Case,  3  De  G.  cfe  Sm.  Marsh.  1 ;  Roman  v.  Fry,  5  Id.  634  ;  Pugh 

18(1849);  Sadler's  Case,  3  Id.  36  (1849).  &  Shurman's  Case,  L.    R.,   13  Eq.  566; 

Cf.  Kluht's  Case,  3    Id.  210  (18.50).    And  s.  c.  41  L.  J.  (Chan.)  580  ;   Weston's  Case, 

also  upon  a  legacy  of  stock  to  her  during  L.   1?.,  5  Chan.  614  ;  Richardson's  Case, 

coverture,   where   it   appeared   that   the  L.    R.,  19    Eq.   588;  Reavelcy's  Case,   1 

stock  had  been  transferred    to  her,  and  De  G.  &   Sm.  650;  Ex  parte  RQnyely,  1 

the  transfer  duly  accepted  by  her  and  her  Hall  <fe  Tw.  118;    Capper's  Case,  L.   R., 

husband,  and  that  she  only  had  signed  3  Chun.  458  ;  Castelo's  Case,  L.  R.,  8  Eq. 

the    dividend    warrants    and    drawn    the  504;   Synion's  Case,  L.  R.,  5  Chan.    298. 

dividends,  the  proceeds  being  applied  to  Cf.  Clements   v.  Bowes,    1    Drew.    684  ; 

ordinary  household  expenses.     Thomas  ?i.  Reid's  Case,  24  Beav.  3^8. 

City  of  Glasgow  Bank,   6  Rettie  (Scotch  «  Symon's  Cases,  L.  R.,  5  Chan.  298; 

Ct.  of  Sessions  Cases),  607  (1879),  Castelo's  Case,  L.  R.,  8  Eq.  504.     But  sea 

*  Lumsdeu'B  Case,  L.  R.,  4  Chan.   31  Parson's  Case,  L.  R.,  8  Eq.  656. 

59 


^§  64,  65.] 


CONTRACT   OF  SUBSCRIPTION. 


[CH.  IT. 


reasonable  time  after  coming  of  age  or  he  will  be  held  to  have 
ratified  it.^ 

§  64.  Siibscri2)tion  hj  agent. — A.  valid  subscription  may  of 
course  be  made  through  an  agent.^  But  a  mere  intent  to  sub- 
scribe, without  an  actual  subscription,  is  not  sufficient.^  Where 
one  subscribes  for  stock  in  his  own  name,  in  pursuance  of  a  verbal 
agreement  between  himself  and  another,  that  the  stock  should 
belong  to  them  jointly,  and  that  he  should  hold  it  on  joint  account, 
and  the  company  subsequently  becoming  insolvent,  the  stock- 
holders are  called  on  to  contribute  an  amount  equal  to  their 
stock,  it  was  held,  in  New  York,  that  the  nominal  owner  of  the 
stock  might  have  contribution  from  the  joint  owner.* 

§  65.  Subscriptions  made  by  an  unauthorized  agent  of  the 
subscriber. — No  person  can  be  made  a  subscriber  to  the  capital 
stock  of  a  corporation,  atid  be  subjected  to  the  liabilities  of  a  sub- 
scriber, by  a  subscription  in  his  name,  made  by  another  without 
authority,  but  assuming  to  act  as  his  agent.  Such  a  subscription, 
so  far  as  the  person  sought  to  be  charged  is  concerned,  is,  in  the 
absence  of  qualifying  circumstances,  wholly  void.^     But  such  an 


'  Dublin,  (fee,  Ry.  Co.  i.  Black,  1 
Railway  &  Canal  Cas.,  434  (1852);  s.  o. 
8  Exch.  181.  Infancy  is  a  personal  de- 
fense. It  is  a  shield  and  not  a  sword. 
Beardsley  v.  Hotchkiss,  96  N.  Y.  201 
(1884).  Where  an  infant  allows  his 
name  to  remain  on  the  register  after  he 
becomes  of  age,  he  thereby  ratifies  his 
subscription.  Cork,  <fec.,  Ry.  Co.  v. 
Cazenove,  10  Q.  B.  935  (1847).  Cf. 
Mitchell's  Case,  L.  R.,  9  Eq.  363  (18'70). 
A  court  will  not  presume  that  an  infant 
subscriber  has  avoided  Ms  contract,  and 
hence  a  defense  of  infancy,  in  an  action 
on  a  subscription,  without  an  allegation 
of  avoidance,  is  ineffectual,  and  the  plaint- 
iff may  have  judgment.  Leeds,  &c.,  Ry. 
Co.  V.  Fearnley,  4  Exch.  26  (1849) ;  Curtis' 
Case,  L.  R.,  6  Eq.  455  (1868).  But  it  has 
been  held,  that  repudiation  before  coming 
of  age  avoids  the  contract  of  subscription 
ab  initio,  and  hence  a  p\ea  of  infancy  and 
of  repudiation  while  an  infant,  and  of 
nutice  to  the  company,  that  the  stock  was 
at  their  disposal,  is  a  good  defense  to  an 
action  on  a  subscription.  Newry,  &c., 
Ry.  Co.  V.  Coombe,  3  Exch.  565  (1849); 
8.  c.  18  L.  J.  (Exch  ),  825  (1849). 

-  Musgrave  v.  Morrison,  54  Md.  161 

60 


(1880);  Burr  v.  Wilcox,  22  N.  Y.  521 
(1860);  Granger,  <fec.,  Co.  v.  Vinson,  6 
Oregon,  172  (1876);  State  v.  Lehre,  7 
Rich.  Law,  234  (1854) ;  Hawley  v.  Upton, 
102  U.  S.  314  (1880);  Davidson  v.  Grange, 
4  Grant's  Ch.  (N.  C.)  377  (1854).  Cf. 
Drover  v.  Evans,  59  Ind.  454. 

•*  As  where  one  authorized  an  agent  to 
subscribe  for  him  for  a  certain  number 
of  shares,  and  the  agent,  instead  of  sub- 
scribing, merely  entered  the  name  of  his 
principal  in  the  stock  book  as  a  stock- 
holder. Here  it  was  held  that  there 
having  been  no  actual  subscription,  there 
was  no  liability  on  the  part  of  the  person 
authorizing  tlie  subscription.  Granger, 
Ac,  Co.  V.  Vinson,  6  Oregon,  172  (1876). 
Also,  New  Brunswick,  cfec.  Co.  v.  Mug- 
geridge,  4  Hurl.  &  N.  160  (1859). 

In  New  York  it  is  a  penal  offense  for 
a  person  to  subscribe  for  another  who 
does  not  intend  to  pay,  or  to  subscribe 
in  the  name  of  a  fictitious  person.  N.  Y. 
Penal  Code,  §  590. 

"  Stover  V.  Flack,  30  N.  Y.  64  (1864) ; 
Orr  V.  Bigelow,  14  N.  Y.  556  (1856); 
Colt  V.  Clapp,  127  Mass.  476  (1879). 

*  Ticonic,  &c.,  Co.  v.  Lang,  63  Me. 
480(1874);   Pirn's  Case,  3  De  G.  <fe  Sm. 


CfH.  IV.] 


CONTRACT  OF  SUBSCRIPTION. 


[§65. 


■nnauthorized  subscription  may  be  adopted  and  ratified  by  the 
person  in  whose  name  it  was  made  without  warrant  of  authority, 
in  such  a  way  as  to  make  it  valid  and  binding.^  A  person  sub- 
scribing for  shares,  as  agent  for  another,  and  in  that  other's 
name,  but  without  authority,  thereby  becomes  himself  a  sub- 
scriber in  place  of  the  person  whose  name  he  signs,  or  his 
unauthorized  subscription  may  subject  him  to  an  action  of 
damages.^ 


11  (1849);  Henessey's  Case,  3  Id.  191 
(18511);  Ex  parte  Hall,  1  McN.  &.  G.  307 
(1849).  Cf.  Chapman  &  Barker's  Case,  L. 
R.,  3  Eq.  361  (1867).  And  this  is  equally 
the  rule  when  it  is  sought  to  charge  one 
by  such  a  subscription  not  in  his  indi- 
vidual capacity,  but  only  in  the  capacity 
of  trustee  for  another.  Ex  parte  Hall, 
&upra. 

'  Mu?grave  v.  Morrison,  54  Md.  161 
(1880);  Diman  v.  Providence,  &c.,  R.  R. 
Co.,  6  K.  1.  130  (1858);  Mississippi,  &c., 
R.  R.  Co.  V.  Harris,  36  Miss.  17  (1858); 
Jones  V.  Milton,  <fec.,  Co.,  7  Ind.  547 
(1856);  Philadelphia,  <fec.,  R.  R.  Co.  v. 
Cowell,  28Penn.  St.  329  (1857);  McCuUy 
V.  Pittsburgh.  <fec.,  R.  R.  Co,,  32  Id.  25 
( 1 858).  Cf.  Putnam  v.  City  of  New  Albany, 
4Biss.  365  (1869);  Rutland,  &c..  R.  R. 
Co.  V.  Lincoln.  29  Vt.  206  (1857) ;  Haslett 
V.  Wotherspoon,  1  btrobh.  (Eq.),  209 
(1847).  What  acts  or  omissions,  short 
of  express  ratification,  will,  in  law,  suffice 
to  bind  one  upon  such  a  subscription,  is, 
in  gtneral,  a  question  for  the  jury. 
Philadelphia,  <fcc.,  R.  R.  Co.  v.  Cowell,  28 
Penn.  St.  329  (1857).  Cf.  Fox  v.  Clifton, 
6  Bing.  776  (1830).  It  is  held  that 
silence  or  failure  to  object  to  the  sub- 
scription for  a  considerable  time  after 
knowledge  of  it  is  brought  to  the  subscrib- 
er, is  evidence  of  a  ratification.  Phila- 
delphia, (fee,  R.  R.  Co.  V.  Cowell,  supra  ; 
McHi  He  V.  Wheeler.  45  Penn.  St.  32 
(1863);  Diman  v.  Providence,  (fee,  R.  R. 
Co.,  5  R.  I.  130(1858);  Thompson  v. 
Reno  Si'.vings  Bank,  10  Am.  &  Eng. 
Corp.  Cases,  203  (Nev.  1885);  Sanger 
V.  Upton,  91  U.  S.  56  (1875).  But  see 
Hume  V.  Commercial  Bank,  9  Lea,  728 
(1882).  A  rid  to  authorize  a  proxy  to  vote, 
the  stock  may  be  Bufficient  to  ratify  such 
a  subscription.  McCully  v.  Pittsburgh, 
<fec.,R.  R.  Co.,  32  Penn.  St.  25  (1858). 
Contra,  McCleiliind  v.  Wliiteley,  11  Biss. 
444  (1883).  But  a  mere  declaration  to 
strangers,  by  the  person  in  whose  name 


the  subscription  had  been  made,  that  he 
had  taken  that  amount  of  stock,  is  not  a 
ratification  of  the  subscription.  Rutland, 
(fee,  R.  R.  Co.  V.  Lincoln,  29  Vt.  206 
(1857).  And  even  the  fact  that  one 
whose  name  had  been  in  this  way  put 
down  as  a  subscriber,  was  a  director  in 
the  corporation,  was  held  not,  in  se,  to 
imph'  knowledge  that  his  name  was  on 
the  books  as  a  subsci'iber.  Iti  re  Wincham, 
<fec.,  Co.,  L.  R.,  9  Chan.  Div.  329  (1S78). 
Cf.  Fox  V.  Clifton,  6  Bing.  776  (1830).  But 
as  a  rule,  it  is  believed,  that  accepting 
the  office  of  a  director  would,  in  this 
country,  be  held  a  sufficient  ratification 
of  such  a  subscription,  in  the  absence  of 
any  other.  This  is  expressly  declared  to 
be  the  rule  in  Tennessee  and  elsewhere. 
Moses  V.  OcoeeBank,  1  Lea,  398  (1878) ; 
Danbury,  &c.,  R.  R.  Co.  v.  Wilson.  22 
Conn.  435  (1853);  cf.  Fry  v.  Lexington, 
(fee,  R.  R.  Co.,  2  Mete.  (Ky.),  314  (1859). 
Contra,  Hume  v.  Commercial  Bank,  9  Lea, 
728  (1882).  For  a  full  consideration  of 
estoppel  in  respect  to  shares  ownership, 
see  the  note  to  case  of  Griswold  v.  Selig- 
man,  4  Am.  and  Eng.  R.  R.  Cases,  371, 
384  (1880). 

-  Salem,  &c.,  Corp.  v.  Ropes,  9  Pick. 
187(1829).  In  some  jurisdictions  it  is 
held  that  by  such  a  subscription  the  sub- 
scriber makes  himself  personally  liable  as 
a  subscriber.  Union  Hotel  Co.  v.  Hersee, 
79  N.  Y.  454  (1880);  State  v.  Smith,  48 
Vt.  266.  See  al.«o  Burr  v.  Wilcox,  22  N. 
Y.  551  (1860);  Troy,  etc.,  R.  R.  Co.  v. 
Warren,  18  Barb.  310(1854) ;  Cox's  Case, 
4  DeG.,  J.  <feS.  53(1863);  distinjiuishing 
King's  Case,  L.  R.  6  Chan.  196  (1871). 
And  a  person  subscribing  as  a  promoter 
for  shiires  in  the  name  of  a  fictitinus  or 
irresponsible  person  makes  himself  liable 
absolutely  on  such  subscription.  Cox's 
Case,  supra ;  Pugh  &  Sharnian's  Case, 
L.  R.,  13  Eq.  566  (1872).  So  also  if  the 
stock  be  assigned  to  a  fictitious  or  irrespon- 
sible person  after  subscription,  the  sub- 

Gl 


§§  66,  67.]  CONTRACT   OF   SUBSCRIPTION.  [CH.  IV. 

§  66.  SiibscriiMons  tahen  hy  an  unautlxorised  agent  of  the 
corporation. — A  subscription  taken  by  a  person  who  has  no  au- 
thority from  the  corporation  to  take  subscriptions  is  not  in  gen- 
eral enforceable.^  But  such  a  subscription  may,  by  acceptance  and 
ratification  on  the  part  of  the  corporation,  be  validated,  and  the 
subscriber  made  liable  as  though  the  subscription  had  been  regu- 
larly taken.- 

§  67.  Agreements  to  subscribe  made  before  organisation. — 

A  distinction  has  been  attempted  in  some  courts  between  a 
subscription  for  stock  in  a  company  already  organized  and  an 
agreement  to  subscribe  for  stock  in  a  company  to  be  subse- 
quently organized  and  incorporated.  Where,  previously  to  the 
organization  of  the  company,  parties  who  expect  to  subscribe  for 
stock  sign  an  agreement  between  themselves  alone,  to  take  stock 
in  the  company  when  organized,  this  has  been  held  to  be  a 
contract  which  the  corporation  itself,  after  coming  into  being,  can- 
not specifically  enforce.^  This  is  upon  the  theory  that  the  con- 
tract was  not  made  with  the  corporation,  which  indeed  was  not 
in  existence  when  the  paper  was  signed,  and  that  the  corpora- 
tion, being  a  stranger  to  it,  cannot  enforce  it.^     It  is  sometimes 


scriber   will    not  thereby    be    released.  St.  340  (1858);  WalUn^ford,   <fec.,  Co.  i;. 

Muskingum,  &c.,  Co.  v.  Ward,  13  Ohio,  Fox,  12  Vt.   304   (1840);  Chase  v.  Syca- 

120(1844).  more,  (fee.,  R.R.  Co.,  38  111.  215(1865).  Of. 

1  Essex,  (fee,  Co.  V.  Collins,  8  Mass.  Sewall  v.  Eastern  R.  R.  Co.,  9  Cush.  5 
292  (1811);  Shurtz«.  Schoolcraft,  (fee,  R.  (1851);  Stowe  v.  Flagg,  12  111.  397 
R.  Co.,  9  Mich.  269  (1861);  Carlisle  v.  (1874);  Goff  v.  Winchester  College,  6 
Saginaw,  &c.,  R.  R.  Co.,  27  Id.  315  Bush,  443  (1869);  Berkins  v.  Union  But- 
<1873);  Troy,  <fec..  R.  R.  Co.  v.  Warren,  ton  Hole,  &c.,  Co.,  12  Allen,  273  (1866); 
18  Barb.  310  (1854);  r/.  Grangers',  (fee,  Carlisle  v.  Saginaw,  (fee,  R.  R.  Co.,  27 
Co.  V.Vinson,  6  Oregon,  174(1876);  How-  Mich.  315  (1873);  Dayton,  <fec.,  Co.  v. 
ard's  Case,  L.  R.  1  Chan.  561  (1866).    Con-  Coy,  13  Ohio  St.  84  (1861). 

ira.  Northeastern  R.  R.  Co.  v.  Rodriques,  *  Speaking    to    this    point,   and     de- 

10  Rich.  Law,  278  (1857).  clariiig   the   rule   in    Canada,   O'Connor, 

2  Walker  v.  Mobile,  <fec.,  R.  R.  Co.,  34  J.,  said  :  "  The  defendant  cannot,  I 
Miss.  245  (1857);  Mobile,  (fee,  R.  R.  Co.  think,  be  held  to  have  subscribed  stock 
V.  Yandal,  5  Sneed,  294  (1858) ;  Judah  v.  in  the  capital  of  a  company  which  at 
American,  (fee,  Co.,  4  Ind.  333.  the    time    was   not   in    existence.     Nor 

3  Lake  Ontario,  (fee,  R.  R.  Co.  v.  Cur-  can  it  be  said  that  he  made  a  contract 
tiss,  80N.  Y.  219  (1880);  Strasburg  R.  R.  with  the  company  which  bound  him  to 
Co.  V.  Echternacht,  21  Penn.  St.  220  take  stock  m /W?«-o  There  is  no  statute 
(1853) ;  Mt.  Sterling,  (fee,  Co.  v.  Little,  14  in  this  country  that  I  know  of,  nor  has  one 
Bush,  429  (1879) ;  California,  (fee,  Co.  v.  been  referred  to  by  counsel,  like  the  Eng- 
Schafer,  57  Cal.  396  (1881);  Poughkeep-  lish  act,  which  makes  such  a  stock  list 
sie,  (fee,  Co.  v.  Griffin.  24  N.  "Y.  150  available  to  the  company  when  incorpo- 
(1860);  Charlotte,  (fee,  R.  R.  Co.  «.  Blake-  rated.  But  here  the  company  and  the 
ly,  3  Strobh.  Law,  245  (1848);  Pitts-  stock  were  only  in  prospectu,  and  not  in 
burgh,  (fee,  R.  R.  Co.  v.  Gazzam,  32  Penn.  esse;  and   how   can   this   company,  then 

62 


CH.  rv.] 


CONTRACT   OF   SUBSCRIPTION. 


[§6T. 


held  that  while  the  action  in  equity  to  compel  the  subscriber  to 
take  up  and  pay  for  stock  in  the  corporation  will  not  lie,  an  action 
at  law  for  damages  may  be  brought  by  the  corporation  against  any 
one  who,  having  signed  the  preliminary  agreement,  fails  or  re- 
fuses to  take  and  pay  for  the  stock.^  And  that  the  measure  of 
damages  for  such  a  breach  of  contract  to  subscribe  for  stock  is  the 
difference  between  the  par  and  market  value  of  the  stock  in- 
volved.^ But  it  is  clearly  the  better  rule  that  an  agreement  by 
one  person  with  others,  before  incorporation,  to  subscribe  and  pay 
for  stock  in  the  proposed  company,  is  a  valid  contract  of  subscrip- 
tion, and  is  enforceable  by  the  corporation  itself  after  it  comes 


only  in  posse,  he  a  party  to,  and  stock  not 
in  ts.se  be  the  subject  of.  a  contract  in  pre- 
senti  ?  "  Citing  Kelner  v.  Baxter,  L.  R.  2 
C.  V.  174  (1866);  Melhado  v.  The  Porto 
Alegre,  «fec.,  Ry.  Co.,  L.  R.  9  C.  P.  503 
(1874).  So  also  it  is  held  that  incorpora- 
tion is  a  necessary  condition  precedent  to 
an  euforcement  of  such  antecedent  sub- 
scription. Dorris  v.  Sweeney,  60  N.  Y. 
463  (1875);  Richmond  Street  Ry.  Co.  v. 
Reed,  83  Ind.  9  (1882);  Stoops  v.  Greens- 
burgh,  (fee,  Co.,  10  Ind.  47  (1857);  Low 
V.  Connecticut,  <fec.,  R.  R.  Co.,  45  N.  H. 
370  (1864);  Monterey,  tfec,  R.  R.  Co.  v. 
Hildreth,  53  Cal.123  (1878).  Cf.  Marlbor- 
ough, (fee,  R.  R.  Co.  V.  Arnold,  9  Gray, 
159  (1857) ;  Diman  v.  Providence,  <fec.,  R. 
R.  Co.,  5  R.  I.  130  (1858);  Danbury,  Ac, 
R.  R.  Co.  V.  Wilson,  22  Conn.  435  (1853); 
Buffalo,  (fee,  R.  R.  Co.  v.  Hatch,  20  N.  Y. 
157  (1859);  Garrett  v.  Dillsburg,  (fee,  R. 
R.  Co.,  78  Penn.  St.  465  (1875) ;  Midland, 
<fec.,  Ry.  Co.  V.  Gordon,  16  Mee.  &  W.  804 
(1847).  Contra,  Oregon,  (fee,  R.  R.  Co.  v. 
Scroggin,  3  Oregon,  161  (1867).  See  on 
this  .subject  Chapter  X. 

'  Quick  V.  Lemon,  105  111.  578  (1883); 
Thrasher  v.  Pike  Co.,  (fee  ,  R.  R.  Co.,  25 
Id.  393  (1861);  Rhey  v.  El)ensburg,  <fee, 
R.  R.  Co.,  27  Penn.  St.  261  (1856) ;  cf.  Mt. 
Sterling,  (fee,  R.  R.  Co.  v.  Little,  14  Bush, 
429  (1879);  People  v.  Ilolden,  82  111.  93 
(1876);  Ottawa,  <fee,  R.  R.  Co.  v.  Black, 
79  Id.  262(1875). 

2  Tlirasher  v.  Pike  Co.,  (fee,  R.  R.  Co., 
2.J  111.  393  (1861).  It  seems  also  that 
sucti  an  action  of  damages  might  be 
brought  by  one  of  the  signers  of  the  pre- 
liminary agreement,  against  any  other 
signer  who  refused  to  take  and  pay  for 
stock  after  the  incorporation  of  the  com- 


pany, and  that  the  measure  of  damages  in 
this  case  would  be,  not  the  amount  sub- 
scribed but  the  damage  sustained  by  the 
person  suing.  Lake  Ontario,  (fee,  R.  R. 
Co.  V.  Curtiss,  80  N.  Y.  219  (1880).  In 
Pennsylvania,  a  statute  which  authorized 
a  corporation  to  enforce  such  an  agreement 
specifically  has  been  held  unconstitution- 
al. Pittsburgh,  (fee,  R.  R.  Co.  v.  Gazzam, 
32  Penn.  St.  340  (1858).  It  is  elsewhere 
said  that  a  subscription  preliminary  to  or- 
ganization is  no  contract,  but  merely  a 
means  of  bringing  the  parties  together. 
Poughkeepsie,  (fec.,R.  R.  Co.  v.  Griffin,  24 
N.  Y.  150(1860).  Cy.  New  Brunswick, 
(fee,  Co.  V.  Muggeridge,  4  Hurl.  &  N.  160 
(1859).  Or  a  mere  continuing  offer  to 
subscribe  upon  tiie  organization  of  the 
company,  and  that  it  must  be  accepted  by 
the  corporation  before  suit  can  be  brought 
to  enforce  it.  Starrett  v.  Rockland,  (fee, 
R.  R.  Co.,  65  Me  374  (1876).  In  Indiana 
such  a  subscription  inures  to  the  benefit  of 
the  corporation  upon  the  filing  of  the  ar- 
ticles of  association.  Miller  v.  Wild  Cat, 
(fee,  Co.,  52  Ind.  51  (1875).  Cf.  Drover  v. 
Evans,  59  Id.  454.  And  in  New  York  it 
is  said  that  the  right  to  membor.ship  in  the 
proposed  corporation  is  a  sufficient  con- 
sideration for  the  subscriber's  liability 
upon  a  subscription  for  stock  made  before 
the  incorporation  of  the  company,  and 
that  immediately  upon  incorporation  the 
company  acquires  a  vested  interest  in  the 
agreement  to  subscribe.  Lake  Ontaiio, 
Ae,  R.  R.  Co.  V.  Mason,  16  N.  Y.  451, 463 
(1857).  But  an  agreement  to  place  shares 
will  not  be  construed  as  an  engagement  to 
take  shares.  Gorrissen's  Case,  L.  R.  8 
Chan.  507  (1873). 

63 


68.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH. 


IV. 


into  being.^     The  signing  of  the  subscription  paper  is  an  implied 
promise  to  pay  for  the  shares.^ 

§  68.  In  New  England  an  exiyress  promise  necessary. — 
There  is  a  line  of  cases,  especially  in  New  England,  which  hold 
that  a  suit  will  lie  to  enforce  a  subscription  only  when  the  act  of 
incorporation  or  the  general  law  authorizes  it,  or  when  an  express 
promise  to  pay  has  been  distinctly  made.^     The  reason   of  this 


1 


^  Reformed,  <fec.,  Cliurch  v.  Brown,  1*7 
How.  Pr.  287  (1859);  Penobscot,  &c.,  R. 
R.  Co.  V.  Dummer,  40  Me.  172  (1856); 
Athol,  (fee,  Co.  V.  Carey,  116  Mass.  471 
(1875);  Ashuelot,  Ac,  Co.  v.  Hoit,  56  N. 
H.  548  (1876);  Cross  v.  Pinckneyville, 
&c.,  Co.,  17  111.  54  (1855);  Griswold  v. 
Trustees,  .fee,  26  Id.  41  (1861);  Stone  v. 
Great  Western,  &c.,  Co.,  41  Id.  85 
(1866);  Proprietors,  <fec.  v.  Dickinson,  6 
Gray,  586  (1856) ;  Heaston  v.  Cincinnati, 
(fee,  R.  R.  Co.,  16  Ind.  275  (1861);  East- 
ern, <fec..  Co.  V.  Vaughan,  14  N.  Y.  546 
(1856);  Buffalo,  Ac,  R.  R.  Co.  v.  Gifford, 
87  Id.  294  (1882);  Id.  v.  Clark,  22  Hun, 
359  (ISt^O);  Peninsular,  Ac,  R.  R.  Co.  v. 
Duncan,  28  Mich.  130  (1873);  Buffalo, 
*fec.,  R.  R.  Co.  V.  Dudley,  14  N.  Y.  336 
(1856);  Dayton  v.  Borst,  31  Id.  435 
(1865);  Rensselaer,  (fee,  R.  R.  Co.  v.  Bar- 
ton, 16  Id.  457  (1857);  Lake  Ontario,  (fee, 
R.  R.  Co.  V.  Mason,  16  Id.  451  (1857) ;  Es- 
sex, &c.,  Co.  V.  Tuttle,  2  Vt.  393  (1830); 
Kirksey  v.  Florida,  (fee,  R.  R.  Co.,  7  Fla. 
23  (1857);  Beene  v.  Cahawba,  (fee,  R.  R. 
Co.,  3  Ala.  660  (1842);  Selma,  (fee,  R.  R. 
Co.  V.  Tipton,  5  Id.  787  (1843) ;  Hartford, 
&e,  R.  K.  Co.  V.  Kennedy,  12  Conn.  499 
(1838);  Thigpen  v.  Mississippi.  (fee,R.  R. 
Co.,  32  Miss.  347  (1856);  Gill  v.  Ken- 
tucky, (fee,  Co.,  7  Bush,  635  (1870);  Cu- 
cullu  V.  Union  Ins.  Co.,  2  Rob.  (La.)  573 
(1842);  Union,  <fec.,  Co.  v.  Jenkins,  1 
Caines,  381  (1803);  Goshen,  (fee,  Co.  v. 
Hurtin,  9  Johns.  217  (1812);  Dutchess, 
(fee,  Co.  V.  Davis,  14  Id.  238  (1817); 
Spear  v.  Crawford,  14  Wend.  20  (1835); 
Harlem,  <fee,  Co.  v.  Seixas,  2  Hall  (N.  Y. 
Super.  Ct.),  504  (1829);  Nulton  v.  Clay- 
ton, 54  Iowa,  425  (1880) ;  Worcester,  (fee, 
Co.  V.  Willard,  5  Mass.  80  (1809);  Stan- 
ton V.  Wilson,  2  Hill,  153  (1841);  f^agory 
V.  Dubois,  3  Sandf.  Chan.  466  (1846);  Pal- 
mer V.  Lawrence,  3  Sandf.  Super.  Ct.  161 
(1849);  Twin  Creek,  (fee,  Co.  v.  Lancas- 
ter, 79  Ky.  552  (1881);  cf.  Thompson  v. 
Page,  1  Mete.  565  (1840)  ;"lves  v.  Sterling, 
6  Id.  310  (1843);  Robinson  v.  Edinboro' 
Academy,  3  Grant's  Cas.  107  (1861);  Ed- 

64 


inboro'  Academy  v.  Robinson,  37  Penn.  St. 
210  (1860);  Hutchins  v.  Smith,  46  Barb. 
235  (1865);  Valk  v.  Crandall,  1  Sandf. 
Chan.  179;  People,  (fee,  Co.  v.  Balch,  8 
Gray,  303;  Chater  v.  San  Francisco,  <fec., 
Co.,  19  Cal.  219  (1861);  Highland,  <fee, 
Co.  V.  McKean,  11  Johns.  98  (1814);  Tar 
River,  (fee,  Co.  v.  Neal,  3  Hawks  (N.  C), 
520  (1825);  Klein  v.  Alton,  <fee,  R.  R. 
Co.,  13  111.  514  (1851);  Banet  v.  Id.,  13 
Id.  504  (1851);  Sanger  v.  Upton,  91  U.  S. 
56  (1875);  Kidwelly,  (fee,  Co.  v.  Raby,  2 
Price  (Eng.),  93  (1816).  See  also  Weiss 
V.  Mauch  Chunk,  <fec.,  Co.,  58  Penn.  St. 
295  (1868). 

2  Dexter,  (fee,  Co.  v.  Millerd,  3  Mich. 
91  (1854);  Upton  v.  Tribilcock,  91  U.  S. 
45  (1875);  Websler  v.  Upton,  91  Id.  65 
(1875).  For  an  elaborate  discussion  of  the 
distinction  between  an  express  and  an  im- 
plied promise  to  pay  for  shares  sub- 
scribed, and  the  legal  consequences  of 
such  promises,  see  Northern  R.  R.  Co.  v. 
Miller,  10  Barb.  260,  268  (1851).  Wil- 
lard, J.  In  the  biiefs  and  the  opinion  in 
this  case  many  autliorities  are  carefully 
collected.  And  even  when  the  act  of  in- 
corporation or  the  general  law  provides 
for  forfeiture  of  the  shares  upon  non-pay- 
ment, the  corporation  may  waive  the 
right  to  forfeit,  and  proceed  personally 
upon  the  contract  of  subscription,  inas- 
much as  the  remedy  by  forfeiture  is  now 
conceded  to  be  merely  cumulative.  See 
the  Chapter  on  Forfeiture,  infra.  The  lia- 
bility of  the  subscribers  to  pay  in  the 
amount  of  capital  subscribed  by  them,  is 
several  and  not  joint,  and  hence  a  joint 
action  to  enforce  will  not  lie.  Price  v. 
Grand  Rapids,  (fee,  R.  R.  Co.,  18  Ind.  137 
(1862);  lierron  v.  Vance,  17  Id.  595 
(1861);  Thompson  v.  Reno  Savings  Bimk, 
10  Am.  (fe  Eng.  Corp.  Cases,  203  (Nev. 
1886). 

^  Kennebec,  <fec.  R.  R.  Co.  v.  Kendall, 
31  Me.  470  (1860);  Belfast,  (fee.  R.  R.  Co. 
V.  Coltrell,  66  Id.  185  (1876);  Katowa 
Land  Co.  v.  Holley,  129  Mass.  540(1880); 
Mechanics,  <fee  Co.  v.  Hall,  121  Id.  272 


CH.  IV.] 


CONTRACT   OF    SUBSCRIPTION. 


[§68. 


rule  seems  to  have  been  the  hardship  that  otherwise  might  be 
imposed  upon  the  subscriber,  because  in  the  earliest  charters  a 
share  of  stock  was  not  limited  specitically  in  amount,  even  though 
the  whole  capital  stock  was  to  be  divided  into  a  certain  iixed 
number  of  shares.  In  consequence,  when  the  full  prescribed 
number  of  shares  were  not  subscribed,  those  who  did  subscribe 
became  liable  until  the  full  capital  stock  had  been  paid  in.  This 
rule  is  tirst  found  in  a  line  of  decisions  v»'hich  were  made  in  cases 
growing  out  of  the  formation  of  early  turnpike  or  highway  bridge 
corporations.^  Consequently  it  was  held  to  be  no  more  than  just 
to  allow  subscribers,  it"  the  assessments  become  grievous,  or  they 
weary  of  the  enterprise,  to  withdraw  from  the  company  upon 
forfeiting  their  stock,  and  that  any  other  rule  is,  in  some  in- 
stances, almost  the  enforcement  of  a  penalty.^ 


(1876).  Cf.  Seymour  v.  Slurgess,  26  N.  Y. 
134  (18G2);  Fort  Edward,  <fec.  Co.  v. 
Payne,  17  Barb.  567  (1854) ;  Andover,  <fec. 
Co.  V.  Gould,  6  Mass.  40  (1809);  Essex, 
<tc.  Co.  V.  Collins,  8  Id.  29'2  (1811).  In 
some  of  the  States,  accordingly,  we  find 
that  it  has,  from  an  early  day,  been  held 
that  unless  the  subscriber,  by  an  express 
promise  in  his  subscription,  agreed  to  pay 
the  amount  of  his  subscripti.)n,  or  unless 
the  act  of  incorporation  itself  declared 
that  the  subscriber  should  be  bound  to 
pay,  no  action  could  be  maintained  by  the 
corporation  to  enforce  the  subscription. 
In  Pennsylvania,  a  statute  which  author- 
ized a  corporation  to  enforce  such  a  sub- 
Bcription  was  held  unconstitutional.  Pitts- 
burgh, (fee.  R.  R.  Co.  t).  Gazzam,  32  Penn. 
St.  340  (1858). 

•  Worcester,  <fcc.  Turnpike  Co.  v. 
Willard,  5  Mass.  SO  (1809);  Andover, 
<fec.  Turnpike  Co.  v.  Gould,  6  Mass. 
40  (1809);  New  Bedford,  <fec.  Turnpike 
Co.  ■?;.  Adams,  8  Id.  138  (1811);  Essex, 
Ac.  Co  v.  Collins,  8  Id.  292  (1811); 
Franklin,  <fec.  Co.  «.  White,  14  Id.  286 
(1817).  Se:;  also  the  same  rule  applied 
to  ca-es  of  subscription  to  the  capital  btock 
of  railway  and  other  corporations.  Ken- 
nebec, <fcc.  R.  ii.  Co.  V.  Kendall,  31  Me. 
470(1850);  Belfast,  <fec.  R.  R.  Co.  ji.  Moore, 
60  Jd.  561  (1871);  New  Hampshire,  <fec. 
R.  R.  Co.?;.  Johnson,  30  N.  II.  390  (IS.-Jn); 
White,  Ac.  R.  R.  Co.  v.  Eastman,  34  Id. 
124  (1856);  Es.sex,  itc.  Co.  v.  Tuttle,  2  Vt. 
393  (1830);  Connecticut,  «tc.  li.  R.  Co.  v. 
Bailey,  24  Id.  465.  Cf.  Tilsonburg,  Ac.  Co. 
V.  (Joodrich,  8  Ontario  (Q.  B.  Div.),  565 
(1885). 


[6] 


'  Andover,  <fec.  Co.  t.  Gould,  6  Masa. 
40  (1809);  Mechanics,  <fec.  Co.  v.  Hall, 
121  Id.  272  (1876). 

In  those  jurisdictions  where  the  right 
of  the  corporation  to  enforce  these  sub- 
scriptions specifically  is  maintained,  it  is 
held  that  no  formal  acceptance  of  the  sub- 
scription by  the  corporation  is  neces- 
sary to  the  maintenance  of  the  suit. 
Buffalo,  <fec.  R.  R.  Co.  «.  Dudley,  14  N.  Y. 
336  (1856);  Lake  Ontario,  <fec.  R.  R. 
Co.  V.  Mason,  16  Id.  451  (1857);  Buffalo, 
(fee.  R.  R.  Co.  V.  Clark,  22  Hun,  359  (1880); 
Northern  R.  R.  Co.  v.  Miller,  10  Barb.  260 
(1851);  Spear  v.  Crawford,  14  Wend.  20 
(1835);  Hughes  V.  Antiefam,  (fee.  Co.,  34 
Md.  3 1 6  (1870).  Cf.  Penobscot,  (fee.  R.  R. 
Co.  V.  Dummer,  40  Me.  172  (1855).  Coidra, 
Cleaves  w.  Brick  Church,  <fec.  Co.,  1  Snecd. 
491  (1853);  Starrett  v.  Rockland,  Ac.  R. 
R.  Co.,  65  Me.  374  (1876).  "A  subscrip- 
tion to  take  shares  in  the  stock  of  a  cor- 
poration to  be  formed,  enures  to  the  bene- 
fit of  that  corporation  when  formed." 
Griswold  v.  The  Trustees,  (fee.,  26  ill.  41 
(1861);  Cross  v.  Pinckneyville,  tfec.  Co., 
17  Id.  54  (185.5);  Miller  v.  Wild  Cat,  Ac. 
Co.,  5-2  Ind.  51  (1875).  It  is  accordingly 
saiil  that  a  contract  to  pay  in  installments 
a  certain  sum  as  work  on  a  railroad  pro- 
gressed, stock  theieior  to  be  delivered  by 
the  corporation  to  the  payor  upon  full 
payment  of  the  amount  promised,  while 
it  is  not  technically  a  subscript  inn  for 
stock,  is  a  valid  and  enforceable  under- 
taking, and  that  stock  must  be  tendered 
before  a  suit  can  be  maintained.  Clark  v. 
Continental,  <fec.  Co.,  57  Ind.  134  (1877). 
So  also  a  subscription   made  before  or- 

65 


§§  69, 70.] 


CONTRACT  OF  SUBSCRIPTION. 


[CH.  IT. 


§  69.  A  subscription  for  shares  implies  a  promise  to  pay  for 
them. — It  is  a  general  rule  in  most  of  the  States,  and  in  the 
Supreme  Court  of  the  United  States,  that  a  subscription  for 
shares  of  stock  does  n^t  require  an  express  promise,  but  implies 
a  promise  on  the  part  of  the  subscriber  to  pay  for  them.^  But  in 
Massachusetts,  Yermont,  and  Maine,  this  rule  does  not  obtain, 
and  it  is  held  in  those  jurisdictions  that  a  subscription  for  shares 
subjects  the  subscriber  only  to  the  penalties  imposed  by  the 
statute  under  which  the  corporation  is  organized,  that  the  under- 
taking to  take  up  the  shares  is  one  thing,  and  the  undertaking  to 
pay  for  them  another,  and  that,  where  there  is  no  express  promise 
to  pay  for  the  shares  in  the  subscription,  no  action  can  be  main- 
tained.^ 

§  70.  Considerations  for  such  agreements. — It  has  been 
found  a  matter  of  considerable  practical  difficulty  to  determine 
precisely  and  satisfactorily  upon  what  consideration  an  agree- 
ment to  take  stock  in  a  company  to  be  subsequently  organized 
and  incorporated,  can  be  founded  and  enforced.     Different  courts 


ganization  becomes  bindiDg  by  action  on 
the  part  of  the  subscriber  as  a  stockholder 
after  organization.  Buffalo,  &c.  R.  R.  Co. 
V.  Giff.ird,  87  N.  Y.  294  (1882). 

Bui  an  offer  or  agreement  to  subscribe 
is  revoked  by  death  where  it  has  not  yet 
been  accepted  by  the  corporation.  Wal- 
lace  V.  Townsend,  43  Ohio  St.  hZl  (1885); 
Sedalia,  W.  &  S.  Ry.  Co.  v.  Wilkinson,  83 
Mo.  235  (1884). 

'  Upton  V.  Tribilcock,  91  U.  S.  45 
(1875);  Hawley  v.  Upton,  102  U.  S.  314 
(1880)  ;  Webster  v.  Upton,  91  Id.  65 
(1875);  Beene  v.  Cahawba,  tfec,  R.  R. 
Co.,  3  Ala.  660(1842);  Fry  v.  Lexington, 
(fee,  R.  R.  Co.,  2  Mete.  (Ky.),  314  (1859); 
Gill  V.  Kentucky,  <fec.,  Co.,  7  Bush,  635 
(1870);  Mt.  Sterling,  <fec.,  Co.  v.  Little, 
14  Id.  429  (1879);  Chase'w.  Railroad  Co., 
5  Lea  (Tenn.),  415  (1880);  Small  v. 
Herkimer,  &c.,  Co.,  2  N.  Y.  330  (1849) ; 
Lake  Ontario,  <fec.,  R.  R.  Co.  v.  Mason, 
16  Id.  451  (1857) ;  Dayton  v.  Borst,  31  Id. 
435  (1865);  Waukon,  Ac,  R.  R  Co.  «. 
Dwyer,  49  Iowa,  121  (1878);  Nulton  v. 
Clayt0n,  54  Id.  425  (1880)  ;  Miller  v. 
Wild  Cat,  (fee,  Co.,  52  Ind.  51  (1875); 
Mitchell  V.  Beckman,  64  Cal.  117  (1883); 
Merrimac,  <fec.,  Co.  v.  Levy,  54  Penn.  St. 
227  (1867).  Even  though  the  corpora- 
tion have  the  power  to  forfeit  the  shares 
for  non-payment. 


Hughes  V.  Antietam, 


&c.,Co.,  34  Md.  316(1870)  ;  Dexter,  <fec., 
Co.  0.  Millerd,  3  Mich.  91  (1854). 

^  Andover,  (fee,  Co.  v.  Gould,  6  Mass. 
40  (1809)  ;  Atlantic,  <fec..  Mills  v.  Abbott, 
9  Cush.  423  (1852) ;  Mechanics,  <fec.,  Co. 
V.  Hall,  121  Mass.  272  (1876)  ;  Katama, 
(fee,  Co.  V.  Jernegon,  126  Id.  156  (1879)  ; 
Boston,  (fee,  R.  R.  Co.  v.  Wellington,  113 
Id.  79(1873);  Connecticut,  «fec.,  R.  R.  Co. 
V.  Bailey,  24  Vt.  465  ;  Belfast,  <fec.  R.  R, 
Co.  V.  Moore,  60  Me.  56  (1872);  Belfast, 
Ac,  R.  R.  Co.  V.  Cottrell,  66  Id.  185 
(1876);  Kennebec  <fec.,  R.  R.  Co.  v. 
Kendall,  31  Id.  470  (1850);  Buck-field, 
(fee,  R.  R.  Co.  V.  Irish,  39  Id.  44  (1854). 
Cf.  Townsend  v.  Goewey,  19  Wend.  424 
(1838);  s,  c.  32  Am.  Dec.  514.  See 
also  Essex,  (fee,  Co.  v.  Collins,  8  Mass 
292  (1871) ;  New  Hampshire,  <te,  R.  R. 
Co.  V.  Johnson,  30  N.  H.  390  (1855); 
RusselU'.  Bristol,  49  Conn.  251  (1881); 
Odd  Fellows,  (fee,  Co.  v.  Glazier,  5  Harr. 
(Del),  172  (1848);  Stokes  v.  Lebanon, 
(fee,  Co.,  6  Humph.  241  (1845);  City 
Hotel  r;.  Dickinson,  6  Gray,  586(1866); 
Seymour  v.  Sturgess,  26  N.  Y.  134  (1862). 
In  Maine  an  agreement  to  "  take  and  fill " 
a  number  of  shares,  has  been  held  equiva- 
lent to  an  express  promise  to  pay  for  them. 
Buckfield,  (fee,  R.  R.  Co.  v.  Irish,  39  Me. 
44  (1854);  Penobscot,  (fee,  R.  R.  Co.  v. 
Bartlett,  12  Gray,  244  (1858). 


QQ 


CH.  IV,] 


CONTRACT   OF   SUBSCRIPTION. 


[§  70. 


have  reached  different  conclusions,  and  tlie  question  is  not  yet 
settled.  Accordingly  we  find  it  held  that  the  right  to  member- 
ship in  the  proposed  corporation,  and  tiie  probable  advantages  to 
be  derived  from  membership  in  such  a  company,  are  a  sufficient 
consideration  to  make  the  subscriber  liable.-'  So  also  it  is  held 
that  the  stock  to  be  received,  and  the  probable  dividends  thereon, 
are  a  sufficient  consideration  to  support  the  promise.^  But  with- 
out reference  to  the  question  of  consideration,  and  in  the  absence 
of  all  considerations,  it  is  said  that  an  obligation  to  pay  for  shares 
subscribed,  is  conclusively  implied  from  the  fact  of  subscription.^ 
"  The  consideration  to  sustain  such  a  promise  is  raised  by  infer- 
ence   of   law  from    the  subscription    itself,  and    the    privileges 


'  Lake  Ontario,  <fec.,  R.  R.  Co.  v. 
Mason,  16  N.  Y.  451  (1857);  Fort  Ed- 
ward, <fec.,  Co.  V.  Payne,  17  Barb.  567 
(1854);  Hamilton,  &c.,  Co.  v.  Rice,  7  Id. 
157(1849);  Schenectady,  (fee,  R.  R.  Co. 
V.  Thatcher,  11  N.  Y.  "102,  108  (1854); 
Barnes  v.  Ferine,  12  Id.  18  (1854); 
Osborn  v.  Crosby,  (',«  N.  H.  583  (1885). 
ttee  also  Stewart  v.  Trustees  of  Hamilton 
College,  2  Deuio,  403(1845);  Hamilton 
Colleoe  w.  Stewart,  1  JN.  Y.  581(1848). 
"  it  is  well  settled,"  said  Hand,  J.,  in  the 
case  of  Fort  Edward,  cfec,  Co.  v.  Payne, 
17  Barb.  567  (1854),  "thata  subscription 
to  the  capital  stock  of  any  company,  from 
the  membership  of  which  a  shareholder 
may  derive  pecuniary  advantage,  gives 
to  the  subscriber  such  an  interest,  or  will 
support  a  promise  to  pay  for  the  shares. 
Such  an  enterprise  is  a  combination  of 
means  for  mutual  profit,  and  is  in  no  sense 
a  gift  or  promise  without  consideration." 
And  elsewhere  it  is  said,  that  "  the  ad- 
vantages to  be  derived  from  being  a 
member  of  such  a  company,  and  of  the 
cimsc-quent  right  to  participate  in  the 
pecuniaiy  dividends,  is  a  positive  benetit, 
and  wiiere  tlie  agreement  secures  that 
advantage  to  the  subscriber,  on  the 
organization  of  the  company,  the  objec- 
tion of  a  want  of  ccmsideration  cannot  be 
made  with  success."  Hamilton,  cfec,  Co. 
V.  Rice,  7  Barb.  157  (1849),  adopted  by 
Brown,  J.,  in  Lake  Ontario,  &c.,a.  R. 
Co.  V.  Mason,  16  N.  Y.  451,  463  (1857). 

-  Schenectady,  <fec.,  R.  R.  Co.  v. 
Thatcher,  11  N.  Y.  102,  108  (1854); 
Bish  V.  Bradford,  17  Ind.  490  (1861); 
New  Albany,  <fec.,  R.  R.  Co.  v.  Fields,  10 
Id.  187  (1858);  Fry  v.  Lexington,  ifcc, 
R.  R.  Co.,  2  Mete.  (Ky.),  314  (1859). 
That  the  interest  acquired  by  subscrib- 


ing for  shares  of  the  capital  stock  is  a 
good  consideration  for  the  promise  to  pay 
for  them.  Union,  &c.,  Co.  v.  Jenkins,  1 
Caines,  381  (1803);  Selraa,  &c.,  R.  R. 
Co.  V.  Tipton,  5  Ala.  787  (1843)  (a  full 
and  learned  opinion).  Cf.  Goshen,  (fee., 
Co.  V.  Hurtin,  9  Johns.  217  (,1812); 
Danbury,  &c.,  R.  R.  Co.  v.  Wilson,  22 
Conn.  435,  (1853);  East  Tennessee,  <fec., 
R.  R.  Co.  V.  Gammon,  5  Sneed.  567. 
And  again  that  the  prior  proceedings  and 
acts  of  the  parties  are  a  legal  basis  for 
the  promise  to  pay;  also  that  the  partial 
execution  of  the  purpose  designed  by  the 
charter  is  a  sufficient  consideration. 
Kennebec,  <fec.,  R.  R.  Co.  v.  Palmer,  34 
Me.  366  (1852);  McAuley  v.  Billenger, 
20  Johns.  89  (1822);  Amherst  Academy 
V.  Cowls,  23  Mass.  427  (182S);  Ohio,  tfec.. 
College  V.  Hig^ins,  16  Ohio  St.  20  (1864). 
Cf.  McCally  V.  Pittsburgh,  <fec.,  R.  R.  Co., 
32  Penu.  St.  25  (185S).  In  Minnesota, 
the  implied  promise  to  issue  the  stock  is 
declared  to  be  the  consideration  for  the 
promise  to  pay  for  it.  St.  Paul,  <fec. ,  R. 
R.  Co.  V.  Robbins,  23  Minn.  439  (1877). 
And  in  Kentucky,  it  is  held  that  the  pro- 
mise by  each  of  the  subscribers  is  a  suf- 
ficient consideration  for  the  promises  of 
the  others.  Twin  Creek,  «tc.,  Co.  v. 
Lancaster,  79  Ky.  552. 

"  East  Tennessee,  &c.,  R.  R.  Co.  v. 
Gammon,  5  Sneed.  567 ;  Barker  v. 
Bucklin,  2  Denio,  45  (1846);  Spear  v. 
Crawford,  14  Wend.  20  (1^35);  Cole  v. 
Ryan,  52  Barb.  68  (1868);  Amherst 
Academy  v.  Cowls,  23  Mass.  427  (1828); 
Thompson  v.  Page,  42  Id.  565  (1840); 
Upton  V.  Tribilcock,  91  U.  S.  45  (1875). 
Cf.  Northern,  <fec.,  R.  R.  Co.  v.  Miller,  10 
Barb.  260  (1851);  Dutchess,  <fec.,  Co.  v. 
Davis,  14  Johns.  238  (1817). 

67 


§  n.] 


CONTRACT  OF  SUBSCRIPTION. 


[CH.  IV. 


thereby  conferred  ;  and  from  the  same  circumstance  the  law  will 
infer  a  duty  to  pay  for  the  stock,  and  an  implied  obligatio.ii  of 
equal  force  with  an  express  contract."^ 

The  consideration  does  not  depend  upon  the  motive  which  in- 
duced the  subscription.  The  consideration  for  the  subscription, 
in  point  of  law,  is  one  thing,  and  the  motive,  or  those  considera- 
tions of  interest  or  policy  that  induced  the  subscription,  quite 
another  thing.^ 

§  71.  Siibscriptions  delivered  in  escrotv. — Subscriptions  for 
shares  may  be  made  and  delivered  in  escrow  to  an  agent  of  the 
corporation  who  is  engaged  in  taking  subscriptions,^  or  to  a  direc- 
tor of  the  corporation.*  But  a  delivery  in  escrow  to  a  commis- 
sioner is  bad,  and  a  subscription  so  delivered  is  absolute.^  Deliv- 
ery of  a  subscription  in  escrow  to  become  absolute  on  performance 
of  certain  conditions  by  the  corporation,  diilers  from  a  conditional 
subscription  in  this,  that  a  subscription  in  escrow  is,  strictly 
speaking,  no  subscription.     As  in  the  case  of  a  deed  delivered  in 


'  East  Tennessee,  <kc.,  R.  R.  Co.  v. 
Gammon,  supra.  So  also  it  is  held  that 
there  is  an  implied  promise  on  the  part  of 
a  transferee  of  shares  to  pay  calls  upon 
such  stock  while  he  continues  the 
owner,  and  that  such  implied  promise  to 
pay  is  of  equal  rank,  and  involves  the 
same  duty  as  the  original  promise  of  the 
original  subscriber  for  the  shares.  Web- 
ster v.  Upton,  91  U.S.  65(1 875);  Palmer 
V.  Lawrence.  3  Sandf.  Super.  Ct.  161 
(1849);  Bend  v.  Susquehanna,  &c.,  Co.,  6 
Hariis  <fc  J.  128  (1823);  Hall  v.  United 
States  Ins.  Co.,  5  Gill-  484  (1847);  Hart- 
ford, Ac,  R.  R.  Co.  V  Boorman,  12  Conn. 
530  (L838);  Huddersfield  Canal  Co.  v. 
Buckley,  7  Term  Rep.  36  (1796).  Cf. 
Delaware,  <fec.,  Co.  v.  Sansom,  1  Binn.  70 
(1803);  Palmer  v.  Ridge,  <fec.,  Co.,  34 
Penn.  St.  288(1859);  Seymour  v.  Stur- 
ge:^s,  26  N.  Y.  134  (1862).  Speaking  of 
the  legal  significance  of  a  transfer  of  shares. 
Duer,  J.,  said:  "The  transaction,  in  the 
technical  language  of  the  civil  law,  was  a 
novation,  the  substitution  of  one  debtor 
for  another, »and  in  all  such  cases  the 
original  debt  is  just  as  valid  a  considera- 
tion for  the  new  promise  or  security  as 
for  that  for  which  it  is  substituted." 
Palmer  v.  Lawrence,  3  Sandf.  Super.  Ct. 
161,  164  (1849).  The  liability  of  a  trans- 
feree of  stock  is  treated  of  fully  in  Ch.  XV. 

^  So,  where  a  defendant  urged  that,  in- 
asmuch as  the  road  to  the  stock  of  which 

68 


he  had  subscribed,  and  upon  which  he  was 
sued,  had  not  been  located  where  he  was 
assured  it  would  be  when  he  made  his 
subscription,  that  the  consideration  for 
his  subsci'iption  had  failed,  it  was  held 
that  this  was  a  confusion  of  ideas,  and 
that  such  an  argument  confounded  motive 
with  consideration.  The  court  said: 
"  The  motive  of  the  defendant  in  subscrib- 
ing may  have  been  to  secure  a  road  where 
he  supposed  this  was  to  be  located.  The 
consideration  of  his  subscription  was  the 
stock  to  which  the  payment  would  entitle 
him.  There  has  been  no  failure  of  con- 
sideration." Miller  v.  Wild  Cat,  &c.,Co., 
52  Ind.  51,  64  (1875).  See  also  Andover, 
&c.,  Co.  V.  Gould,  6  Mass.  39,  44  (1809); 
Parker  v.  Northern,  (fee,  R.  R.  Co.,  33 
Mich.  23  (1875);  111.  River  R.  R.  Co.  v. 
Zimmer.  20  111.  654  (1858). 

3  Cass  V.  Pittsburgh,  (fee,  R.  R.  Co.,  80 
Penn.  St.  31. 

4  Ottawa,  (fee,  R.  R.  Co.  v.  Hall,  1 
Bradw.  (111.)  612  (1878). 

5  Wiglit  V.  Shelby  R.  R.  Co.,  16  B. 
Mon.  4  (1855).  It  is  the  rule  in  Kentucky 
that  to  become  effectual  as  an  escrow  the 
delivery  must  be  to  a  third  person. 
Wight"  v.  Shelby  R.  R.  Co.,  supra.  But 
in  Pennsylvania  it  seems  the  rule  is  other- 
wise. Cass  V.  Pittsburgh,  (fee,  R.  R.  Co., 
supra.  And  so  in  Illinois.  Ottawa,  <fec., 
R.  R.  Co.  V.  Hall,  supra.  Cf.  Price  v.  Pitts- 
burgh, <fec.,  R.  R.  Co.,  34  111.  36. 


CH.  IV.]  CONTRACT   OF   SUBSCRIPTION.  [$^  72. 

escrow,  no  estate  passes  until  the  second  delivery.  So,  in  the 
case  of  a  subscription  delivered  in  escrow,  there  is  no  subscription 
until  a  second  delivery,  and  the  depositary  can  only  deliver  it  up 
on  performance  of  the  condition.^  So,  also,  a  subscriber  may 
show  by  parol  an  agreement  with  an  agent  of  the  corporation, 
that  his  subscription  to  blank  paper  should  not  be  a  subscription 
until  he  had  seen  and  approved  the  heading  of  the  subscription 
paper.^ 

§  72.  Sul}scrij)tions  in  excess  of  tlie  capital  stock. — In  gen- 
eral, after  the  full  amount  of  stock  provided  for  in  the  act  of 
incorporation  has  been  subscribed,  any  further  subscriptions  are 
void.^  When  all  the  eapital  stock  of  a  corporation  is  subscribed 
for  and  taken  at  the  time  the  articles  of  association  are  filed,  and 
the  certificate  of  incorporation,  made  and  filed  as  required  by 
law,  specifies  the  names  of  the  stockholders,  no  subsequent  sub- 
scribers, by  merely  writing  their  names  in  the  corporation  book 
and  affixing  a  number  of  shares  to  their  respective  names,  can  ac- 
quire a  right  to  any  shares  of  stock,  or  become,  by  such  an  act, 
stockholders  of  the  corporation.  The  corporation,  in  such  a  case, 
has  no  stock  at  its  disposal,  unless  some  part  of  that  already  sub- 
scribed come  back  to  it  by  forfeiture,  and  no  person  can  become 
a  stockholder  except  by  purchase  from  one  of  the  original  sub- 
scribers, or  his  assignee,  and  by  a  regular  assignment  of  the 
stock.* 

It  is  frequently,  however,  provided,  in  the  act  of  incorpora- 
tion, that,  in  case  of  an  excess  of  subscriptions  beyond  the  pre- 
scribed amount  of  capital  stock,  the  commissioners  may,  in  their 
discretion,  so  apportion  or  distribute  the  stock  that  each  sub- 
scriber may  have  allotted  to  him  a  certain  proportion  of  the  stock 
— tlie  number  of  shares  to  be  determined  by  the  ratio  of  his  sub- 
scription to  the  whole  amount  subscribed.     In  such  a  case  sub- 


'  Ottawa,   ttc,   R.  R.  Co.  v.  Hall,  1  Jewell  v.  Rock  River,  &c.,  Co.,  101  Id.  57 

Bradw.  (111.)  61'2  (1878);  Ashtabula,  <fec.,  (1881). 

R.  R.  Co.  V.  Smith,  ]  5  Ohio  St.  ;i'28  (1864).  -  Bucher  v.  Dillsburff.  <fec.,  R.  R.  Co., 

It  is  competent  to  sliow  by  parol  that  a  76  Peiin.   St.,   30G  (1874).      Vf.  Brewers, 

8ubscription    was    delivered    in    escrow.  <fec.,    Ins.    Co.    v.    Burger,    10    Hun,    66 

The  Court  of  Appeals  of  Illinois  declares  (1877). 

that  a  conlrury  rule   is  n(jt  sustained  by  •' Lalhrop   v.   Kneeland,  46  Barb.  4;i2 

jl                   any  respectable  aufhorily.     Ottawa,  Ac,  (1800);    Mackley's  Case,   L.   R.    1    Chau. 

'                   R.'  I{.  Co.  V.  lluW.iinpra.'  Cf.  Tonica,  &e.,  Div.  217  (1875). 

R.    R.   Co.    V.    Stein,  21    111.  90   (1859);  •*  Lathrop  i-.  Kneeland,  SM/>ra. 

G9 


§73.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH.  IV. 


scriptions  in  excess  of  the  prescribed  capital   stock  are  good  j)ro 
tanto} 

But  after  the  organization  of  the  corporation  the  duty  to  ap- 
portion the  stock,  if  there  has  been  an  oversubscription,  belongs 
to  the  corporation  and  not  to  the  commissioners.^  And,  in  the 
absence  of  statutory  authority,  the  commissioners,  even  before 
organization,  have  no  general  power,  if  they  receive  excessive 
subscriptions,  to  reduce  proportionally  all  the  subscriptions  and 
apportion  the  stock.  It  is  their  onlj  duty  to  take  subscriptions 
up  to  the  full  amount  of  the  prescribed  capital  and  to  refuse  any- 
thing beyond  that.^  Neither  can  the  corporation,  if  it  have  issued 
the  full  amount  of  the  stock,  recover  on  subscriptions  in  excess, 
the  subscriber  acquires  no  title  by  such  a  subscription,  and  cor- 
porate creditors  can  enforce  no  liability  thereon.^ 

§  73.  Proof  of  siibscription  or  stocklioldersM]). — In  order  to 
hold  one  liable  as  a  subscriber  to  stock  in  a  stock  corporation,  it 
must  be  shown  that  he  subscribed  a  contract  to  take  stock  in  the 
company,  or  that  he  authorized  some  competent  person  to  sub- 
scribe such  a  contract  for  him,  or  that,  with  knowledge  that  a 
subscription  had  been  made  in  his  name,  he  ratified  the  act.^  It 
is  presumptive  evidence  that  one  is  a  subscriber  or  a  stockholder 
when  his  name  appears  on  the  books  of  the  company  in  either  of 


1  Buflfalo,  (fee,  R.  R.  Co.  v.  Dudley,  14 
N.  Y.  836  (1856);  Crocker  v.  Crane,  21 
Wend.  211  (1839).  Cf.  State  v.  Lehre,  7 
Rich.  Law,  234  (1854);  Danbury,  &c., 
R.  R.  Co.  V.  Wilson,  22  Conn.  435,  454 
<1853);  Van  Dyke  i;.  Stout,  8  N.  J.  Eq. 
333  (1850). 

If  the  commissioners  do  not  properly 
apportion  the  stock,  an  aggrieved  sub- 
scriber may  apply  to  a  court  of  equity  for 
relief.  Walker  v.  Devereaux,  4  Paige, 
229  (1833);  Meads  v.  Walker,  Hopk.  Ch. 
661  (1825);  but  see  Ferguson  v.  Wilson, 
L.  R  2  Ch,  77  (1866). 

Where  an  apportionment  is  provided 
for  in  the  event  of  an  excess  of  subscrip- 
tions, it  is  said  that  the  contract  of  sub- 
scription is  not  complete  until  the  appor- 
tionment is  made;  that  there  can  be 
neither  stockholders  nor  corporation  prior 
to  the  apportionment.  Walker  v.  Deve- 
reaux, 4  Paige,  229  (1833);  Crocker  v. 
Crane,  21  Wend.  211  (1839);  Burrows  v. 
Smith,  10  N.  Y.  550  (1853).  Cf.  Buffalo, 
<fec.,  R.  R.  Co.  V.  Dudley,  14  N.  Y.  336, 
346  (1856). 

70 


-  State  V.  Lehre,  7  Rich.  Law,  234 
(1854). 

3  Van  Dyke  v.  Stout,  8  N.  J.  Eq.  333 
(1850).  Cf.  Crocker  v.  Crane,  21  Wend. 
211  (1839). 

4  Oler  V.  Baltimore,  &c.,  R.  R.  Co..  41 
Md.  583  (1874);  Burrows  v.  Smith,  10  N. 
Y.  550  (1853).  Cf.  Smith  v.  Bangs,  15  III. 
399  (1854).  It  is  held  also  that  corporate 
officers,  when  the  corporation  has  ac- 
cepted subscriptions  in  excess  of  the  cap- 
ital stock,  are  not  warranted  in  buying 
in  shares  of  the  stock  at  a  discount  on 
their  own  private  account,  and  then  re- 
issuing them  at  par  in  their  capacity  as 
officers,  to  provide  for  the  oversubscrip- 
tion, charging  the  corporation  par  for  the 
stock  bought  in,  and  thereby  realizing  a 
profit  to  themselves  individually  on  the 
transaction.  East  New  York,  (fee,  R.  R. 
Co.  V.  Elmore,  5  Hun,  214  (1875).  Cf. 
Perkins  v.  Savage,  15  Wend.  412  (1836). 

'  McClel]and^y.  Whiteley,  11  Biss.  444 
(1883);  New  Hampshire,  &c.,  R.  R.  Co. 
V.  Johnson,  30  N.  PL  390  (1855). 


CH.  IV.]  CONTRACT   OF   SUBSCRIPTION.  [§  73. 

these  capacities.*  And  so  also  it  is  said  that  the  commissioners' 
books  are  prima  facie  evidence  of  the  subscriptions  found  in 
them,2  and  likewise  as  to  the  original  subscription  paper.^  And 
again,  that  entries  in  the  proper  books  by  commissioners  duly 
appointed  to  take  subscriptions,  are  evidence  against  the  subscrib- 
ers.^ So  corporate  books  to  wliich  a  subscription  has  been  trans- 
ferred by  authority  of  the  subscriber  are  evidence  of  the  subscrip- 
tion,^  and  also  the  books  that  contain  the  original  subscriptions.^ 
But  the  presumption  that  one  is  a  stockholder  arising  from  the 
fact  of  his  name  being  found  in  the  stock  and  transfer  book,  is 
a  disputable  one,  and  the  books  are  impeached  and  the  presump- 
tion rebutted,  if  evidence  is  given  that  the  alleged  subscriber 
never  accepted,  but  wholly  refused  to  accept  any  stock  from  the 
company,  which  is  to  say  that  one  who  never  accepts,  but  con- 
stantly refuses  to  accept  stock  in  a  corporation,  is  not  proved  to 
be  a  stockholder,  by  showing  that  tlie  secretary  of  the  company 
had  entered  his  name  as  such  in  the  books  of  the  company.''  But 
when  the  books  of  the  corporation  have  been  destroyed  or  lost, 
a  certified  copy  of  the  recorded  list  of  the  names  of  shareholders, 
required  by  statute  to  be  filed  in  the  office  of  the  register  of  deeds, 
is  prima  facie  evidence  as  to  the  fact  of  subscription  and  owner- 
ship of  the  shares.^     So  it  is  said  that  the  stock-book  of  a  cor- 


'  IIoa<Tland  v.  Bell,  36  Barb.  5'7  (1861) ;  Iowa,  281  (1869) ;  Hawley  v.  Upton.  102 
Turnbuiry.  Payson,  96  U.  S.  418  (1877);  U.  S.  314  (1880)  Cf.  Whitman  v.  Pro- 
Hamilton,  <fec..  Co.  V.  Rice,  7  Barb.  157,  prietors,  &c.,  24  Me.  236  (1844). 
162  (1849);  Pittsburgh,  Ac,  R.  R.  Co.  v.  «  Marlborouoh,  &c.,  R.  R.  Co.  v.  Ar- 
Applegate,  21  WestVa.  172  (1882);  iiold,  9  Gray,  157  (1857).  C/".  Mudgett  v. 
Hoare's  Case,  2  John.  &  H.  229  (1862);  Horrell,  33  Cal.  25  (1867). 
Taylor  V.  Hughes,  2  Jones  &  Lat.  (Irish  '  Mudgetti;.  Horrell,  33  Cal.  25  (1867). 
Chan),  24,  55(l844);McHosez).  Wheeler,  Cf.  Brewers,  Ac,  Ins.  Co.  v.  Burger,  10 
45  Penn.  St.  32  (1863).  6'/.  Coffin  r.  Col-  Hun,  56(1877).  Where  there  is  no  law 
line,  17  Me.  440  (1840);  Whitman  v.  authorizing  a  paper  containing  the  sub- 
Proprietors,  <fec.,  24  Id.  236  (1844);  Rock-  scriptions  to  the  capital  stock  of  a  cor- 
ville,  (fee,  Co.  V.  Van  Ness,  2  Cranch  C.  C.  poration,  to  bo  filed  in  the  office  of  the 
449(1824);  Mudgett  v.  Horrell,  33  Cal.  secretary  of  State,  a  copy  thereof,  certi- 
25  (1867).  or  when  a  certificate  has  been  fied  under  the  seal  of  the  secretary  of 
issued  to  him  which  he  produces.  Board-  State,  is  not  admissible  as  evidence  in  a 
man  v.  Lake  Shore,  &c  ,  U.  R.  Co.  84  N.  suit  by  the  corporation,  to  charge  the  de- 
Y  157  (1881);  Agricultural  Bank  w.  Burr,  fendant  as  a  stockholder.  Troy,  tfec,  R. 
24  Me.  256.  R.  Co.  v.  Kurr,  17  liarb.  581  (1854);  Jack- 

■^  Rockwell,  (fee,  Co.  v.  Van   Ness,  2  son  v.  Leggett,  7  Wend.  377  (1831);  Til- 

CranchC.C.  449(1824);  Wood  t;.  Coosa,  sonbury,  Ac,  Co.  i^.  Goodricli,  8  Ontario 

Ac,  R.  R.  Co.,  32  Ga.  273  (1861).  (Q.  B.  Div.),   565  (1885).     Cf.  Bouchnud 

»  Partridge  v.  Badger,  25   Barb.  146  v.   Dias,   3   Denio,   238  (1846);    Dick  v. 

(1857).  Balch,  8  Peters,  30  (1834). 

*  Wood  V.  Coosa,  Ac,  R.  R.  Co.,  32  »  Cleveland  w.  Burnham,  55  Wis.  598; 

Ga.  273(1861).  8.  c.  10  Am.  A  Eng.Corp.Cases,  221  (1886). 

'  Iowa,  Ac,  R.  R.  Co.  v.  Perkins,  28 

71 


74.] 


CONTRACT   OF   SUBSCRIPTION. 


[CH.  rv. 


poration  is  not  admissible  in  evidence  in  an  action  by  a  creditor 
of  the  corporation  against  one  claimed  to  be  a  stockholder  for  the 
purpose  of  proving  that  he  is  such  stockholder.^  In  general,  the 
contract  of  subscription  must  be  in  writing,  and  cannot  be  estab' 
lished  by  parol,^  and  in  order  to  let  in  secondary  evidence,  there 
must  be  proof  of  an  original  subscription  and  of  the  loss  of  the 
book  or  paper,  or  the  absence  of  the  original  paper  satis- 
factorily accounted  for.^  But  parol  evidence  is  admissible  to 
show  that  a  certificate  has  been  issued  to  one  by  a  wrong  Christ- 
ian name.*  The  mere  erasure  of  a  subscription  will  not  of  itself 
prevent  a  recovery  upon  it.^ 

§  74.  Liahility  of  tlie  corimration  for  refusal  to  issue  cer- 
tificate of  stocTc. — A  subscriber  for  shares  of  stock,  in  case  the 
contract  of  subscription  were  regularly  entered  into,  may,  if  the 
corporation  refuse  to  issue  him  a  certificate,  have  his  action  in 
equity  for  specific  performance,®  or  he  may  recover  of  the  cor- 
poration in  assumpsit,  the  value  of  the  shares  at  the  time  of  the 
demand.''  In  case  the  full  capital  stock  have  been  issued,  then, 
of  course,  specific  performance  of  an  agreement  to  issue  more 
shares  cannot  be  had.^     The  liability  of  a  corporation  to  issue 


1  Mudgettv.Horre]l,33Ca].  25(1867). 
"Where  one  enters  his  name  in  the  personal 
memorandum-book  of  the  president  of  a 
stock  company,  with  the  amount  and  num- 
ber of  shares  which  he  has  proposed  to 
take  upon  the  happening  of  a  certain 
contingency  which  will  put  him  in  funds, 
which  book  at  the  time  was  merely  a 
pocket  memorandum,  and  had  nothing 
about  it  to  show  that  it  was  to  contain  a 
list  of  subscribers  to  the  stock  of  the  pro- 
posed company,  such  an  entry  is  not  evi- 
dence of  a  subscription  for  stock.  Mc- 
Clelland V.  Whiteley,  11  Biss.  444  (1883). 

'•^  Vreeland  v.  New  Jersey,  <fec.,  Co.,  29 
N.  J.  Eq.  188  (1878);  Pittsburgh,  &c.,  R. 
R.  Co.  V.  Gazzam,  32  Penn.  St.  340  (18.58) ; 
New  Hampshire,  &c.,  R.  R.  Co.  v.  John- 
son, 30  N.  H.  390(1855).      See  also  §  52. 

^  Pittsburgh,  &c.,  R.  R.  Co.  v.  Gazzam, 
32  Penn.  St.' 340  (1858);  Graff  v.  Pitts- 
burgh, (fee,  R.  R.  Co.,  31  Id.  489  (1858) ; 
Johnson  v.  Wabash,  &c.,  Co.,  16  Ind.  389 
(1861).  Cf.  Hays  v.  Pittsburgh,  &c.,  R. 
R.  Co.,  38  Penn.  St.  81  (1860);  Pittsburgh, 
<fec.,R.  R.  Co.  w.  Clarke.  29  Id.  146(1857); 
Fairfield,  &c.,  Co.  v.  Thorp,  13  Conn.  173 
(1889);  Iowa,  <fec.,  R.  R.  Co.  v.  Perkins, 
28  Iowa,  281  (1869);   Heveland  v.  Burn- 

72 


ham,  55  Wis.  598 ;  s.  c.  10  Am.  <fe  Eng. 
Corp.  Cases,  221. 

^  Cleveland  v.  Burnham,  55  Wis.  598. 

5  Johnson  v.  Wabash,  (fee,  Co.,  16  Ind. 
399  (1861).  Cf.  Jewell  v.  Rock  River, 
(fee,  Co.,  ■  101  ■  111.  57  (1881);  Greer  v. 
Chartiers  P.  R.  Co.,  96  Penn.  St.  391 
(1880) ;  Railroad  Co.  v.  White,  10  S.  C. 
155  (1878);  Burt  v.  Farrar,  24  Barb.  518 
(1857);  Ryder  ?'.  Alton,  <fcc.,  R.  R.  Co., 
13  111.  516(1851). 

•^  Ferguson  v.  Wilson,  L.  R.,  2  Chan. 
77  (1866). 

'  Wjman  v.  American  Powder  Co.,  8 
Cush.  168  (1851).  But  to  entitle  one  to 
recover  back  money  advanced  to  a  cor- 
poration for  shares,  upon  the  grounds  of 
a  failure  to  issue  the  certificate,  the  sub- 
scriber must,  before  suit,  rescind  the  con- 
tract and  demand  the  money.  Swazy  v. 
Choate,  (fee,  Co.,  48  N.  H.  200  (1868). 

8  Finley,  (fee,  Co.  v.  Kurtz,  34  Mich. 
89  (1876).  For  the  refusal  of  the  corpo- 
ration to  issue  original  stock  to  a  sub- 
scriber, the  measure  of  damages  is  the 
difference  between  the  price  contracted 
for  and  the  market  value  on  the  day  when 
the  issue  ought  to  have  been  made.  Van 
Allen  V.  Illinois,  (fee,  R.  R.  Co.,  7  Bosw. 


CH.  IV.] 


CONTRACT  OF  SUBSCRIPTION. 


[§75. 


Btoek  to  the  subscribers  thereof,  does  not  necessarily  devolve  upon 
another  corporation  which  succeeds  to  its  debts,  liabilities,  and 
franchises.^  In  England,  it  seems  that  directors  are  not  individ- 
ually liable  to  subscribers  for  the  breach  by  the  corporation  of 
its  agreement  to  issue  stock.'^ 

§  75.  Suhstitution  of  stocMolders  before  the  issue  of  tlie  stock. 
—It  is  clear  that  a  subscription  to  the  capital  stock  of  a  company 
about  to  be  incorporated,  when  regularly  entered  on  the  books  of 
the  commissioners,  cannot  be  rescinded  at  the  pleasure  of  the 
subscriber,  and  it  seems  to  be  the  rule  that  a  substitution  of  one 
subscriber  for  another  can  be  eflected,  if  at  all,  only  by  the  era- 
sure of  the  name  of  the  original  subscriber  with  the  consent  of  the 
commissioners,  and  the  substitution  of  another  name.  Until  tlie 
substitution  in  this  way,  the  original  subscriber  is  not  released.* 
The  corporation  is  not  bound  to  issue  a  certificate  of  stock  to  a 


515  (1861).  For  another  rule  as  the 
measure  of  damag;es,  and  one  more  in 
favor  of  the  plaintiff,  see  Baltimore,  &c., 
Ry.  Co.  V.  Sewall,  35  Md.  238  (1871),  and 
Bee  Chapter  on  Conversion  and  Measure 
of  Damages.  In  Louisiana  the  universal 
legatee  may  pay  for,  and  (Uimand,  the 
certificate  of  stock  subscribed  for  by 
his  ancestor.  The  executor  has  no 
power  to  cancel  the  subscription,  and 
the  stock  cannot  be  appropriated  by  a 
subsequent  subscriber,  who  subscribed 
lor  it  by  consent  of  the  executor.  State 
V.  Crescent  City,  <fcc.,  Co.,  24  La.  Ann. 
318  (1872).  Of.  Wallace  v.  Townsend, 
43  Ohio,  537.  If  a  mistake  has  been  made 
by  which  the  certificates  and  stock  have 
been  issued  to  the  wrong  person,  a  court 
of  equitv  will  remedy  it.  O'Meara  v. 
Nortl)  Am.  Min.  Nov.,  2  Nev.  112  (1866). 

'  Conant  v.  National,  &c.,  Co.,  8  Jones 
A  S.  (N.  Y.  Super,  (t.)  83  (1875). 

-  Ferguson  v.  Wilson,  L.  R.,  2  Chan. 
77  (1866).  But  see  also  Swift  v.  Jews- 
bury,  L.  R..  9  Q.  B.  301 ;  Betts  v.  De 
Vitre,  L.  R.,  3  Chan.  429,  441  (1868); 
Hcnrlerson  v.  Lacon,  L.  R.,  5  Eq.  249 
(1 867) ;  I'^aglesfield  v.  Marquis  of  London- 
derry, 25  Week.  Rep.  190.  In  this  coun- 
try, directors  are  liable  for  improperly 
refusing  to  receive  subscriptions  to  the 
capital  >tock.  Union  Bank  v.  McDonough, 
5  La.  63  (1833). 

•'■  Ryder  v.  Alton,  &c.,  \l.  R.  Co.,  13 
III.  516  (18.-)1).  In  this  case.  p.  521,  the 
court  says :  "  Conceding  for  the  purposes 


of  this  case,  the  power  of  the  commis- 
sioners to  permit  one  person  to  be  substi- 
tuted as  a  subscriber  in  the  place  of  an- 
other, it  does  not  appear  from  this  plea 
that  any  such  arrangement  was  consum- 
mated. The  idea  simply  alleges  that  the 
defendant  refused  to  return  the  thirty 
shares  of  stock,  that  G.  agreed  to  take 
them,  and  th;it  the  commissioners  counted 
them  as  belonging  to  the  latter.  This 
does  not  show  either  that  the  defendant 
ceased  to  be  a  subscriber  or  that  6.  then 
became  one.  It  fails  to  show  a  legal  dis- 
charge of  the  one,  or  a  binding  assump- 
tion by  the  other.  The  intended  agree- 
ment was  leitincomplete  and  unconcluded. 
The  agreement  between  the  defendant  and 
(Jr.  remained  unexecuted.  The  signature 
of  the  defendant  should  have  been  erased 
from  the  books  of  subscription,  and  tliat 
of  G.  inserted  in  its  place.  It  ought  to 
appear  from  the  plea  that  G.  could  be 
made  liable  to  the  corporation  as  an  orig- 
inal subscriber  for  the  stock.  But  the 
facts  set  forth  in  the  [)lea  would  not  be 
sufHcient  to  charge  him  as  a  subscriber. 
If  he  cannot  be  held  liable  as  such,  the 
defendant  is  still  rcfcponsible  on  his  sub- 
scription. The  latter  had  no  right  to  i"e- 
scind  his  contract  at  pleasure,  and  he  yet 
continues  liable  thereon,  unless  he  has 
been  legally  absolved  from  its  perform- 
ance." See  also  Hawley  v.  Ujiton,  102 
U.  S.  314  (1880):  Seltna,  Ac,  R.  R.  Co. 
V.  Tipton.  5  Ala.  787  (1843). 


^7'. 


7a 


76. 1 


CONTRACT  OF  SUBSCRIPTION. 


[CH.  IV. 


transferee  in  such  a  case.^  The  subscriber  to  the  stock  of  a  cor- 
poration may  transfer  his  interest  therein  although  the  company 
is  not  yet  incorporated.  It  has  been  held,  however,  that  the 
corporation  is  not  obliged  to  recognize  as  a  stockholder  such  a 
vendee  of  the  stock.^  If,  however,  the  vendor  afterwards  obtains 
the  certificates  and  sells  them  again  to  others,  he  is  liable  to  the 
first  person  to  whom  he  sold  his  interest,^  and  is  liable  also  to  the 
latter  if  the  corporation  is  never  formed.'*  If  the  corporation  is 
duly  formed,  the  vendor  may  compel  the  vendee  to  pay  for  the 
subscription  transferred.^ 

§  76.  Eight  to  recover  hack  money  advanced  on  shares  upon 
a  failure  to  organize  the  company. — Where  one  has  advanced 
money,  in  good  faith,  to  the  promoters  of  a  company,  as  a  de- 
posit or  assessment  upon  shares  subscribed  for  to  be  subsequently 
issued,  and  the  enterprise  contemplated  by  the  proposed  incor- 
poration is  abandoned,  or  the  company  for  any  reason  fails  to  be 


'  It  is  held  in  California,  that  where 
the  owners  of  a  mining  claim  agreed  to 
incorporate  themselves,  and  to  take  stock 
in  the  corporation  in  proportion  to  the 
interest  of  each  in  the  mine,  and,  before 
the  incorporation  one  of  them  transfers 
to  a  third  person  his  right  to  the  stock 
when  issued,  and  gives  him  a  certificate 
to  that  effect,  the  company  after  incorpo- 
ration is  not  bound  by  the  pretended  trans- 
fer or  certificate,  and  cannot  be  compelled 
to  issue  the  stock  to  such  a  third  person. 
Hawkins  v.  Mansfield,  <fec.,  Co.,  52  Cal. 
613(1877);  Morrison  v.  Gold  Mountain, 
(fee,  Co.,  52  Id.  306  (1877).  But  in  Louis- 
iana the  company  may  be  compelled  to 
issue  a  certificate  to  one  who  acquires  his 
interest  by  the  death  of  the  original  sub- 
scriber. State  V.  Crescent  City,  &c.,  Co., 
24  La.  Ann.  318.  In  Ohio,  death  revokes 
an  agreement  or  offer  to  subscribe  for 
stock.  Wallace  v.  Townsend,  43  Ohio,  537 
(1885).  And  in  Maryland,  the  ground  is 
broadly  taken  that  the  rights  of  an  as- 
signee in  such  a  case,  do  not  differ  in 
principle  in  any  respect  from  those  of  an 
ordinary  assignee  of  stock  after  incorpo- 
ration, and  that,  where  the  owners  of  cer- 
tain passenger  railway  franchises  in  the 
city  of  Baltimore,  entered  into  articles  of 
association,  in  contemplation  of  incor- 
poration, wherein  it  was  provided,  inter 
alia,  that  the  beneficial  interests  in  the 
properties,  rights,  and  franchises  of  the 
association  should  be  divided  into  a  fixed 

74 


number  of  shares  of  a  certain  par  value, 
transferable  only  on  the  books  of  the  com- 
pany, and  one  of  such  associates  assigned 
certain  of  his  shares,  in  the  proposed  cor- 
poration, before  the  incorporation,  the  as- 
signees might  maintain,  in  their  own 
names,  actions  against  the  company,  for 
damages  for  the  refusal  to  issue  the  certif- 
icates, and  that  the  measure  of  damages 
was  the  value  of  the  stock  at  the  time  of 
the  demand,  together  with  the  dividends 
accrued  thereon  at  that  time,  witli  interest 
to  the  day  of  the  trial.  Baltimore,  &c., 
Ry.  Co.  I'.  Sewell,  35  Md.  238  (1871),  also 
Merrimac,  <fec.,  Co.  v.  Levy,  54  Penn.  St. 
227  (1867). 

^  Hawkins  v.  Mansfield  Gold  Mining 
Co.,  52  Cal.  513  (1877);  Morrison  t;.  Gold 
Mountain  G.  M.  Co.,  62  Cal.  306  ;  Cole- 
man y.  Spencer,  5  Blackf.  (Md.)  197  ( 1839). 
Contra,  Baltimore  City  Ry.  Co.  v.  Sewell, 
35  Md.  238  (1871):  Tempist  v.  Kilmer,  3 
C.  B.  249  (1846);  Hunt  v.  Gunn,  13  C. 
B.  (N.  S.)  226  (1862).  See  also  Chater 
V.  San  Francisco  S.  F.  Co.,  19  Cal.  219 
(1861). 

3  Beckitt  V.  Bilbraugh,  8  Hare,  188 
(1850). 

■*  Ivempson  v.  Saunders,  4  Bing.  5 
(1826).  But  the  latter  is  not  liable  to 
take  the  shares  nor  to  indemnify  his  ven- 
dor. Jackson  v.  Cocker,  4  Beav.  59 
(1841). 

6  Mahan  v.  Wood,  44  Cal.  462  (1872). 
And  may  collect  a  note  given  in  payment. 


CH.  IV.]  CONTRACT  OF   SUBSCRIPTION.  [§  76. 

incorporated,  such  subscriber  may  recover  back  the  inonej  so  ad- 
vanced.^ iS'or  is  he  obliged  to  submit  to  the  deduction  of  any 
part  thereof  to  be  applied  to  the  payment  of  the  expenses  in- 
curred by  the  promoters  in  attempting  the  incorporation.^ 


'  Nockels  V.  Crosby,  2  Barn.  &  C.  814  And  see  also  Williams  v.  Pasje,  24  Beav. 
(1825);  Kempson  v.  Saunders,  4  Bing.  5  ;  654  (IBS'?).  "  A  bill  in  equity  lies  to  re- 
Ward  V.  Lord  Londesborough,  12  C.  B.  cover  back  money  paid  on  a  bubble." 
252  (1854);  Asphitel  v.  Sercombe,  5  Exch.  Colt  v.  Woollaston,' 2  P.  Wms.  154  (1723); 
147  (1850);  Williams  v.  Salmond,  2  Kay  Green  v.  Barrett,  1  Sim.  45  (1826).  See 
&  J.  463  (1856);  Chaplin  v.  Clarke,  4  also  "the  bubble  act,"  6  Geo.  I,  chap.  18. 
Exch.  403  (1849).  Of.  Vallansw.  Fletch-  ^  Nockels  v.  Crosby,  supra.  But  see 
er,  1  Exch.  20  (1847);  Grand  Trunk,  <fec.,  contra,  Williams  v.  Salmond,  supra. 
Ry.   Co.  V.  Brodie,  9  Hare,  823  (1852). 


75 


CHAPTER    V. 


CONDITIONAL     SUBSCRIPTIONS. 


11.  Definition. 

78.  Conditions  subsequent. 

79.  Conditional  subscriptions  before  in- 

corporation. 

80.  In  New  York  subscription  is  void; 

in  Pennsylvania  the  condition  is 
void. 

81.  Parcil  conditions  are  void. 

82.  Conditional  subscriptions  after  in- 

corporation. 


83.  What  may  be  the  condition. 

84.  Acceptance  of  the  subscriiJtion  by 

the  corporation. 

85.  Construction  of  the  condition. 
86-87.  Performance  of  the  condition. 

88.  Waiver. 

89.  Notice  and  calls  on  conditional  sub- 

scriptions. 


§  77.  Definition  of  conditional  subscription. — A  conditional 
subscription  is  one  in  which  payment  can  be  enforced  by  the  cor- 
poration only  after  the  occurrence  or  after  the  performance  by  the 
corporation  of  certain  things  specified  in  the  subscription  itself.-' 
Oral  agreements  made  with  the  subscriber  to  the  effect  that  pay- 
ment will  not  be  required  except  upon  certain  events  or  contin- 
gencies, are  sometimes  spoken  of  as  conditions  to  the  subscrip- 
tion, but  more  properly,  are  mere  variations  of  a  written  contract, 
and  are  treated  elsewhere.^ 

§  78.  Conditions  precedent  and  conditions  subsequent. — A 
conditional  subscription  is  also  to  be  distinguished  from  a  sub- 
scription on  a  condition  subsequent.  A  subscription  on  a  condi- 
tion subsequent  contains  a  contract  between  the  corporation  and 
the  subscriber,  whereby  the  corporation  agrees  to  do  some  act, 
thereby  combining  two  contracts,  one  the  contract  of  subscription, 
the  other  an  ordinary  contract  of  the  corporation  to  perform  cer- 
tain specified  acts.^     The  subscription  is  valid  and  enforceable, 


'  A  conditional  subscription  has  often 
been  spoken  of  as  "  a  continuing  offer, 
which  is  final  and  absolute  when  accept- 
ed." Ta2;gart  v.  Western  Md.  R.  R.  Co., 
24  Md.  ^563  (1866);  Ashtabula  &  New 
London  R.  R.  Co.  v.  Smith,  15  Ohio  St. 
328  (1864);  Lowe  v.  Edgefield  &  K.  R.R. 
Co.,  1  Head  (Tenn.),  659  (1858). 

■^  See  Chapter  IX. 

^  Thus,  adding  to  a  subscription  the 
words  "  to  be  expended  between  the  Con- 
necticut river  and  the  east  line  of  the 
State,"  has  been  held  to  form  a  contract 

76 


to  that  effect,  but  not  to  make  the  sub- 
scription conditional.  Lane  v.  Brainord, 
3i)  Conn.  565  (1862);  Henderson  &  Nash- 
ville R.  R.  Co.  V.  Leavell,  16  B.  Monroe 
(Ky.),  358  (1855).  So  also  of  words  re- 
quiring a  certain  location  or  route  to  be 
adopted.  Henderson  &  Nashville  R.  R. 
Co.  V.  Leavell,  supra,  the  court  saying, 
however,  that  if  the  route  is  laid  out  oth- 
erwise, before  payment,  probably  the  sub- 
scriber would  be  discharged;  if  changed 
after  payment,  it  could  be  enjoined. 
Laches  will  bar  the  ri<rht  to  such  an  in- 


CH.  T.] 


CONDITIONAL   SUBSCRIPTIONS. 


f§78. 


whether  the  conditions  are  performed  or  not.^  The  condition  sub- 
sequent is  the  same  as  a  separate  collateral  contract  between  the 
corporation  and  the  subscriber,  for  breach  of  which  an  action  for 
damages  is  the  remedy.^  The  distinction  between  such  a  contract 
and  the  ordinary  conditional  subscriptions,  that  is,  subscriptions 
on  conditions  precedent,  is  sometimes  difficult  to  determine.  The 
Supreme  Court  of  Maine  has  said  that  the  question,  whether  a 
condition  in  a  subscription  "  be  precedent  or  subsequent,  is  a  ques- 
tion purely  of  intent,  and  the  intention  must  be  determined  by 
considering  not  only  the  words  of  the  particular  clause,  but  also 
the  language  of  the  whole  contract,  as  well  as  the  nature  of  the 
act  required  and  the  subject-matter  to  which  it  relates."  ^  The 
courts,  in  accordance  with  well  established  rules,  favor  conditions 
subsequent.*  


junction.    Chapman  v.  Mad  Paver  &  Lake 
Erie  R.  R.  Co.,  6  Ohio  St.  119  (1856).    A 
more  frequent  requireoaent  is  a  certain  lo- 
cation of  the  route,  and  also  the  construc- 
tion of  a  part  or  the  whole  of  the    road. 
The  first  requirement  is  construed  to  be  a 
condition  precedent ;  the  second  a  condi- 
tion subsequent,  since  the  payment  of  the 
subscription   itself  is  necessary  to  carry 
out    the    requirement.     Chamberlain   v. 
Painesville  &  Hudson  R.  R.  Co.,  15  Ohio 
St.  225(1864);  Belfast  &  Moosehead  Lake 
Ry.  Co.  V.  Moore,  60  Me.  561,  576  (1871); 
North  Mo.  R.  R.  Co.  v.  Winkler,  29   Mo. 
318;  Bucksport   &  Banc^or   R.  R.   Co.  d. 
Inhabitants  of  Bremer,  67  Me.  295  (1877); 
McMillan  v.  Maysville  <fe  Lexington  R.  R. 
Co..  15  B.  Monroe,  218  (1854);  Swartout 
V.  Mich.  Air  Line  R.  R.  Co.,  24  Mich.  389 
(1872),  where  Judge  Cooley  says  :    "  It  is 
only  reasonable  to  infer  that  they  would 
have  expressed  that  intent  more  clearly, 
and  would  have  indicated  with  definite- 
ness  what  stage  the  work  should  reach  be- 
fore their  liability  .siunild  become  fixed." 
So  also  in  Miller  v.  Pittsburgh    &  Con- 
nellsville  R.  R.  Co.,  40  Pa.  St.  237  (1861); 
where  the  court  says:    "  It  is  a  most  ex- 
traordinary   defense,  for  it  presupposes 
that  the  company  were  to  build  their  road 
without  money,  and  to  deliver   it,  a  fin- 
ished work,  to  the  stock  subscribers,  who 
were  then  to  priy  their  subscriptions.     In 
Pittsburgh   <fe   Steubenville  R.  R.   Co.  v. 
Biggar,  34  Pa.  St.  455  (1859),  a  condition 
"  provided   the  road   goes   within   half  a 
mile  of  Florence,"  was  hell  to  be  a  condi- 
tion subsequent.     A  coiiditjon  that  altera- 
tions shall  be  ordered  only  by  a  vote  of 
the  directors  is  a  condition  subsequent. 


Bucksport  &  Bangor  R.  R.  Co.  v.  Buck,  68 
Me.  81  (1878).  So  also  of  a  condition 
that  commissioners  should  be  appointed  to 
see  that  other  conditions  are  complied 
with.  ShafTner  v.  Jeffries,  18  Mo.  512 
(1853);  and  a  condition  that  the  money 
subscribed  shall  be  expended  on  a  certain 
part  of  the  road.  Lane  v.  Brainerd,  30 
Conn.  565  (1862).  For  the  English  cases 
on  conditions  precedent  and  subsequent  to 
subscriptions  for  stock,  see  Ch.  II,  §  18, 
n.  3. 

'  A  condition  subsequent "  will  not  de- 
feat an  action  for  the  recovery  of  the 
money,  notwithstanding  it  had  not  been 
performed  when  the  action  was  com- 
menced." Belfast  &  Moosehead  Lake  Ry. 
Co.  V.  Moore,  60  Me.  561,  576  (1871).  "  A 
failure  to  perform  an  independent  stipula- 
tion, not  amounting  to  a  condition  prece- 
dent, though  it  subject  the  party  failing  to 
damages,  does  not  excuse  the  party  on  the 
other  side  from  the  performance  of  all 
stipulations  on  his  part."  Mill  Dam 
Foundry  v.  Ilovey,  38  Mass.  417,  437 
(1839). 

-  The  subscriber  is  left  to  the  ordin- 
arj'  remedies  for  breaches  of  contracts. 

3  Bucksport  &  B.  R.  R.  Co.  v.  Inhab- 
itants of  Bremer,  67  Me.  295  (1877).  "  The 
situation  and  relation  of  the  parties  to 
each  other,  the  object  sought  to  be  at- 
tained, and  the  subject-matter  to  which 
tlie  agreement  relates,  are  material  .  .  . 
and  indispensable  aids  "in  deciding  wheth- 
er the  condition  bo  precedent  or  snbse- 
qucnl.  C^hamberlaini'.  Painesville  A  Hud- 
son R.  R.  Co.,  15  Ohio  St.  225  (1864). 

*  Chamberlain  v.  Painesville  tfe  Hudson 
R.  R.  Co.,  15  Ohio  St.  225  (1864) ;  Swart- 

71 


§§  79,  80.] 


CONDITIONAL   SUBSCRIPTIONS. 


[CH.  V. 


§  79.  Conditional  siibscriptions  not  allowed  wi  suhscriptions 
to  obtain  incorporation. — Conditional  subscriptions  made  before 
the  incorporation  of  a  company,  and  taken  for  the  purpose  of 
securing  such  incorporation,  as  prescribed  by  statute,  are  of  doubt- 
ful validity.  The  weight  of  authority  holds  that  subscriptions 
taken  for  the  purpose  of  complying  with  a  statute  which  grants  a 
charter  only  upon  a  certain  amount  of  stock  being  subscribed, 
cannot  be  conditional,  but  must  be  absolute.-"^  This  is  clearly  the 
rule  in  Kew  York  and  Pennsylvania,  and  is  founded  in  justice, 
since  only  thus  should  a  charter  be  granted  to  a  corporation.^ 

§  80.  In  New  York,  the  subscription  is  void,  in  Pennsylvania 
the  condition  is  void. — The  New  York  and  Pennsylvania  cases 
differ,  however,  in  regard  to  the  effect  of  a  conditional  subscription 
to  stock  before,  and  for  the  purpose  of  incorporation.  In  New 
York  the  whole  subscription  is  void  absolutely.  It  is  as  though 
not  made,  and  cannot  be  enforced,  either  by  the  corporation,  or  by 
tlie  would  be  subscriber.^  In  Pennsylvania  a  different  rule  prevails. 
The  condition  is  void,  but  the  subscription  itself  is  treated  as  an 
absolute  unconditional  subscription,  and  may  be  enforced  by  the 
corporation.*     The  commissioners  are  held  to  have  only  limited 


out  V.  Mich.  Air  Line  R.  R.  Co.,  24  Mich. 
389  (1872). 

'  "  A  subscription  to  the  stock  of  a  pub- 
lic corporation,  made  before  letters  patent 
are  issued  and  an  organization  effected, 
must  be  considered  absolute  and  unquali- 
fied, and  any  condition  attached  thereto 
Toid.  Commissioners  have  no  authority 
to  receive  conditional  subscriptions." 
Boyd  V.  Peach  Bottom  Ry.  Co.,  90  Pa. 
St.  169(1879).  "Any  other  rule  would 
lead  to  the  procurement  from  the  com- 
monwealth of  valuable  charters  without 
any  absolute  capital  for  their  support, 
and  thus  give  rise  to  a  system  of  specula- 
tion and  fraud  which  would  be  intoler- 
able." Caley  v.  Phila.  &  Chester  County 
R.  R.  Co.,  80  Pa.  St.  363  (1876).  In  New 
York  the  only  case  of  a  conditional  sub- 
scription made  before  incorporation  seems 
to  be  that  of  Troy  &  Boston  R.  R.  Co.  v. 
Tibbits,  IS  Barb.  297  (1854),  where  the 
conditions  restricted  the  powers  to  "  call," 
and  also  provided  for  the  payment  of 
interest  on  the  amounts  paid  in  on  sub- 
scriptions. The  decision  goes  farther 
than  tlie  facts  require,  when  it  says  that 
the   Railroad  Laws  of  1848,  "  confers  no 

78 


power  to  make  conditional  subscriptions, 
and  such  a  thing  is  contrary  to  public 
policy."  That  conditional  subscriptions 
are  not  to  be  counted  in  ascertaining 
whether  the  whole  capital  stock  has  been 
subscribed,  which  must  be  shown  before 
another  absolute  subscriber  can  be  made 
liable,  see  Chap+er  X. 

^  Some  of  tbe  old  cases  uphold  condi- 
tional subscriptions  made  previous  to  and 
for  the  purpose  of  incorporation.  Cham- 
berlain ?;.  Painesville  &  Hudson  R.  R. 
Co.,  15  O.  St.  225  (1864).  It  is  doubtful, 
however,  whether  any  well  considered 
case,  under  the  present  common  general 
law  allowing  the  incorporation  of  rail- 
roads, would  sustain  such  a  subscription. 
The  weight  of  authority  is  decidedly  in 
favor  of  absolute  subscriptions. 

3  Troy  &  Boston  R.  R.  Co.  v.  Tibbits, 
18  Barb.  297  (1854). 

^  "Where  one  subscribes  to  the  stock 
of  a  public  corporation,  prior  to  the  pro- 
curement of  its  charter,  such  subscription 
is  to  be  regarded  as  absolute  and  unquali- 
fied, and  any  condition  attached  thereto  is 
void."  Caley  f.  Phila.  &  Chester  Co.  R.  R. 
Co.,  80  Pa.  St.  363  (1876).  "  The  subscrip- 


CH.  v.] 


CONDITIONAL   SUBSCRIPTIONS. 


[§§  81,  82. 


statutory  powers,  of  which  the  subscriber  is  bound  to  take  notice, 
and  then  express  powers  do  not  give  authority  to  the  commis- 
sions to  take  conditional  subscriptions.  They  have  no  right  to 
vary  the  terms  of  the  subscriptions,  and  any  conditions  are  held 
to  be  void  as  a  fraud  upon  the  State,  upon  corporate  creditors, 
and  upon  other  subscribers.^ 

§  81.  Parol  conditions  are  void. — Under  the  general  rule  of 
evidence  that  a  written  agreement  cannot  be  varied  or  added  to 
by  parol,  it  is  not  competent  for  a  subscriber  to  stock  to  allege 
that  he  is  but  a  conditional  subscriber.^  The  condition  must  be 
inserted  in  the  writing  in  order  to  be  effectual.  Where,  however, 
the  parol  agreement  or  condition  is  made  subsequently  to  the  mak- 
ing of  the  contract,  and  upon  a  sufficient  consideration,  it  has 
been  upheld.^ 

§  82.    Conditional    subscriptions    after  incorporation  are 

valid. — A  conditional  subscription  to  stock  taken  and  accepted 
by  a  corporation  after  its  incorporation,  is  legal  and  valid  by  the 
common  law  of  all  the  States.  In  Pennsylvania  the  legality  of 
snch  conditional  subscriptions  is  clearly  declared  and  sustained.* 
In  New  York  also  conditional  subscriptions  have  been  upheld,^ 


tion  itself  is  valid  and  binding,  and  the 
condition  null  and  void."  Boyd  v.  Peach 
Bottom  lly.  Co.,  90  Pa.  St.  169  (1879). 
To  the  same  effect  see  Bedford  R.  R.  Co. 
t).  Bowser.  48  Pa.  St.  29(1864);  Barinj?- 
ton  V.  Pittsburgh  &  Steubenville  R.  R.  Co., 
44  Pa.  St.  358  ;  Pittsburgh  &  Steubenville 
R.  R.  Co.  V.  Biggar,  34  Pa.  St.  45.5  (1859); 
Id.  v.  Woodrow,  3  Phil.  271  (1858).  The 
subscription  itself,  however,  is  not  bind- 
ing, if  it  is  not  reported  by  the  commis- 
sioners und  used  to  obtain  the  charter. 
Ligfjtiier  Valley  R.  R.  Co.  v.  Williams,  35 
Leg.  Intel.  40  (1878).  In  the  Federal 
courts,  Burke  v.  Smith,  16  Wall.  390, 
396  (1872),  favors  the  Pennsylvania  rule, 
■while  Putnam  v.  City  of  New  Albany,  4 
Biss.  36.'-.,  383  (1869),  favors  the  New 
York  rule.  In  both  cusesthe  0[)inion9  are 
dicta.  See  also  Ellison  v.  Mobile  <fe  0.  R. 
R.  Co.,  36  Miss.  572  (1858). 

'  Same  cases. 

«  See  Chapter  IX. 

3  Id. 

*  "  It  is  no  longer  to  be  doubted  that 
an  incoiporated  company  after  it  has  ob- 
tained its  letters  patent  and  effected  its 


organization,  may  receive  conditional  sub- 
scriptions to  its  stock."  Pittsburgh  & 
Connellsville  R.  R.  Co.  v.  Stewart,  41  Pa. 
St.  54  (1861);  Caley  v.  Phila.  &  Chester 
County  R.  R.  Co.,  80  Pa.  St.  363  (1876). 
After  incorporation  conditional  subscrip- 
tions may  be  received,  althouiih  tiie  let- 
ters patent  have  not  been  issued  and  can- 
not be  until  ten  per  cent,  of  the  caj.ital 
stock  is  subscribed.  The  conditional  sub- 
scription cannot,  however,  form  any  part 
of  such  percentage.  Hanover  Junction 
&  Susquehanna  R.  R.  Co.  v.  Ilaldeman, 
82  Pa.  St.  86  (1876). 

^  Ordinary  conditional  subscriptions 
were  treated  as  being  valid  in  Union  Ho- 
tel Co.  V.  Hersee,  79  N.  Y.  454  (1880); 
Burrows  v.  Smith,  10  N.  Y.  550  (1853); 
Morris  Canal  &  Bkg.  Co.  v.  Nathan,  2  Hall, 
239  (1829).  But  the  condition  that  a  par- 
ticular location  of  the  pro|ioseil  road 
should  be  adoi»ted  has  been  held  to  be 
contrary  to  public  policy,  since  improper 
means  would  thereby  influence  the  ques- 
tion of  location.  Butternuts  <fe  O.xford 
Turnpike  Co.  v.  North,  1  Hill,  518  (1841); 
Fort  Edward  &  Fort  Miller  Plank  Road  Co. 

79 


§83.] 


CONDITIONAL   SUBSCRIPTIONS. 


[CH, 


but  not  where  the  condition  is  one  that  affects  the  route  of  a  turn- 
pike or  raih-oad  company.  In  other  States  the  leo^alitj  of  such 
subscriptions  is  rarely  questioned,  but  is  generally  assumed  to  be 
admitted.^ 

§  83.  Wliat  condition  may  he  attached  to  a  siibscription. — 

Any  condition  which  can  be  legally  performed  or  complied  with 
by  the  corporation  may  be  the  condition  to  a  subscription  for 
stock.^  The  condition  may  be  that  payment  shall  be  in  labor  or 
materials;^  it  may  require  the  expenditure  of  the  subscription  on 
a  particular  part  of  the  enterprise  ;  *  it  may  stipulate  that  a  cer- 
tain amount  or  the  whole  of  the  capital  stock  shall  be  subscribed 
before  calls  are  made  on  the  subscriptions  ;  ^  or  it  may  limit  the 
time  within  which  certain  things  specified  therein  must  be  done.^ 
In  most  States  the  condition  to  a  subscription  may  require  the 
route  of  a  railroad  to  be  located  on  a  particular  line.'     In  New 


V.  Payne,  15  N.  Y.  583  (1857) ;  Macedon  & 
Bristol  Plank  Road  Co.  v.  Snediker,  18 
Barb.  317  (1854);  dictum  in  Dix  v.  Sha- 
ver, 14  Hun.  392  (1878).  However,  in  the 
case  of  Lake  Ontario  Shore  R.  R.  Ci).  v. 
Curtiss,  80  N.  Y.  219  (1880),  a  condition 
of  this  kind  was  involved,  and  no  objec- 
tion was  made  to  its  validity.  Subscrip- 
tions conditional  in  the  payment  in  prop- 
erty, Isibor,  or  contract  for  construction, 
have  been  repeatedly  passed  upon  in  New 
York  and  upheld.     See  Chapter  II. 

'  "  Except  in  New  York,  conditional 
subscriptions,  in  the  absence  of  a  special 
prohibition,  so  far  as  we  liave  observed, 
have  been  sustained  as  authorized  and  not 
in  conflict  with  public  policy."  Ashtabu- 
la <fe  New  London  R.  R.  Co.  v.  Smith,  15 
Ohio  St.  328  (1864).  See  also  New  Al- 
bany &  Salem  R.  R.  Co.  v.  McCormick, 
10  Ind.  499  (1858) ;  McMillan  v.  Maysville 
<fe  Lexington  R.  R.  Co.,  15  B.  Monroe,  218 
(1854). 

-  The  subscriber  "  may  agree  to  take 
and  pay  for  tiie  stock  absolutely  or  iipon 
such  conditions  as  he  may  choose  to  in- 
corporate into  his  subscription."  Penob- 
scot &  Kennebec  R.  R.  Co.  v.  Dunn,  39  Me. 
587  (1855). 

^  See  Chapter  II. 

*  Milwaukee  &  Northern  111.  R.  R.  Co. 
V.  Field,  12  Wis.  340  (1860);  Hanover 
Junction  &,  Sus.  R.  R.  Co.  v.  Haldeman,  82 
Pa.  St.  36  (1876). 

6  Phil.  &  West  Chester  R.  R.  Co.  v. 
Hickman,  28  Pa.  St.  318;  Penobscot  & 
Kennebec   R.  R.  Co.  v.  Dunn,  39  Me.  587 

80 


(1855);  Hanover  Junction  &  Sus.  R.  R. 
Co.  V.  Haldeman,  xupra;  Union  Hotel  Co. 
V.  Hersee,  79  N.  Y.  454  (1880);  upheld, 
although  the  charter  allowed  commence- 
ment of  business  upon  the  subscription  of 
a  less  sum.  Ridgefield  &  N.  Y.  R.  R.  Co. 
V.  Brush,  43  Conn.  86  (1875). 

*  Ticonic  Water  Power  &  Mfg.  Co.  v. 
Lang,  63  Me.  480  (1874),  holding  also  that 
time  herein  is  of  the  essence  of  the  con- 
tract. See  also  Morris  Canal  &  Bkg.  Co. 
V.  Nathan,  2  Hall  (N.  Y.),  239  (1829).  See 
also  §  87. 

■>  Fisher  v.  Evansville,  die,  R.  R.Co.,7 
Ind.  407  (1856) ;  Conn.  &  Passumpsic  R.  R. 
Co.  V.  Baxter,  32  Vt.  805  (lS6o);  Cum- 
berland Valley  R.  R.  Co.  v.  Baab,  9  Watts, 
458  (1840);  Evansville,  &c.,  R.  R.  Co.  v. 
Sharer,  10  Ind.  246  (1858);  Jewett  v. 
Lawrenceburgh,  tfec,  R.  R.  Co.,  10  Ind. 
539  (1858);  Missouri  Pacific  Ry.  Co.  v. 
Tacjgard,  84  Mo.  264  (1884);  Wear  v. 
Jacksonville,  <fec.,  R.  R.  Co.,  24  111.  595 
(1860);  Taggart  )'.  Western  Md.  R.  R. 
Co.,  24  Mdr563  (1866);  Racine  County 
Bk.  V.  Ayers,  12  AVis.  512  (1860).  Sea 
also  Caley  v.  Phil.  &  Chester  County  R.  R. 
Co.,  80  Pa.  St.  363  (1876).  Location  may 
be  required  to  be  subject  to  the  approval 
of  the  subscriber.  Roberts'  Case,  3  De 
Gex  &  Sm.  205  (1850) ;  affi'd,  2  Mac.  &  G. 
196.  See  also  Mansfield,  dzc,  R.  R.  Co.  «. 
Brown,  26  Ohio  St.  224  (1875);  Id.  v. 
Stout,  26  Ohio  St.  241  (1875);  Chamber- 
lain V.  Painesville,  <fec.,R.  R.  Co.,  15  Ohio 
St.  225  (1864);  North,  Ac,  R.  R.  Co.  v. 
Winkler,    29    Mo.    318   (1860);    Sparten- 


en.  v.] 


CONDITIONAL  SUBSCRIPTIONS. 


[§84. 


York  such  a  conditional  subscription  has  been  held  to  be  void,  on 
the  ground  of  public  policy,  inasmuch  as  the  discretion  of  the  di- 
rectors, in  laying  out  the  route,  would  thereby  be  influenced  by 
considerations  other  than  those  of  a  purely  pnblic  nature.^ 

In  general,  however,  subscriptions  to  the  capital  stock  of  a 
corporation  may  be  conditional  as  to  the  time,  manner,  or  means 
of  payment,  or  in  any  other  way  not  prohibited  by  statute,  or  the 
rules  of  public  policy,  and  not  beyond  the  corporate  powers  of 
the  corporation  to  comply  with."^ 

§  84.  Acceptance  hy  the  corporation  is  necessary. — The  ac- 
ceptance by  the  corporation  of  a  conditional  subscription  is 
necessary  to  the  formation  of  the  contract.^  Until  such  accept- 
ance, the  conditional  subscription  is  but  a  continuing  offer. 
After  acceptance,  the  subscriber  is  bound,  until  performance  of 
the  condition  by  the  corporation,  to  await  such  performance  ;  he 
cannot  withdraw  the  conditional  subscription  after  it  has  been 
accepted.  It  seems,  however,  that  if  the  performance  of  the 
condition  is  delayed  unreasonably  by  the  corporation,  the  ct)ndi- 
tional  subscriber  will  be  thereby  released  from  his  obligation.^ 


burgh,  <fec.,  R.  R.  Co.  v.  Greflfensied,  12 
Rich.  L.  675  (1860);  Des  Moines,  Ac,  R. 
R.  Co.  V.  Graff,  27  Iowa,  99  (1869).  A 
subscription  or  note,  not  for  stock  but  ab- 
solutely a.s  a  gift,  to  the  corporation,  in 
consideration  of  a  particular  route  being 
adopted,  has  been  upheld.  Stowell  v. 
Stowell,  45  Mich.  364  ;  First  Natl.  Bk.  v. 
Hendrie,  49  Iowa,  402  (1878).  Conira,'iio\- 
laday  v.  Patterson,  5  (Jreg.  177  (1874). 

'  See  §  52. 

'  Conditions  inconsistent  with  the 
charter  are  void.  Thigpen  v.  Miss.,  &c., 
R.  R.  Co.,  32  Miss.  347  (1856).  The  con- 
ditions which  may  be  legally  made  to  a' 
subscription  are  practically  limited  only 
by  the  power  of  the  corporation  to  con- 
tract. A  few  of  the  conditions  which 
have  been  passed  upon  by  the  courts 
have  been  given.  Many  minor  ones  are 
involved  in  the  cases,  and  present  a 
gre;it  variety  of  conditions,  correspond- 
ing as  they  do  to  tiie  wishes  and  motives 
of  individuals  subscribing  to  the  stock  of 
tiie  different  kinds  of  joint-stock  corpora- 
tions. 

■'  Junction  R.  R.  Co.  v.  Reeve,  15  Ind. 
236  (1860),  where  the  suiwcription  was 
payable  in  land.  See  also  Gait's  Ex'rs 
V.    Swain,    9   (iratt.     (Vu.)    633    (1853). 


"  When  the  offer  was  accepted,  the 
minds  of  the  parties  met  and  the  contract 
was  complete.  .  .  .  The  acceptance 
by  the  plaintiff  constituted  a  sufficient 
legal  consideration  for  the  engagement 
on  the  part  of  the  defendants."  Taggart 
V.  Western  Md.  R.  R.  Co.,  24  Md.  563 
(1866).  By  the  entry  of  the  subscription 
on  the  corporate  record,  an  acceptance  is 
implied.  New  Albany  &  Salem  R.  R. 
Co.  V.  McCormick,  10  Ind.  499  (1858). 
■Acceptance  by  the  president  of  the  cor- 
poration, and  a  subsequent  ratification  by 
the  directors  of  all  his  acts,  is  sufficient. 
Pittsburgh  &  Connellsville  R.  R.  Co.  v. 
Stewart,  41  Pa.  St.  54(1861).  Tiie  de- 
livery and  acceptance  may  be  proved  by 
parol.  Mnnsfield  <fe  New  Lisbon  R.  R. 
Co.  V.  Smith,  15  0.  St.  328  (1864).  Where 
it  is  delivered  in  escrow  to  the  agent  of 
the  corporation,  there  can  be  no  accept- 
ance of  it  by  the  corporation,  so  long  as 
such  delivery  continues.  Cass  v.  Pitts- 
burg, Va.  &  Charleston  Ry.  Co.,  80  Pa. 
St.  31  (1875).  It  may  be  revoked  while 
still  in  the  hands  of  a  corporate  a^eiit. 
Lowe  V.  Kdgefieid  &  K.  R.  R.  Co.,  1  Head 
(Tenn.),  659  (1858.) 

■•  "  The  objection  to  a  continuing  offer, 
that  it  suspends  indefinitely  the  liability 


[6] 


81 


§§  85,  86.] 


CONDITIONAL   SUBSCRIPTIONS. 


[CH.  V. 


,§  85.  Construction  of  conditional  siibscriptlons. — Condi- 
tional subscriptions,  like  other  contracts,  are  to  be  construed 
reasonably  and  according  to  the  intent  of  the  parties,  as  indicated 
by  the  language  used  in  the  contract.-^  The  circumstances  under 
which  the  subscription  was  made  are  also  to  be  taken  into  con- 
sideration.^ If  two  interpretations  are  possible,  that  which  fa- 
cilitates the  enterprise  is  preferred  to  that  which  retards  it.^  If 
the  meaning  is  ambiguous,  it  is  for  the  jury  to  say  what  the  in- 
terpretation is  to  be.* 

•  §  86.  Performance  of  tlie  condition. — A  condition  to  a  sub- 
scription for  stock  must  be  performed  or  complied  with  before 
the  subscriber  can  be  compelled  to  pay  such  subscription.^  A 
substantial  performance  of  the  condition  is  sufficient.^  A  failure 
to  perform  is  not  excused  by  reason  of  unforeseen  difficulties 
arising  from  floods  and  natural  causes.'  A  conditional  subscriber 
is  not  a  stockholder  or  member  of  the  corporation  until  after  the 


of  tlie  condilioBal  subscribers  is  suffici- 
ently answered  by  the  consideration  that 
all  such  ofiers  are  subject  to  retraction, 
and  may  be  recalled  if  their  acceptance  is 
unreasonably  deferred."  Tacs:art  v. 
Western  Md.  K.  R.  Co.,  24  Md.  563 
(1866).  See  query  and  biiefs  in  Mans- 
field, Coldwater  &  Lake  Mish.  R.  R.  Co. 
V.  Stout,  26  O.  St.  241  (18'76),  which 
holds  that  the  question  of  acceptance  is 
immaterial  where  performance  of  the  con- 
dition has  been  completed  by  the  cor- 
poration. 

'  The  whole  contract  is  to  be  taken 
together,  and  is  "  to  have  a  reasonable 
construction  according  to  the  intent  of  the 
parlies."  People's  Ferry  Co.  v.  Balch,  74 
Mass.  803  (185*7).  "  The  language  -was 
chosen  by  them  to  express  their  mutual 
intent,  and  such  construction  must  be 
given  thereto  as  will  cany  into  cfi'ect 
that  mutual  understanding.  .  .  .  We 
are  to  ascertain  what  tlie  parties  under- 
stood and  intended  by  this  language,  and 
may  not  deviate  therelrom,  wl:etlier  that 
contract,  as  so  interpreted,  be  wise  or  un- 
wise for  either  party."  Memphis,  Kan. 
&  Col.  R.  R.  Co.  V.  Th(  mpson,  24  Kan. 
T70  (1880). 

^  "  The  contract  must  be  interpreted 
by  the  light  of  the  circumstances  which 
existed  at  the  time  it  was  made,  and  not 
of  those  which  arose  afterwards."  Monad- 
nock  R.  R.  V.  Felt,  52  N.  H.  379  (1872); 
Detroit  L.  &  L.  M.  R.  R.  Co.  v.  Starnes, 
38  Mich.  698  (1878). 

82 


2  Ashtabula  &  New  Lisbon  R.  R.  Co. 
V.  Smith,  15  O.  St.  328  (1864).  See  also 
§51. 

■*  Connecticut  R.  R.  Co.  v.  Baxter,  32 
Vt.  805  (1860). 

=  Porter  v.  Raymond,  53  N.  H.  519 
(1873);  Monadnock  E.  R.  v.  Felt,  52  N. 
H.  379  (187  2);  Montpelier  &  "Wells  Biver 
R.  R.  Co.  V.  Langdon,  46  Vt.  284  (1873); 
Ashtabula  &  New  Lisbon  R.  R.  Co.  v. 
Smith,  15  O.  St.  328  (1864);  Phil.  & 
West  Chester  R.  R.  Co.  v.  Hickmnn,  28 
Pa.  St.  318  (1857);  Burrows  «.  Smith,  10 
N.  Y.  550.  '•  Upon  the  performance  of 
the  condition  by  the  promisee,  the  con- 
tract is  clothed  with  a  valid  considera- 
tion, which  relates  back,  and  the  prom- 
ise at  once  becomes  obligatory."  Des 
Moines  Valley  R.  R.  Cor  v.  Graff,  27 
Iowa,  99  (1869). 

«  O'Neal  V.  King,  3  Jones'  L.  (N.  C.) 
517  (1856).  See  also  Virginia,  <fec.,  R. 
R.  Co.  V.  Countv  Ccmm'rs,  &c.,  8  Nev.  68 
(1870) ;  Springfield  St.  Ry.  Co.  v.  Sleeper, 
121  Mass.  29  (1876);  People  v.  Holden, 
82  111.93  (1876).  Perfoimance  must  be 
within  a  reasonable  time.  Stevens  v. 
Corbitt,  33  Mich.  458  (1876).  In  the 
case  of  Martin  v.  Pensacola  <fe  Geo.  R.  R. 
Co.,  8  Fla.  370,  390(1859),  it  is  stated  in 
a  dictum,  that  a  strict  compliance  is  nec- 
essary. 

'  Memphis,  Kan.  &  CoL  R.  R.  Co.  v. 
Thompson,  24  Kan.  170  (1880). 


CH.  T.] 


CONDITIONAL   SUBSCRIPTIONS. 


[§87. 


condition  is  performed.^  Whether  or  not  the  condition  has  been 
performed  is  a  question  of  fact.^  Performance  may  be  proved 
by  parol  or  by  the  records  of  the  corporation.^ 

§  87.  Where  the  condition  is  that  the  work  shall  be  begun, 
contracted  for,  or  completed  within  a  certain  time,  time  is  of  the 
essence  of  tlie  contract,  and  any  failure  to  perform  within  the 
time  so  specitied,  defeats  the  subscription.'*  A  condition  that  the 
road  shall  be  "permanently"  located  on  a  specified  route  is 
satisfied  by  the  adoption  of  that  route  by  the  directors.^  Where 
the  question  of  whether  performance  has  been  completed,  rests 
in  the  decision  of  the  directors,  their  conclusion  cannot  be  ques- 
tioned, unless  fraud  or  bad  faith  is  proved.^  A  condition  that 
the  subscription  shall  be  applied  to  a  particular  portion  of  the 
road  is  satisfied  by  the  completion  of  that  portion.''  Any  fraud 
on  the  part  of  the  corporation  in  the  performance  of  the  condi- 
tion may  be  shown  by  parol. ^  All  of  several  conditions  must  be 
performed  before  calls  are  made.^     But  if  one  part  of  the  subscrip- 


1  Chase  v.  Sycamore  &  Courtland  R. 
R.  Co.,  38  111.  215  (1865);  Slipher  v. 
Earhart,  Adm.,  83  Ind.  173  (1882); 
Evansville,  Ind.  &  Cleveland  S.  L.  R.  R. 
Co.  V.  Shearer,  10  Ind.  244  (1858). 

■-'  Jewett  V.  Lawrenceburgh  &  U.  M. 
R.  R.  Co.,  10  Ind.  539  (1858).  And  is  a 
question  for  the  jur}'.  St.  Louis  &  Cedar 
Rapids  R.  R.  Co.  v.  Eakins,  30  Iowa,  279 
(1870). 

"  I3y  parol.  St.  Louis  &  Cedar  Rapids 
R.  R.  Co.  V.  Eakins,  30  Iowa,  279(1870). 
By  corporate  records.  Penobscot  & 
Kennebec  R.  R.  Co.  v.  Dunn,  39  Me.  587 
(1855).  Contra,  Phil.  <fe  West  Chester 
K.  R.  Co.  V.  Hickrnan,  28  Pa.  St.  318 
(1857).  Performance  must  be  alleged  in 
the  comjilaint  or  declaration.  Urott  v. 
Saschett,  10  O.  St.  241  (1859);  Roberts 
V.  Mobile  &  0.  R.  R.  Co.,  32  Miss.  373 
(1856) ;  Henderson  &  Nashville  R.  R.  Co. 
V.  Leavell,  16  B.  Monroe,  358  (1855). 

■*  Burlington  &  Missouri  River  R.  R. 
Co.  V.  Boestler,  15  Iowa,  555  (1864),  per 
Dillon,  J.;  Freeman  v.  Mack,  67  Ind. 
99  (1879);  Memphis,  Kan.  &  Col.  K.  R. 
Co.  V.  Thompson,  24  Kan.  170  (1880); 
Portland  &  Oxford  Central  R.  R.  Co.  v. 
Inhabitants  of  Hartford,  58  Me.  23 
(187<»).  If  the  directors  certify  that  the 
condition  was  performed  within  the 
specified  lime,  the  subscriber  may  prove 


the  falsity  of  their  certificate.  Morris 
Canal  &  Bkg.  Co.  v.  Nathan,  2  Hall  (N. 
Y.),  239  (1829).  Upon  the  failure  of  the 
corporation  to  comply  with  this  condi- 
tion, the  subscription  ceases  to  have  any 
vitality  "  by  its  own  limitation."  Ticonic 
Water  Power  <fe  Mfg.  Co.  v.  Lang,  63  Me. 
4S0  (1874).  In  the  case,  however,  of 
Missouri  Pacific  Ry.  Co.  v.  Taggard,  84 
Mo.  264  (1884),  a  completion  of  the  road 
within  a  reasonable  time  after  the  time 
specified  in  the  condition  was  held  to  be 
a  substantial  performance  and  sufficient, 
the  grading  having  been  completed  in 
the  specified  time. 

*  Smith  V.  Allison,  23  Ind.  366  (1864), 
and  see  cases  in  i^  78.  So  also  a  condi- 
tion that  the  road  shall  cross  another  at 
a  certain  point  is  satisfied  by  its  being  so 
located.  Wear  r.  Jacksonville  <fe  Savannah 
R.  R.  Co.,  24  111.  593  (1860). 

*  Cass  V.  Pittsburg,  Va.  &  Charleston 
Ry.  Co.,  80  Pa.  St.  31  (1875),  and  see 
note  3. 

'  Nichols  V.  Burlington  <k  Louisa 
County  Plank  Road  Co.,  4  Greene  (Iowa), 
42  (1853). 

8  New  York  Ex.  Co.  v.  De  Wolf,  31  N. 
Y.  271  (1866). 

'Porter  v.  Raymond,  53  N.  H.  519 
(1873). 

83 


§§  88, 89.]  CONPITIONAL  SUBSCRIPTIONS.  [cH.  V. 

tion  be  free  from  condition,  it  may  be  collected  independently.^ 
Where  after  part  payment  by  the  conditional  subscriber,  the  cor- 
porate plans  are  changed,  so  that  the  condition  is  not  complied 
with,  the  money,  it  has  been  held,  may  be  recovered  back.^ 

§  88.  Waiver  of  the  condition. — A  conditional  subscriber  to 
the  stock  of  a  corporation  may  waive  tbe  condition  and  perform- 
ance thereof,  and  thus  become  liable  on  his  subscription,  as  though 
it  had  been  originally  an  absolute  one.  The  waiver  may  be  by 
an  oral  statement  or  agreement  of  the  subscriber.^  Certain  acts 
of  the  subscriber  have  been  held  to  indicate  an  intent  to  waive  a 
condition  to  the  subscription,  and  to  be  equivalent  to  a  direct 
waiver.  Thus  acting  as  a  director,^  or  as  president  of  the  cor- 
poration,^ paying  the  whole  of  the  subscription,^  giving  an  abso- 
lute promissory  note  without  conditions  in  payment  of  the  sub- 
scription ''  have  each  been  held  to  constitute  a  waiver  of  the  con- 
dition to  a  subscription.  But  mere  silence  is  not  a  waiver,^  nor 
payment  of  part  of  the  subscription,^  nor  aid  in  the  attempt  to 
start  the  enterprise,  by  soliciting  subscriptions  and  being  elected 
to  a  corporate  office.^" 

§  89.  Notice  of  performance  and  calls. — There  is  some  doubt 
as  to  whether,  upon  performance  of  the  condition,  the  subscriber 
is  entitled  to  notice  of  such  performance.  The  better  rule  seems 
to  be  that  he  is  entitled  to  such  notice,  and  that  a  general  "  call " 
for  the  payment  of  part  or  all  of  the  subscriptions  for  stock,  does 


1  St.  Louis,  (fee,  R.R.  Co.  v.   Ealdns,  Ind.  SS"?  (1858);  O'Donald  «^.  Evansville, 

30  Iowa,  279  (IS'ZO).  (fee,  R.  R.  Co.,  14  Ind.   259  (1860);   but 

^  Jewett  V.  Lawrenceburg  <fe  U.  M.  R.  not  where  the  note  was  2:iven  by  reason 

R.  Co.,  10  Ind.  539  (1858).  of  false  representations  that  the  condition 

3  Hanover  Junction  &  Sus.  R.  R.  Co.  had  been    complied    with.       Parker    v. 

i^.  Haldeman,  82  Pa.  St.   36(1876).     See  Thomas,   19  Ind.  218   (1862);  Taylor  v. 

also    Woonsocket    Union    R.    R.    Co.    v.  Fletcher,  15  Ind.  80  (1860). 

Sherman,  8  R.  I.  564  (1867).  ^  Burlington  &  Mo.  River  R.  R.  Co.  v. 

*  Lane    v.    Braiiierd,  30    Conn.     565  Boestler,  15  Iowa,  555(1864) ;  Bucksport 

(1862).  (fe  Bangor  R.   R.    Co.    v.    Inhabitants  of 

s  Dayton   &  Cincinnati  R.   R.   Co.  v.  Bremer,  67  Me.  295  (1877). 

Hatch.  1  Disney  (0.),  84  (1855).  ^  Pittsburgh  &  Connellsville  R.  R.  Co. 

«  Parks  V.  EvansviUe,  Ind.   &  Cleve-  w.  Stewart,  41  Pa.  St.  54(1861)  ;  Robert's 

land  S.  L.  R.  R.  Co.,  23  Ind.  567  (1864).  Case,  2  Mac.  &  G.  196  (1850) ;  Jewett  v. 

''  Chamberlain  v.  Painesville  &   Hud-  Lawrenceburgh  &  U.  M.   R.  R.  Co.,  10 

eon   R.  R.   Co.,  15    O.    St.   225   (1864);  Ind.  539  (1868). 

Slipher  v.   Earhart,  Adm.,  83  Ind.   173  '"  Ridgelield    &   N.    Y.    R.    R.  Co.    v. 

(1882);     Evansville,   (fee,    R.   R.    Co.    v.  Reynolds,  46  Conn.  375  (1878). 
Dunn,  17  Ind.  603;  Keller?;.  Johnson,  11 

84 


CH.  T.]  CONDITIONAL   SUBSCRIPTIONS.  [§  89. 

not  apply  to  conditional  subscribers,  unless  the  condition  has 
been  performed,  and  the  fact  of  performance  has  been  brought 
to  the  attention  of  the  subscriber.^ 


'  Chase  v.  Sycamore  &  Courtland  R.  v.  De  Graffenreid,  12  Rich.  L.  (S.  C.)  675 

R.    Co.,     38   111.    215   (1865);    Trott   v.  (1860),  holdinsr  that  no  "  call "  is  neces- 

Sarchett,   10  0.  St.  241(1859).    Contra,  sary,  and  that  interest  runs  from  the  time 

Nichols  V.  Burlington  &  Louisa  County  of  performance.     See  Chap.  II,  as  to  calls. 

Plank   Road   Co.,   4   Greene  (Iowa),   42  <fcc.,  when  payment  is  in  property. 
(1853);  Spartanburg  di   Union  R.  R.  Co. 


85 


CHAPTEK  VI. 


MUNICIPAL   SUBSCRIPTIONS. 


90. 


91. 


92. 

93. 

94. 
96. 


96. 


A  municipal  corporation  has  no 
implied  power  or  authority  to  sub- 
scribe for  stock  in  any  other  cor- 
poration. 

The  legislature  may  authorize  mu- 
nicipal subscriptions  to  public,  but 
not  to  private  enterprises. 
Constitutional  provisions  prohibit- 
ing municipal  subscriptions. 
Power  to  subscribe,  how  to  be  ex- 
ercised. 

Submission  to  popular  vote. 
What  officer  or  agent  of  the  muni- 
cipality may  make  the  contract  of 
subscription. 

Formal  requisites  of  a  municipal 
subscription. 


97.  Municipal  subscriptions    may  be 
conditional. 

98.  A  municipal  subscription  may  be 
paid  in  bonds  instead  of  money. 

99.  A    municipal     corporation    as    a 
stockholder. 

100.  A  municipality  may  enforce  deliv- 
ery of  stock  to  itself  in  a  proper 
case. 

101.  Change  in  the  State  Constitution, 
or  the  general  statutory  laws,  after 
the  municipal  corporation  has  vot- 
ed to  subscribe. 

102.  Division  of  the  municipality  after 
the  subscription. 

103.  Consolidation  of  companies  after 
the  municipal  aid  is  voted. 


§  90.  A  municipal  corporation  lias  no  implied  power  or 
antliority  to  subscribe  for  stock  in  any  other  corporation. — A 

municipal  corporation,  being  in  its  nature  and  purposes  a  very  dif- 
ferent legal  institution  from  an  ordinary  private  corporation,  being 
indeed  but  a  mode  or  department  of  government — "  an  investing 
the  people  of  a  place  with  the  local  government  thereof  "^ — it  is 
plain  that  the  general  rules  of  law  applicable  to  private  corpora- 
tions having  capital  stock  are,  for  the  most  part,  inapplicable 
when  the  rights,  duties,  powers,  and  liabilities  of  municipal  cor- 
porations are  sought  to  be  accurately  determined.^ 

It  is  proposed  to  consider  the  right  of  a  municipality  to  enter 
into  the  contract  of  subscription  to  the  capital  stock  of  other  cor- 
porations, and  of  the  liabilities,  rights,  and  duties  growing  out  of 
such  a  subscription.  The  subject  practically  narrows  itself  to  the 
right  of  municipal  corporations  to  subscribe  to  the  stock  of  rail- 
way corporations,  inasmuch  as  this  right,  wherever  it  exists,  is 
almost  universally  exercised  in  favor  of  these  corporations,  and 


'  Salk.,  183;  Taylor  on  Corp.,  §  315; 
Dillon  on  Munic.  Corp.,  §§  19,  20. 

'  People  V.  Morris,  13  Wend.  325 
(1835);  People  v.  Hurlburt,  24  Mich.  44; 

86 


State  V.  Leffingwell,  54  Mo.  458  ;  Norton 
V.  Peck,  4  Wis.  714 ;  Ottawa  v.  Carey,  108 
U.S.  110(1883). 


CH.  VI.] 


MUNICIPAL   SUBSCRIPTIONS. 


[§91. 


the  adjudicated  cases  almost  all  present  phases  of  the  question  as 
applying  to  them. 

It  is  a  well  settled  rule  of  law  that  municipal  corporations 
have  no  implied  right  or  authority  to  subscribe  for  the  stock  of 
any  other  incorporated  company.^  In  order,  therefore,  to  the 
validity  of  a  municipal  subscription  to  the  stock  of  a  railway 
company,  an  express  grant  of  authority  from  the  legislature  must 
be  shown.2  The  right  to  subscribe  is  derived  from  the  legislative 
enactment,  and  whether  or  not  an  enabling  act  is  sufficient  to 
validate  a  subscription  is  a  question  of  law  for  the  court,  not  for 
the  juiy.^  The  right  to  make  a  donation  to  a  railroad  or  other 
work  of  internal  improvement  must  equally  be  derived  from  the 
act  of  the  legislature.  Without  such  express  authority  of  law  a 
donation  or  issue  of  bonds  as  a  gift  to  a  railroad  company  is  in- 
valid and  void.* 

§  91.  The  legislature  may  authorize  municipal  sul)SGriptions 
to  puUic,  hut  not  to  private  enterprises. — It  was  long  a  question 
whether  the  legislature  had  the  constitutional  right  to  authorize 
a  municipality  to  subscribe  money,  or  donate  it,  in  furtherance 
of  any  enterprise  not  governmental  in  its  nature.     It  has  been 


1  "  To  become  stockholders  ia  private 
corporations,"  says  Judge  Dillon,  "  is 
manifestly  foreign  to  the  usual  purposes 
intended  to  be  subserved  by  the  creation 
of  corporate  municipalities."  Dillon  on 
Municip.  Corp.,  ^  161  ;  Acr.  Kenicott  v. 
Supervisors,  16  Wall.  452(1872);  'I'homp- 
son  V.  Lee  County,  3  Id.  327  (1865)  ;  Rell 
V.  Railroad  Co.  4  Id.,  598(1866);  Wells 
V.  Supervisors,  102  U.  S.  625(1880);  City 
of  Lynchburg  v.  Slaughter,  75  Va.  57  ; 
Louisville,  <fec.  R.  R.  Co.  v.  Fairfield,  51 
Vt.  257  (1878):  Barnes  v.  Lacon,  84  111. 
461  (1877);  Brodie  v.  McCabe,  33  Ark. 
690  (1878);  Pennsylvania  R.  R.  Co.  v. 
Philadelphia,  47  Penn.  St.  189  (1864); 
City  of  Jone.sboro'  v.  Cairo,  Ac.  R.  R.  Co., 
110  U.  S.  192(1883);  Gelpckew.  Dubuque, 
1  Wall.  220  (1863);  Campbell  v.  Paris, 
<fec.  R.  R.  Co.,  71  111.  611  (1874);  East 
Oakland  v.  Skinner,  94  U.  S.  255  (1876). 
See  also,  for  a  full  discussion  of  this  ques- 
tion. Wood  on  Railways,  §  100,  and  cases 
collected;  Taylor  on  Corp.,  §i-  316,  319, 
320. 

"^  Sharpless  »'.The  Mayor,  21  Penn.  St. 
147  (1853);  Leavenworth  Co.  v.  Miller,  7 
Kan.  479  (1871);  s.  c,  12  Am.  Rop.  425; 
Welch  V.   Post,  99  111.  471  (1881);  Allen 


V.  Louisiana,  103  U.  S.  80  (1880);  Marsh 
V.  Fulton  Co.,  10  Wall.  676  (1870);  La 
Fayette  v.  Cox,  5  Ind.  38  (1854);  Com- 
mercial Bank  v.  lola,  2  Dillon,  353  (1873); 
Dillon  on  Munic.  Corp.,  §  161 ;  Wood  on 
Railways,  §  100  ;  Ottawa  v.  Carey,  108  U. 
S.  110(1883);  Lewis  v.  City  of  Shreve- 
port,  108  Id.  282. 

3  Post  V.  Supervisors,  105  U.  S.  667 
(1881).  Moreover,  every  holder  of  muni- 
cipal bonds  issued  to  raise  money  to  pay 
such  a  subscription,  whether  he  receive 
them  directly  from  the  town  or  county,  or 
from  the  railway  company  to  which  tliey 
may  have  been  delivered,  or  takes  them 
from  some  prior  liolder  in  the  ordinary 
course  of  business,  is  chargeable  witii  no- 
tice of  the  statutory  provisions  under 
wiiich  they  were  issued. 

Ogden  V.  County  of  Daviess,  102  U.  S. 
634  (1880);  Lewis  v.  City  of  Shrevcport, 
108  Id.  282  (1883);  City  of  Ottawa  v. 
(^nrey,  108  Id.  110  (1883);  McCiuro  v. 
Township  of  Oxford,  94  Id.  429  (1876). 
Tiiis  is  the  settled  rule  of  the  Supreme 
Court  of  the  United  States  on  this  point. 
■'  Dixon  County  v.  Field,  1 11  U.  S.  83 
(1884). 

87 


§91.] 


MUNICIPAL   SUBSCRIPTIONS. 


[CH.  VI. 


very  stoutly  contended  that  such  a  right  does  not  inhere  in  the 
legislative  branch  of  the  government  in  this  country,  and  that  in 
consequence  such  assumed  grants  are  unconstitutional  and  void.^ 
But  it  is  now  a  reasonably  well  settled  rule  that  the  legislature 
has  the  constitutional  power  to  authorize  a  municipal  corporation 
by  its  charter  or  by  an  express  act,  to  subscribe  to  the  stock  of 
railway  or  other  quasi  public  corporation,  and  to  issue  and  sell  it& 
bonds  for  that  purpose.^ 


'  Cooley  on  Const.  Lim.,  pp.  261-266; 
Dillon  on  Mimic.  Corp.,  §§  12,  117, 
153. 

This  seems  to  be  the  rule  in  Michigan. 
People  V.  Detroit,  28  Mich.  228(1873); 
People    V.    Salem,    20    Id.    452    (1870); 
Thomas  v.  Port  Hudson,  27  Id.  320  (1873) ; 
Bay  City  v.  State  Treasurer,  23  Id.  499. 
But  see'Talcott  v.  Pine  Grove,  1  Flippin, 
120  (1871);  Township  of  Pine  Grove  v. 
Talcott,  19  Wall.  666  (1873);  Taylor  v. 
Ypsilanti,  105  U.  S.  60  (1881);  Chicka- 
ming  V.  Carpenter,  106  U.  S.  663  (1882). 
"  In  Iowa,  up  to  1858,  it  was  held  that 
such  acts  were  constitutional,  but  from 
that  time  up  to  1869  they  were  held  to  be 
unconstitutional,  when  the  court  seems  to 
have  undergone  a  radical    change,  and 
from  that  time  to  the  present  the  consti- 
tutionality of  such  measures  has  been  sus- 
tained."  Wood  on  Railways,  p.  264,  citing 
Dubuqiie  Co.  v.  Dubuque,  (fee.  R.  R.  Co., 
4  Greene  (Iowa),  1  (1853);  State  v.  Bissell, 
4  Id.  328  (1854);  Clapp  v.  Cedar  Co.,  5 
Iowa,  15  (1857);  McMillen  v.  Lee  Co.,  6 
Id.  391  (1858).     The  above  authorities, 
prior  to  1 858,  hold  these  acts  constitution- 
al, as  do  the  following,  handed  down  since 
1869:    Stewart  v.  Polk  Co.,  30  Iowa,  9 
(1870);  McGregor  v.  Birdsall,  32  Id.  149, 
255;  Jordan  v.  Hayne,  36  Id.  9  (1872); 
Muscatine,  <fec.  R.  R.  Co.  v.  Horton,  38 
Id.  33  (1873);  Wapello  v.  B.  &  M.  R.  R. 
Co.,  44  Id.  585  (1876).     While  the  follow- 
ing cases,  decided  between  1858  and  1869, 
hold  such  acts  unconstitutional  and  void. 
Stokes «.  Scott,  lOlowa.  166(1839);  State 
V.  Wapello,  13  Id.  388  (1862);  Myers  v. 
Johnson,  14  Id.  47  (1862). 

In  New  York  the  courts  have  inclined 
to  take  ground  against  the  validity  of  such 
grants.  Sweetie.  Hurlburt,  51  Barb.  312 
(1868) ;  Clarke  v.  Rochester,  28  N.  Y.  605 
(1864);  Grant  v.  Coorter,  24  Barb.  232 
(1857);  Benson  v.  Albany,  24  Id.  248 
(1857);  People  v.  Henshaw,  61  Id.  409 
(1870) ;  Ex  parte  Taxpayers  of  Kingston, 
40    How.    Prac.    444  (1870);    People    v. 

88 


Batchellor,  53  N.  Y.  128  (1873).  Cf. 
Queensburg  v.  Culver,  19  Wall.  82  (1873), 
in  which  the  New  York  doctrine  is  de- 
nied by  the  Supreme  Court  of  the  United 
States. 

-  So  held  by  the  Supreme  Court  of  the 
United  States.  Knox  County  v.  Aspin- 
wall,  21  How.  539  ;  Zabriskie  v.  Railroad 
Co.,  23  Id.  381 ;  Amev  v.  Mayor,  24  Id. 
365,  376  ;  Curtis  v.  Butler  Co.,  24  Id.  435 
Gelpcke  v.  Dubuque,  1  Wall.  175  (1868) 
Mercer  Co.  v.  Hackett,  1  Id.  81  (1863) 
Seybert  v.  Pittsburgh,  1  Id.  273  (1863) 
Van  Hastrup  v.  Madison,  1  Id.  291  (1863) 
Havemeyer  v.  Iowa  Co.,  3  Id.  294  (1865) 
Thompson  v.  Lee  County.  3  Id.  327  (1865) 
Rogers  v.  Burlington,  3  Id.  654  (1865) 
Mitchell  V.  Burlington,  4  Id.  270  (1866) 
Von  Hoffman  v.  Quincy,  4  Id.  535  (1866) 
Campbell  v.  Kenosha,  5  Id.  194  (1866) 
Supervisors  v.  Sehenck,  5  Id.  772  (1866) 
Meyer  v.  Muscatine,  1  Id.  384  (1863) ;  Lee 
County  V.  Rogers,  7  Id.  181  (1868);  Beloit 
V.  Morgan,  7  Id.  619  (1868);  City  of 
Kenosha  v.  Lamson,  9  Id.  477  (1869); 
Railroad  Co.  v.  County  of  Otoe,  16  Id.  667 
(1872);  s.  c,  1  Dillon,  338;  Olcott  v.  Su- 
pervisors, 16  Id.  678(1872);  Rock  Creek 
V.  Strong,  99  U.  S.  271  (1877);  Hickory 
V.  EUery,  103  Id.  423  (1880);  Clay  Co.  v. 
Society  for  Savings,  104  Id.  579  ( 1881)  r 
Taylor  v.  Ypsilanti,  105  Id.  60(1881); 
Lewis  V.  Barbour  Co.,  105  Id.  739  (1881); 
Amoskeag  National  Bank  v.  Ottawa,  105 
Id.  667  (1881);  Woods  v.  Lawrence  Co., 
1  Black.  380  ;  Oilman  v.  Sheboygan,  2  Id. 
510 ;  Town  of  Scipio  v.  Wright,  101  U.  S. 
665  ( 1 879);  and  in  the  Circuit  and  District 
Courts  of  the  United  States :  Long  v.  New 
London,  9  Biss.  639  (1880);  Sibley  v.  Mo- 
bile, 3  Woods,  535  (1876);  United  States 
V.  New  Orleans,  2  Id.  230  (1876). 

Alabama— Stein  v.  Mayor,  <fec.,  24  Ala. 
591(1854);  Opelika ?•.  Daniel,  59  Ala.  211 
(1877) ;  Ex  parte  Selma,  Ac.  R.  R.  Co.,  45 
Id.  596  (1871) ;  Gibbons  v.  Mobile,  &c.  R. 
R.  Co.,  36  Id.  410  (1860).  _ 

Arkansas — Mississippi.  *fec.  R.  R.  Co. 


CH.  VI.]  MUiNICIPAL   SUBSCRIPTIONS.  [§  91. 

The  act  of  the  lee:islatiire  authorizing  a  municipal  subscrip- 


V.  Camden,  23  Ark.  300(1861);  English 
V.  Cliicot  Co.,  26  Id.  455(1871);  Jackson- 
poitv.  WatsoD,33lc).  7n4(1878). 

Califoruia — Robinson  v.  Bidwell,  22 
Cal.  379  (1863) ;  People  v.  Coon,  25  Id.  635 
(1864);  Napa  Vullev  R:  R.  Co.  v.  Napa 
Countv,  30  Id.  435  (1866);  Stockton,  <fec. 
R.  R.  Co.  V.  Stockton,  41   Id.  147  (1871). 

Colorado — People  v.  Pueblo  Co.,  2  Col. 
360  (1874). 

Connecticut — Bridaceport  v.  Housaton- 
ic  R.  R.  Co.,  15  Conn.  475  (1843);  Beard- 
Bley  V.  Smith,  16  Id.  368(1844);  Society, 
&c.  V.  New  London,  29  Id.  174  (1861)); 
Douglass  V.  Chatham,  41  Id.  211  (1874). 

Florida — Cotton  v.  Leon  Co.,  6  Fla. 
610(1856). 

Georgia — Winn  v.  Macon,  21  Ga.  275 
(1857);  Powers  t'.  Superior  Court  of 
Dougherty  County,  23  Id.  65  (1857). 

Illinois — Shaw  v.  Dennis,  5  Gilm  405; 
Prettyman  v.  Tazewell  Co.,  19  111.  406 
(1858);  Robertson  v.  Rockford,21  Id.  451 
(1859) ;  Supervisors  of  Schuyler  Co.  v. 
People,  25  Id.  181  (1860) ;  Butler  v.  Dun- 
ham, 27  Id.  474  (1861);  Dunnovan  v. 
Green,  57  Id.  63  (1870);  Madison  Co.  v. 
People,  58  Id.  456  (1871);  Chicago.  &c. 
R.  R.  Co.  V.  Smith,  62  Id.  268  (1871); 
Decker  v.  Huahes,  68  Id.  33  (1873); 
Quiiicy,  (fee.  R.  R.  Co.  v.  Morris,  84  Id.  41u 
(1877) ;  Chicago,  &c.  R.  R.  Co.  v.  Aurora, 
99  Id.  205  (1881);  Olcott  v.  Supervisors, 
16  Wall.  678(1872).  Butsee  Weightman 
V.  Clark,  103  U.  S.  255  (1880). 

Indiana — City  of  Aurora  v.  West,  9 
Ind.  74  (1857);  s.  c,  22  Id.  88;  Evans- 
ville,  (fee.  R.  R.  Co.  v.  Evansville,  15  Id. 
396  (1860);  Board  of  Bartholomew  Co.  v. 
Bright,  18  Id.  93  (1862);  Thompsons. 
City  ol  Peru,  29  Id.  305  (1868);  Muncie, 
i'c'  R.  R.Co.  V.  Geiger,  34  Id.  185  (1870); 
John  V.  Cincinnati,  etc.  R.  R.  Co.,  35  Id. 
539  (1871);  Commissioners  of  Crawford 
Co.  V.  Louisville,  &c.  R.  II.  Co.,  39  Id.  192 
(1872);  Mt.  A'eruon  v.  Ilovey,  52  Id.  563 
(1876);  Indiana,  <fec.  R.  R.  Co.  v.  Attica, 
56  Id.  476(1877);  Williams  v.  Hall.  65 
Id.  129(1879);  Bittinger  v.  Bell,  65  Id. 
445  (1879);  Brocaw  v.  (iit^on  Co.,  73  Id. 
643  (lt81);  Peed  v.  Millikan,  79  Id.  86 
(1881). 

Iowa  (since  1869). — See  the  preceding 
noti;,  idso  MfMillen  v.  Boyles,  6  Iowa, 
304  (1858);  Games  i'.  Robb,  8  Id.  193 
(1859);  Chamberlain  v.  Burlington,  19 
Id.  395;  McMillen  v.  Lee  Co.,  3  Id.  311 
(lf-58);  p;uticuliir]y  King  v.  Wilson,  I 
Dillon,  555  (1871j. 


Kansas — City  of  Atchison  v.  Butcher, 
3  Kan.  104  (1865);  Leavenworth  Co.  v. 
Miller,  7  Id.  479  (1871);  Morris  t;.  Morris 
Co.,  7  Id.  570  (1871);  State  v.  Nemaha 
Co.,  7  Id.  542  (1871);  Barnes  v.  Atchi- 
son, 2  Id.  454  (1864);  Leavenworth, 
&c.,  R.  R.  Co.  V.  Douglass  Co.,  18  Id.  169 
(1877). 

Kentucky — Talbot  v.  Dent,  9  B.  Mon. 
526  (1849);  Stack  v.  Maysville,  &c.,  R. 
R.Co.,  13  Id.  1  (1852);  Maddox  v.  Gra- 
ham, 2  Mete.  56(1859);  Shelby  Co.  Court 
V.  Cumberland,  <fec.,  R.  R.  Co.,  8  Bush, 
209  (1871);  Allison  v.  Versailles,  &c.,  R. 
R.Co.,  10  Id.  1  (1873). 

Louisiana — Police  Jury  tf.McDonough, 
8  La.  Ann.  341  (1853);  Parker  v.  Scrog- 
gin,  11  Id.  629  (1856).  Cf.  Wilson  v. 
Shreveport,  29  Id.  673  (1877);  Edey  «;. 
Shieveport,  26  Id.  636. 

Maine — Augusta  Bank  v.  Augusta,  49 
Me.  507  (1860);  Stevens  v.  Anson,  73  Id. 
489(1882). 

Massachusetts — Supervisors  v.  Wis- 
consin, Ac,  R.  R.  Co.,  121  Mass.  460 
(1877). 

Minnesota — Davidson  v.  Ramsey  Co., 
18  Minn.  482  (1872);  State  v.  Clark,  23 
Minn.  423  (1877). 

Mississippi — Strickland  v.  Railroad 
Co.,  27  Miss.  209  ;  New  Orleans,  <fec., 
R.  R.  Co.  V.  McDonald,  53  Miss.  240; 
Wells  r.  Supervisors,  102  U.  S.  625 
(1880). 

Missouri — St.  Louis  v.  Alexander,  23 
Mo.  483  (1856);  St.  Joseph,  <tc.,  R.  R. 
Co.  V.  Buchanan  Co.,  39  Mo.  485  (1867); 
State  V.  Macon  Co.  Court,  41  Id.  453 
(1867);  Chillicothe,  &c.,  R.  R.  Co.  v. 
Brunswick,  44  Id.  553  (1867);  State  v. 
Linn  (V,  44  Id.  504  (1869);  Id.  v.  Sul- 
livan Co.,  51  Id.  522  (1873);  Osage  Val- 
ley, &e.,  R.  R.  Co.  V.  Morgan  Co.,  53  Id. 
15'6  (1873);  Smith  v.  Clark  Co.,  54  Id.  58 
(1873);  State  v.  Greene  Ci).,  54  Id.  540 
(1874). 

Nebraska  —  Ilallenbeck  v.  Ilahii,  2 
Neb.  377  (1873);  Reineman  v.  Coving- 
ton, (fee,  R.  R.  Co..  7  Id.  310  (1878); 
Railroad  Co.  v.  County  of  Otoe,  16  Wall. 
667  (1872). 

Nevada— Gibson  v.  Mason,  5  Nev.  283 
(1869);  Dixon  County  v.  Field,  111  U.  S. 
83  (1884). 

New  Hampshire — Perry  v.  Keane,  66 
N.  II.  514  (1876). 

New  York. — See  the  preceding  note, 
also  Bank  of  Rome  v.  R.jme,  18  N,  Y.  38 
(1858);     Starin    v.    Genoa,    23    Id.     489 

89 


91.] 


MUNICIPAL   SUBSCRIPTIONS. 


[CH.  VI. 


tion,  will  not  avail  to  validate  such  a  contract  unless  it  is  duly 
passed  in  accordance  with  all  the  constitutional  formalities/  and 
after  a  subscription  is  made,  any  act  of  the  legislature  restricting 
or  abridging  the  taxing  power  so  as  to  deprive  the  municipality 
of  the  power  to  pay  the  bonds  is  unconstitutional  and  void.^  In 
California,  the  courts  go  even  to  the  extent  of  holding  that  the 
legislature  may  compel  a  municipality  to  subscribe  to  the  stock 
of  a  railway  company,  and  to  issue  its  bonds  in  payment  thereof.* 
But  this  extreme  view  is  disapproved   in   New  York,*  and  in 


(1861);  People  v.  Mitchell,  35  Id.  551 
(18()6);  s.  c.  45  Barb.  208;  People  v. 
Spencer,  55  N.  Y.  1;  Duanesburj^h  v.  Jen- 
kins, 66  Id.  129  (1876);  Lyons'?^.  Cham- 
berlain, 86  Id.  578  ;  Horton  v.  Thompson, 
71  Id.  513  (1878);  affirmed,  101  U.  S. 
665. 

North  Carolina — Taylor  v.  Newbern, 
2  Jones'  Eq.  141  (1855);  Caldwell  v. 
Burke  Co.,  4  Id.  323  (1858) ;  Hill  v.  Com- 
missioners of  Forsyth  Co.,  67  N.  C.  367 
(1870). 

Ohio — Cincinnati,  &c.,  R.  R.  Co.  v. 
Clinton  Co.,  1  Ohio  St.  77  (1852);  Steu- 
benville,  &c.,  R.  R.  Co.  v.  North  Town- 
ship, 1  Id.  105  (1852);  Cass  v.  Dillon,  2 
Id.  607  (1853);  Thompson  v.  Kelley,  2 
Id.  647  (1853) ;  State  v.  Union  Township, 
8  Id.  394  (1858);  Commissioners  of  Knox 
Co.  V.  Nichols,  14  Id.  260  (1863);  Fosdick 
V.  Perrysburg.  14  Id.  472  (1863);  Id.  v. 
Goshen,  14  Id.  569  (1863);  Walker  v. 
Cincinnati,  21  Id.  14  (1871);  s.  c.  sub  7iom. 
Cincinnati  >'.  Walker,  1  Cin.  121  (1871). 

Pennsylvania— Commonwealth  v.  Mc- 
Williams,  11  Penn.  St.  61  (1849);  Brown 
V.  Cuinmissiouers,  21  Penn.  St.  37  ( 1853); 
Shirpless  v.  Philadelphia,  21  Id.  147 
(1853);  Moers  v.  Readiuo-,  21  Id.  188 
(1853);  Commonwealth  v.  Allegheny  Co., 
32  Id.  218  (1858) ;  Id.  v.  Pittsburgh,  34 
Id.  496  (1859);  Id.  v.  Id.,  41  Id.  278 
(1861);  Id.  ('.  Perkins,  43  ] (I.  410;  Penn- 
sylvania R.  R.  Co.  V.  Philadelphia,  47  Id. 
189  (1864);  Riddle  v.  Philadelphia,  &c., 
R.  R.  Co..  1  Pittsb.  158  (1872);  County 
V.  Brinton,  47  Pa.  St.  367  (1864). 

South  Carolina — Copes  v.  Charleston, 
10  Rich.  136. 

Tennessee  —  Taxpayers  of  Milan  v. 
Tennessee,  <fec.,  R.  R.  Co.,  11  Tenn.  329; 
County  of  Wilson  v.  National  Bank,  103 
U.  S.  770  (1880);  Nichols  v.  Nashville,  9 
Humph.  252  (1848 1;  Louisville,  &c.,  R. 
R.  Co.  V.  County  Court,  1  Sneed.  637 ; 
Williams  v.  Duck  River,  <fec.,  R.  R.  Co.,  9 

90 


Hax.  488  (1876);  Clay  v.  Hawkins,  5 
Lea,  137  (1880);  Lauderdale  Co.  v.  Fer- 
guson, 7  Id.  153  (1881);  Winston  v. 
Tennessee,  &c.,  R.  R.  Co.,  57  Tenn.  60 
(1873). 

Texas  —  San  Antonio  v.  Jones,  28 
Texas,  19  (1866);  Id.  v.  Lane,  32  Id.  405 
(1869);  Id.  V.  Gould,  31  Id.  49  (1870). 

Vermont — Bennington  v.  Park,  50  Vt. 
178(1877);  National' Bank  of  St.  Johns- 
bury  V.  Concord,  50  Id.  257  (1877). 

Virginia  — Goddin  v.  Crump,  8  Leigh, 
120  (1837).  See  also  Goshorn  v.  County, 
1  West  Va.  308  (1865). 

Wisconsin  —  Clark  !i.  Janesville.  10 
Wis.  136  (1860);  Bushnell  v.  Beloit,  10 
Id.  195(1860);  Veeder  v.  Lima,  19  Id. 
280  (1865):  Fisk  v.  Kenosha,  26  Id.  23 
(1870);  Phillips  v.  Albany,  28  Id.  340 
(1871);  Rogan  v.  Watertown,  30  Id.  259 
(1872);  Lawson  v.  Milwaukee,  &c.,  R.  R. 
Co.,  30  Id.  597  (1872);  36  Id.  383  (1874). 
Cf.  Whiting  V.  Sheboygan,  <fec.,  R.  R. 
Co.,  25  Id.  167  (1870). 

The  leadino-  cases  upon  this  point  are 
Goddin  v.  Crump,  8  Leigh,  120  (1837) 
(which  is  said  by  Judge  Dillon,  to  be  the 
first  in  the  long  scries);  Leavenworth 
County  V.  Miller,  7  Kan.  479  (1871); 
Slack  V.  Maysville  &  Lexington  R.  R.  Co., 
13  B.  Mon.  1  (1852);  Knox  Co.  v.  Aspin- 
wall,  21  How.  (U.  S.)  539  (1858);  Sharp- 
less  V.  Mayor,  21  Penn.  St.  147  (1853). 

'  Amoskeag  National  Bank  v.  Town 
of  Ottawa,  105  U.  S.  866  (1881);  Turner 
V.  Commissioners  of  "Woodson  Co.,  27 
Kan.  314.        , 

2  Wolff  I'.  New  Orleans,  103  U.  S.  358 
(1880).  Cf.  Edwards  v.  Williamson,  71 
Ala.  145,  and  see  Hays  v.  Dawes,  75  Mo. 
250  (1881). 

3  Napa  Valley  R.  R.  Co.  v.  Napa 
County,  30  Cal.  435. 

•4  People  V.  Batchelor,  53  N.  Y.  128 
(1873).  Of.  Queensburg  v.  Culver,  19 
Wall.  (U.  S.)  82  (1873). 


CH.  VI.]  MUNICIPAL   SUBSCRIPTIONS.  [§  91. 

niinnis,^  the  courts  in  these  States  taking  the  better  ground  that 
while  it  is  competent  for  the  legislature  to  authorize  a  munic- 
ipal subscription  in  a  proper  case,  there  is  no  power  any  where 
to  compel  such  a  subscription  or  donation. 

While  it  may  be  conceded  that,  from  a  constitutional  stand- 
point as  well  as  from  that  of  public  policy  and  expediency,  there 
are  grave  objections  to  the  existence  or  exercise  of  this  power, 
which  has  plainly  been  monstrously  abused,^  it  is  clear  that  the 
courts,  almost  universally  as  has  been  shown,  have  taken  and  will 
continue  to  hold  the  most  liberal  views  as  to  the  legislative  pre- 
rogative in  this  respect.  Such  authority  inhering  in  the  legis- 
lature is  generally  conceded.^  It  is,  moreover,  no  objection  to 
the  validity  of  the  legislative  act,  or  the  municipal  subscription, 
that  the  subscription  is  made  to  a  railway  company  not  yet  in 
existence.  In  the  County  of  Daviess  v.  Huidekoper,*  it  is  held 
that  county  bonds  in  the  hands  of  a  hona  fide  holder  for  value 
are  not  rendered  void  by  the  fact  that  at  the  time  the  vote  author- 
izing the  subscription  was  taken,  the  company  to  be  benefited 
was  not  created  according  to  law.^ 

The  legislature  has  power,  too,  before  if  not  indeed  after  a 
subscription  of  this  nature  is  made,  but  before  it  is  paid,  to  annul 
the  proceeding,  and  authorize  the  municipality  to  withdraw  its 
subscription,  and  release  its  right  to  the  stock.^     It  must  not  be 

'  Cairo,  Ac,  R.  R.  Co.  v.  Sparta,   77  opinion  of  the  common  council  are  en- 

111.  5(15  (1875).  titled  to  such  aid  from  the  city,"  author- 

'^  Dillon  onMunic.  Corp.,  ^^  12,117,  izes  the  lending  of  credit  to  a  railroad 

157;  Cooley  on  Const.  Lim.,  i^  261  e^se^'.  company    thereafter    duly    incorporated 

*  "  Although  it  is  a  doctrine  that  must  and  organized  as  well  as  to  those  in  ex- 
be  considered  as  judicially  settled,  still  istence  when  the  act  was  passed.  See 
it  is  one  which  has,  as  we  think  justly,  also  Concord  v.  Portsmouth  Savintcs 
encountered  a  vigorous  opposition,  both  Bank,  92  U.  S.  625  (1875);  Railroad  Co. 
on  the  grounds  of  expediency  and  of  ii.  Falconer,  103  Id.  821  (1880);  Rubey  »'. 
power,  and  the  exercise  of  authority  has,  Shain,  54  Mo.  207  (1873);  People  v. 
as  before  noticed,  been  so  disastrous,  as  Franklin,  5  Lans.  (N.  Y.)  129(1871). 
already  in  some  of  the  States,  to  have  left  **  Aspinwall  v.  Jo.  Daviess  Co.,  22  How. 
to  coiistitutinnal  provisions  for  the  pro-  864  (1859).  Ace.  People  v.  Coon,  25  Cal. 
tection  of  the  citizens."  Dillon  on  Munic.  6.35(1864).  But  see  County  of  Moultrie 
Corp.,  45  158.  V.  Rockingham,  Ac,  Bank,  92   U.  S.  631 

^  98  U.  S.  98  (1878).  (1875).     In  Copes  v.  Charlesbm,  10  liich. 

■''  And  again  in  James  •.  Milwaukee,  Law,  491   (1857),  a  general  power  con- 

16  Wall.   159  (1872),  it  is  declared  that  ferrod  upon  the  city  of  Charleston,  by  its 

an  act  of  the  legislature  authorizing  the  charter  of  1793,  to  pass  inter  alia  "every 

city  of  Milwaukee  to  lend  its  credit  to  a  other  l)y-law  as  shall   appear  to  the  <'ity 

specified  railway  coni])any,  and  "to  any  couTicil   requisite  and   necessary    for   the 

other    I'ailroad    company    didy    incorpo-  security,  welfare,  and  convenience  of  said 

rated   and  organized   for  the   purpose  of  city,"  was  lield  by  the  Court  of  lOrrors  to 

constructing     railroads,"    leading    in    a  authorize   the  city   to    subscribe    to    the 

designated  direction,  "and  which  in  the  stock  of  railway  companies  either  within 

91 


§  92.] 


MUNICIPAL   SUBSCRIPTIONS. 


[CH.  VI. 


overlooked  that  municipalities  never  have  the  power,  by  virtue 
of  any  of  these  legislative  enactments,  to  tax  themselves  for  the 
benefit  of  enterprises  or  objects  which  are  private  in  their  nature. 
Municipal  subscriptions  can  only  be  made  to  the  stock  of  com- 
panies of  an  essentially  public  character.  This  is  a  conclusively 
settled  and  plainly  salutary  rule.^  Questions  involving  the  dis- 
tinction between  public  and  private  uses  are  constantly  arising 
when  the  validity  of  municipal  bonds  is  the  issue,  and  the  courts 
very  consistently  adhere  to  the  rule  that  municipal  aid  can  law- 
fully be  extended  only  to  railways,  or  other  enterprises  of  a  dis- 
tinctly public  or  quasi  public  character.'^ 

§  92.  Constitutional  provisions  prohibiting  municliyal  sub- 
scriptions.— The  unchecked  exercise  of  this  power  on  the  part  of 
the  State  legislatures  has  entailed  upon  the  people  of  the  States 
such  a  burden  of  taxation  ^  that  in  many  States  are  found  consti- 
tutional prohibitions  rendering  it  impossible  or  unlawful  for 
municipiil  corporations  to  make  subscriptions  or  lend  their  credit 
to  any  incorporated  company  or  enterprise,  not  strictly  and  ex- 
clusively governmental  in  its  nature  and  constitution. 

This   is    the    case    in    Pennsylvania,*   Ohio,^   Illinois,^   New 


or  without  the  State.  This  is  the  extreme 
hmit  of  the  doctrine.  Cf.  City  Council 
V.  Bfvptist  Church,  4  Strobli.  Law,  306, 
308  (1850). 

'  Loan  Association  c.  Topeka,  20 
Wall.  05.')  (1874);  Weismer  v.  Village  of 
Doucjlass,  64  N.  Y.  91  (1876);  Bissell  v. 
Kankakee,  64  111.  249  (1872);  Brewer 
Brick  Co.  v.  Brewer,  62  Me.  62  (1873); 
Allen  V.  Inhabitants  of  Jay,  60  Id.  1 24 
(1872) ;  Lowell  v.  Boston,  111  Mass.  463; 
State  V.  Osawkee  Township,  14  Kan.  418 
(1875);  McConnell  v.  Hamm,  16  Id.  228 
(1876);  Union  Pacific  R.  R.  Co.  v.  Smith, 
23  Id.  745  (1880);  Clark  v.  Des  Moines,  IJ 
Iowa,  199  (1865);  Hanson  v.  Vernon,  27 
Id.  28  (1869) ;  Frederick  v.  Auousta,  5  Ga. 
561  (1848);  Commercial  Bank  v.  City  of 
lola,  2  Dillon,  353  (1S73);  Savings  Assoc. 
V.  Topeka,  3  Id.  376  (1874);  Bloodgood 
V.  Mohawk,  (fee,  R.  R.  Co.,  18  Wend.  965 
(1837).  [Compare  with  tliis  case  Chap- 
man V.  Gates,  64  N.  Y.  132,  144  (1873).] 
Osborne  v.  Adams  Co.,  109  U.  S.  1  (1883); 
S.  c.  106  U.  S.  181 ;  Ottawa  v.  Carey,  108 
U.  S.  110  (1883);  Freeland  v.  Hastings, 
10  Allen,  57<>;  Jenkins  v.  .\ndover,  103 
Mass.  94(1869);  Tliompson /•.  Pittson,  59 
Me.  545  (1671);  Tyson  v.  School  Direc- 

92 


tors,  51  Penn.  St.  9  (1865);  People  v. 
Salem,  20  Mich.  452  (1870);  Curtis  v. 
Whipple,  24  Wis.  350;  Cook  v.  Manu- 
facturing Co.,  I  Sneed.  (Tenn.)  698; 
Cooley  on  Const.  Lim..  §  212. 

'^  A  detailed  consideration  of  this  mat- 
ter is  properly  included  in  treatises  on 
constitutional  law, municipal  corporations, 
or  railways,  q.  v.  It  may,  therefore,  be 
dismissed  briefly  in  such  a  work  as  this. 

^  Dillon  on  Munic.  Corp.  g§  156,  160. 
The  sum  of  municipal  indebtedness  in 
this  country  is  said  greatly  to  exceed  one 
thousand  millions  of  dollars,  and  the 
amount  is  constantly  increasing. 

•*  Amend,  to  Const.  1857,  §  7,  art.  II; 
Pennsylvania  R.  R.  Co.  v.  Philadelpliia, 
47  Penn.  St.  1^9  (1864). 

5  Const.,  art.  VIII,  §  6  ;  Walker  v. 
Cincinnati,  21  Ohio  St.  14  (1871);  Cass 
V.  Dillon,  2  Id.  607  (1853)  ;  Fosdick  v. 
Perrvsburg,  14  Id.  472  (1863);  Thompson 
w.  Kelly,  2  Id.  647(1853);  Wyscaver  v. 
Atkinson,  37  Id.  80  (1881). 

*  Const.  1870;  CoucorcH'.  Portsmouth 
Savings  Bank,  92  U.  S.  625  (1875) ;  Louis- 
ville V.  Savings  Bank,  104  U.  S.  469 
(1881);  Harter  ^^  Kernochan.  103  U.  S. 
562(1880);  Fairfield  v.   County  of  Gal- 


CB.  VI.] 


MUNICIPAL   SUBSCRIPTIONS. 


[§  92. 


York/  Indiana,"^  Missouri,^  Mississippi/  and  possibly  in  other 
States.  In  general  it  will  be  found  that  while  these  constitutional 
provisions  forbid  in  terms  any  subscription  or  lending  of  credit 
by  anv  municipality  in  the  State,  or  by  the  State  itseK,  to  any 
company,  association,  or  corporation  whatsoever,  sometimes  abso- 
lutely, and  at  other  times  only  when  two-thirds  or  a  majority  of 
the  qualified  electors  of  the  municipality  shall  assent  thereto,  the 
courts  seem  to  incline,  whenever  possible,  to  construe  the  acts  in 
such  away  as  to  sustain  the  subscription,  and  in  this  way,  by  lati- 
tude of  construction,  in  many  instances,  violence  is  plainly  done 
to  the  spirit  and  intent  of  the  statute.^ 

Inasmuch  as  the  constitutional  or  statutory  provisions  which 
prohibit  municipal  subscriptions  are  of  comparatively  recent  date, 
and  have  generally  been  enacted  after  many  exercises  of  the 
legislative  power  sought  to  be  restrained,  it  is  an  important  rule 
that  unless  they  contain  express  words  making  them  retroactive 
they  are  in  general  construed  to  be  prospective  only.^ 


latin,  100  U.  S.  41  (1879) ;  Chicago,  <fec., 
R.  R.  Co.  Pincknej-,  74  111.  277  (1874); 
County  of  Moultrie  v.  Rockingham  Ten 
Cent  Savings  Bank.  92  U.  S.  631  (1875). 

'  Amend.  Const.  Jan'y  1.  1875;  People 
V.  Fort  Edward,  70  N.  Y.  28  (1877); 
Dodge  V.  County  of  Platte,  82  Id.  218 
(188U),  rev'g  s.  c.  16  Hun,  285. 

^  Const,  art.  X,  §  10;  Lafayette,  &c., 
R.  R.  Co.  V.  Geiger,  34  Ind.  185;  John  v. 
Cincinnati,  &c.,  R.  R.  Co.,  35  Id.  539 
(1»71);  Aspinwall  ti.  Jo.  Daviess  Co.  22 
How.  (U.  S.)  364  (1859);  Erocaw «».  Board 
of  Commissioners,  73  Ind.  543  (1881). 

^  Const,  art.  XI,  §  14;  county  of 
Schuyler  v.  Thomas,  98  U.  S.  169  (1878); 
Smith  V.  County  of  Clark,  54  Mo.  58 
(1873);  County  of  Macon  v.  Shores,  97 
U.  S.  272  (1877);  County  of  Ray  v.  Van- 
sycle,  96  Id.  675  (1877);  County  of  Scot- 
land V.  Thomas,  94  Id.  682  (1876). 

■•Const,  art.  Xll,  Sil4;  Superyisors 
V.  Galbraith,  99  U.  S.  214  (1878);  Hayes 
V.  Holly  Springs,  114  Id.  120  (1885); 
Grenada  Co.  v.  Brogden,  112  Id.  261 
(1884).  Cf.  State  of  Minnesota «;.  Young, 
29  Minn.  472. 

^  K  q.  vide  Walker  v.  Cincinnati,  21 
Ohio  St!  14  (1871);  s.  o.  8  Am.  Rep.  24, 
and  11  Am.  Law  Reg.  (N.  is.)  346,  and 
the  note  bv  Judge  Redfield  ;  City  of  Sa- 
vannah I'.  "Kelly,  108  U.  S.  184  (1883); 
Bank  of  Lawrence  v.  Barber,  24  Kan.  534 
(1880). 


^  County  of  Moultrie  v.  Rockingham 
Ten  Cent  Savings  Bank,  92  U.  S.  631 
(1875);  Grenada  Co.  v.  Brogden,  112  Id. 
261(1884);  Fairfield  v.  County  of  Gai- 
liitin,  100  Id.  47  (1879) ;  County  of  Ran- 
dolph w.  Post,  93  U.  S.  502(1876);  County 
of  Henry  i-.  Nicolay,  95  Id.  619  (1877); 
County  of  Cass  v^  Gillett,  100  Id.  585 
(1879) ;  County  of  Calloway  v.  Foster,  93 
Id.  567(1876);  Louisiana  v.  Taylor,  105 
Id.  454  (1881);  Jarrolt  v.  Moberly,  103 
Id.  580  ( 1 880) ;  Durkee  v.  Board  of'Liqui- 
dation,  103  Id.  646  (1880);  Howard 
County  V.  Paddock,  110  Id.  384  (1884); 
Dallas  County  v.  McKenzie,  110  Id.  686 
(1884),  and  the  cases,  generally,  cited 
above. 

In  Louisville  v.  Savings  Bank.  104  U. 
S.  469  (1881),  it  was  held  that  the  court 
would  even  take  cognizance  of  the  frac- 
tions of  a  day  in  order  to  do  justice  in 
such  a  case,  and  that,  accordingly,  the 
prohibitory  section  of  the  Constitution  of 
Illinois,  which  went  into  effect  July  2, 1 87t>, 
would  not  invalidate  bonds  issued  pursu- 
ant to  a  vote  of  the  electors  of  the  munic- 
ipality, held  071  the  morniny  of  (hat  tiai/, 
for  ili(!  ])urp08e  of  deferiniiiinir  whether 
a  previous  donation  should  be  paid  i^y  the 
issue  of  bonds  or  by  a  special  tax,  the 
vote  resulting  in  the  determination  to  is- 
sue bonds. 

To  the  same  effect  as  to  fractions  of  a 
day,  see  Schall   i:  Bowman,   62   ill.   321 

90 


§92.] 


MUNICIPAL   SUBSCRIPTIONS. 


[CH, 


VI. 


Neither  are  these  constitutional  prohibitions,  in  general,  held 
to  repeal  prior  statutes  by  which  municipalities  have  been  author- 
ized to  make  subscriptions  or  donations  to  railway  or  other  com- 
panies.^ Accordingly,  where  a  statute  authorized  a  municipality 
to  subscribe,  and  subsequently  a  constitutional  provision  was  en- 
acted rendering  the  assent  of  two-thirds  of  the  voters  of  the  town 
or  county  necessary  to  the  validity  of  such  a  subscription,  that 
provision  was  not  construed  as  altering  or  impairing  the  eifect  or 
force  of  the  earlier  statute.^ 

A  constitutional  provision  that  forbids  municipal  subscriptions 
will  be  held  to  forbid  equally  a  donation  by  a  municipality,  even 
in  a  proviso  wherein  a  donation  is  not  provided  for  in  terms.^  But 
on  the  other  hand  it  is  held  that  a  provision  restricting  the  power 
of  a  State  to  make  subscriptions  in  aid  of  railroads  cannot  de  con- 
strued so  as  to  prohibit  the  municipal  subdivisions  of  the  State 
from  subscribing.*  And  a  restriction  as  to  the  power  of  a  county 
will  not  be  held  applicable  to  a  city,^  but  school  districts  have  no 


United 
United 

(187Y); 
(1878); 


(1872);  Richards  V.  Donacrho,  66  Id.  73 
(1872);  Writrht  v.  Bishop,  88  Id.  302 
(1878);  Grosvenor  V.  Magill,  37  Id.  239 
(1865) ;  Arnold  v^United  States,  9  Cranch, 
104(1815);  In  the  Matter  of  Joseph  Rich- 
ardson, 2  Story,  571  (1843);  Lapeyre  v. 
States,  17  Wall.  191  (1872); 
States  V.  Norton,  97  U.  S.  164 
Burgess  v.  Salmon,  97  Id.  381 
Kennedy  v.  Palmer,  6  Gray,  316 
(1876);  People  «.  Clark,  1  Cal.  406(1851); 
Roe  d.  Maugham  v.  Hersey,  3  Wils.  274 
(1771  >:  Combe  v.  Pitt,  3  Burr.  1423, 
1434  (1763),  by  Lord  Mansfield. 

'  Cass  '('.  Dillon,  2  Ohio  St.  6()7  (1853); 
Louisiana  «.  Taylor,  105  U.  S.  454 
(1881).  O/'.  Oubre  II.  Donaldsonville,  83 
La.  Ann.   366. 

"  County  of  Henry  v.  Nicolay,  95  U. 
S.  619  (1875).  The  passage  of  a  general 
law  is  usually  held  not  to  affect  a  prior 
law  special  in  its  character.  State  v. 
Green  Co.  54  Mo.  540  (1874);  East  St. 
Louis  V.  Maxwell,  99  111.  439  (1881).  But 
see  Jeffries  v.  Lawrence,  42  Iowa,  498 
(1876);  Falconer  v.  Buffalo,  (fee,  R.  R. 
Co.  69  N.  Y.  491  (1877);  List  v.  Wheel- 
ing, 7  VV  est  Va.  501  (1874).  Of.  Hayes 
«.  Holly  Springs,  114  U.  S.  120  (1885); 
State  V.  Dallas  Co.,  72  Mo.  329. 

s  Fairfield  v.  Gallatin  Co.,  100  U.  S. 
47(1879);  Chicago,  (fee,  R.  R.  Co.  v. 
Pinckney,  74  111.  277  (1874);  Lippincott 
V.  Pana,  92  Id.  24  (1879);    Middleport  v. 

94 


^tna  Ins.  Co.,  82  Id.  662  (1876).  Cf. 
County  of  Moultrie  v.  Fairfield,  105  U.  S. 
370  (1881). 

*  Pattison  v.  Supervisors,  13  Cal.  175 
(1859);  New  Orleans  v.  Graihle,  9  La. 
Ann.  561  (1854);  Slack  i'.  Maysville,  (fee., 
R.  R.  Co.,  13  B.  Mon.  1  (1852);  Leaven- 
worth Co.  V.  Miller,  7  Kan.  479  (1871); 
Prettyman  v.  Supervisors,  19  111.  406 
(1858).  Cf.  Bay  City  v.  State  Treasurer, 
23  Mich.  499  (1871);  Pitzman  v.  Free- 
burgh,  92  111.  HI  (1879). 

^  Thompson  v.  City  of  Peru,  29  Ind. 
305(1868).  "Whether  spec Ja/  authority 
to  a  municipality  to  borrow  money  to  pay 
for  stock  subscribed  to  a  railway  company 
will  impliedlfi  repeal,  pro  tanto,  existing 
charter  limitations  upon  the  rate  of  taxa- 
tion, is  a  question  depending  upon  con- 
struction, and  in  relation  to  wliich  the 
courts  have  differed.  But  the  strong  in- 
clination of  the  national  Supreme  Court 
seems  to  be  in  favor  of  that  construction 
which  restricts  such  limitations  to  the  ex- 
ercise of  the  power  of  taxation  in  the  or- 
dinary course  of  municipal  action."  Dil- 
lon on  Munic.  Corp.  g  162,  citing  Butz  v. 
Muscatine,  8  W^all.  575  (1869).  Contra, 
Clark  V.  Davenport,  14  Iowa,  494  (1863); 
Learned  v.  Burlington,  2  Am.  Law  Reg. 
(N.  S.)  394,  and  note;  Leavenworth  v. 
Norton,  1  Kan.  432  (1863);  Burnes  v. 
Atchinson,  2  Id.  254  (1864).  And  see 
Commonwealth  v.  Pittsburgh,  34  Penn. 


CH.  VI.] 


MU.YICIPAL   SUBSCRIPTIONS. 


[§93. 


power  by  their  trustees  to  subscribe  to  the  stock  of  a  railway,  and 
bonds  issued  to  pay  such  a  subscription  are  void.^ 

§  93.  Power  to  siihscribe,  liow  to  he  exercised. — The  power 
to  make  municipal  subscriptions  being,  as  we  have  seen,  statutory, 
it  follows  that  in  order  to  a  valid  exercise  of  the  power,  the  con- 
ditions and  formalities  imposed  by  the  statute  must  be  substan- 
tially performed.  There  must  be  an  essential  compliance,  botb 
with  the  letter  and  the  spirit  of  the  enabling  act,  otherwise  the 
subscription  or  security  will  be  void.'^  It  must  appear,  for  exam- 
ple, that  any  constitutional  or  statutory  requirements  as  to  the 
assent  to  the  subscription  by  the  qualified  voters  of  the  munici- 
pality at  an  election,  have  been  regularly  complied  with.^  The 
meeting  must  be  duly  called  and  by  the  proper  officer ;  *  the 
notice  of  the  meeting  must  be  duly  posted  for  the  full  time  pro- 
vided in  the  act.^     If,  however,   a  municipal  corporation  should. 


St.  496  (1859);  Araey  v.  Alleo-heuy  City, 
24  How.  (U.  S.)  364;  Fosdick  v.  Perrys- 
burg,  14  Ohio  St.  4Y2  (1863);  Cumber- 
land V.  Ma,<;ruder,  34  Md.  381  (1871). 
See  Assessors  v.  Commissioners,  3  Brews. 
(Pa.)  333  (1869);  State  v.  Guttenburg,  38 
N.  J.  Law,  419. 

'  Weightman  v.  Clark,  103  U.  S.  251 
(1880).  Cf.  Northern  Bank  v.  Porter 
Township,  110  Id.  608  (1884). 

■-'  AlcClure  v.  Township  of  Oxford,  94 
U.  S.  429  (18Y6);  Anderson  Co.  Commis- 
sioners t;.  Beal,  113  Id.  227  (1885);  Car- 
roll Co.  y.  Smith,  111  Id.  556  (1884);  HofF 
V.  Jasper  Co.  110  Id.  53(1884);  Bissellii. 
Spring  Valley  Township,  110  Id.  162 
(1884);  Howard  Co.  v.  Boonesville,  &c., 
Bank.  108  Id.  314  (1883);  Hawley  ?'.Fair- 
banks,108ld.  543  (1883);  Hoitou  z;.  Town 
cf  Thompson,  71  N.Y.  513  (1878).  The  U. 
S.  Supreme  Court  declined,  however,  to 
follow  this  case  in  Thompson  v.  Pcrrine, 
103  U.  S.  806  (1880).  Menasha  v.  Hazard^ 
102  U.  S.  81  (1880)  Buchanan  v.  Litch- 
field, 102  Id.  278  (1880);  Bales  Co.  v. 
Winters,  97  Id.  83  (1877);  Hamlin  v. 
Meadville,  6  Neb.  227  (1877);  Cairo,  &c., 
K.  Pv.  Co.  V.  Sparta,  77  111.  505(1875); 
George  v.  Oxford,  16  Kan.  72  (1876); 
People  V.Smith,  46  N.Y.  772  (1871); 
Merritt  v.  Portchcter,  71  Id.  309  (1877).  ' 

•'Mustard  v.  Hopper,  69  Ind.  324; 
People  V.  Dutcher,  56  III.  144  (1870); 
People  V.  Logan  County,63  Id.  374  (1872); 
Pana  v.  Lippincolt,  2  Bradw.  (III.')  466 
(1877).     The  rule  in  New  York  upon  this 


point  is,  perhaps,  especially  rigorous. 
People  V.  Smith,  45  N.  Y.  772  ^1871); 
People  V.  Ilurlburt,  46  Id.  110  (1871); 
People  V.  Suffern,  68  Id.  321  (1877);  Mer- 
ritt V.  Portchester,  71  Id.  309  (1877); 
Culver  V.  Fort  Edward,  8  Hun,  340 
(1876);  Wilson  v.  Caneadea,  15  Id.  218 
(1878);  Angelv.  Hume,  17Id.  374(1879); 
People  w.  Hutton,  18  Id.  116(1879);  Peo- 
ple V.  Barrett,  18  Id.  206  (1879) ;  Wheat- 
land V.  Taylor,  29  Id.  70  (1883). 

■*  Town  of  Windsor  v.  Hallett,  97  111. 
204  (1880);  County  of  Richland  v.  People, 
3  Bradw.  (111.)  210  (1878);  Jacksonville, 
Ac,  R.  R.  Co.  V.  Virden,  104  111.  339 
(1882);  Bowling  Green,  &c.,  R.  R.  Co  v. 
Warren  Co.,  10  Bush  {Kj.},  711  (1874). 
But  see  Sauerhering  v.  Iron  Ridge,  ifec, 
R.  R.  Co.,  25  Wis.  447  (1870);  Commis- 
sioners t;.  Baltimore,  <fec.,  R.  R.  Co.,  37 
Ohio  St.  205  (1881). 

^  Harding  w.  R()ckford,  &c.,  R.  R.  Co., 
65  111.  90(1872);  J\ickard  v.  Jefferson  Co., 
2  Col.  338  (1874).  Cf.  Supervisors  v. 
Galbraith.  99  C.  S.  214  (1878).  To  the 
same  effect,  Williams  v.  Roberts,  88  111. 
11  (1878);  Peoples.  Oldtown,  88  Id.  202 
(1878).  See  also  Wells  v.  Poiitiac  Co.. 
102  U.  S.  625  (1880) ;  Lincoln  v.  Cambria 
Iron  Co.,  103  Id.  412  (1880). 

But  where  the  notice  was  required  by 
the  statute  to  be  "posted  by  the  town 
clerk  or  supervisors,"  it  was  held  tliat  this 
did  not  require  a  posting  by  these  officers 
in  person,  but  that  it  was  sufficient  if  they 
procuretl  others  to  post  the  notices.  Law- 

95 


94.] 


MUNICIPAL   SUBSCRIPTIONS. 


[CH.  VI. 


before  its  own  incorporation,  assume  to  hold  an  election  and  vote 
a  subscription  for  stock  in  a  railway  company,  the  vote  would  be 
a  nullity,  and  a  subscription  made  pursuant  to  sucli  a  vote  could 
not  be  ratified  by  the  corporate  officers  subsequently.^  But  not 
every  failure  to  observe  all  the  formalities  prescribed  by  the  en- 
abling act  is  sufficient  to  invalidate  a  subscription.  When  it  is  a 
matter  more  of  form  than  of  substance  that  is  overlooked  or 
omitted,  such  an  informality  is  not  in  general  ground  for  declar- 
ing the  subscription  or  the  security  void.^ 

It  will  very  frequently  be  found,  in  cases  that  arise  as  to  the 
validity  of  municipal  subscriptions,  or  municipal  bonds,  that  the 
subscription,  or  the  security,  is  validated  when  the  defense  is  the 
failure  on  the  part  of  the  munij)ality  to  comply  with  the  require- 
ments of  the  enabling  act,  upon  the  principle  of  estoppel,  the 
municipality  not  being  heard,  after  the  lapse  of  time,  to  allege  its 
own  failure  to  act  strictly  in  conformity  to  the  statute  as  a  de- 
fense to  an  action  on  its  bonds.^ 

§  94  Suhmission  to  popular  vote.  —While  the  legislature  may 
usually,  in  the  absence  of  a  constitutional  inhil)ition,  authorize  a 
municipality  to  make  a  subscription  to  the  stock  of  a  railway  or 


son  V.  Milwaukee  (fee.,  R.  R.  Co.,  30  Wis. 
697  (1872) ;  Phillips  v.  Albany,  28  Id.  340 
(IS*?!) ;  Joues  v.  Hurlburt,  13  N.  W.  Rep. 
5  (1882). 

'  Clark  V.  Jaaesville,  13  Wis.  414 
(1861);  s.  c.  10  Id.  136  ;  Rochester  v.  Al- 
fred, 18  Id.  432  (1861);  Berliner  «. Water- 
loo. 14  Id.  378  (1861);  Winchester,  <fec., 
Co.  V.  Clark,  3  Mete.  (Ky.)  140  (1860); 
Lewis  ('.  Clarendon,  5  Dillon,  329  (1878). 

^  New  Haven,  (fee,  R.  R.  Co.  v.  Chat- 
ham, 42  Conn.  455  (1875)  ;  County  of 
Jasper  V.  Ballou,  103  U.  S.  745  (1880); 
Draper  v.  Spring-port,  104  Id.  501  (1881); 
Pana  v.  Bowler,  107  Id.  529  (1882) ;  Lip- 
pincott  V.  Paua,  92  111.  24  (1879) ;  Com- 
missioners of  Joiinson  Co.  v.  Thayer,  94 
U.  S.  631  (1876) ;  Belfast,  &c.,  R.  R.  Co. 
V.  Brooks,  60  Me.  568  (1872);  Elmendorf 
V.  New  York,  25  Wend.  693  (1841).  Of. 
Thomas  v.  City  of  Richmond,  12  Wall. 
349  (1870) ;  Oneida  Bank  v.  Ontario 
Bank,  21  N.  Y.  490  (18tiO) ;  People  v. 
Town  of  Santa  Anna,  67  111.  57  (1873); 
People  j'.Town  of  Laenna,67  Id.65(1873); 
Walnut  V.  Wade,  103  U.  S.  683(1880); 
Ganse  v.  Clarksville,  5  Dillon, 165  (1879); 
a,  c.  1  McCreary,  78   (1880);  Johnson  v. 

96 


stark,  24  111.  75(1860);  Clarke  v.  Han- 
cock Co.,  27  Id.  205  (1862);  Supervisors 
V.  Schenck,  5  Wall.  772  (1866);  Singer 
Manfg.  Co.  v.  Elizabeth,  42  N.  J.  Law, 
249;  Burr  v.  Chariton  Co.,  2  McCrary, 
603  (1880);  Henderson  v.  Jackson  Co.,  2 
Id.  615  (188(1). 

^  Block  v.  Commissioners  of  Bourbon 
Co.,  99  U.  S.  686  (1878);  Munson  v.  Lyons, 

12  Blatchf.  539  (1875);  First  National  Bk., 
&c.  V.  W^ilcott,  19  Id.  370(1881);  Harter 
V.  Kernochan,  103  U.  S.  562  (1880):  Tip- 
ton Co.  V.  Rogers'  Locomotive  Works, 
103  Id.  523  (1880);  Menasha  v.  Hazard, 
102  Id.  81  (1880);  Amey  v.  Allegheny, 
24  How.  (U.  S.)364;  Whiting  v.  Potter, 
2  Fed.  Rep.  517  ;  Striker  v.  Kelly,  7  Hill 
(N.  Y.).  9  (1844);  Lamb  v.  Burliuiiton, 
<fec.,  R.  R.  Co.,  39  Iowa,  333;  Leaven- 
worth, (fee ,  R.  R.  Co.  V.  Douglas  Co.,  18 
Kan.  169  (1877);  Lyons  v.  Munson,  99 
U.  S.  684  (1878) ;  Pendleton  Co.  v.  Amy, 

13  Wail.  297  (1877).  QT.  Cagwin  v. 
Hancock,  84  N.  Y.  532  (1881);  rev'g  s.  c. 
22  Hun,  291 ;  Orleans  v.  Piatt,  99  U.  S. 
676  (1878);  Wetumpka  v.  Wetumpka 
Wharf  Co.,  63  Ala.  611  (1879);  Hackett 
V.  Ottawa,  99  U.  S.  86  (1878). 


CH. 


VI.] 


MUNICIPAL   SUBSCRIPTIONS. 


[§94. 


otlier  coi-poration,  without  submitting  the  question  to  a  vote  of  the 
people,^  it  has  clearly  the  power  to  direct  that  the  question  shall 
be  so  submitted  without  rendering  the  act  obnoxious  to  the  ob- 
jection that  it  amounts  to  a  delegation  of  legislative  powers.^  It 
is  sometimes  provided  that  a  subscription  can  be  made  only  upon 
the  petition  of  a  certain  proportion  of  the  legal  voters,^  in  which 
case  it  seems  that  there  must,  in  order  to  the  validity  of  the  peti- 
tion, be  a  strict  conformity  to,  and  substantial  compliance  with, 
the  spirit  as  well  as  the  letter  of  the  act.*  "When  the  enabling  act 
provides  for  municipal  aid  to  railways  and  other  quasi  public  en- 
terprises upon  the  assent  of  a  majority  or  two-thirds  of  the  legal 
voters  of  the  town  or  county,  this  is  construed  universally  to 
mean  that  the  measure  is  to  be  approved  by  a  majority  or  a  two- 
thirds  vote  as  the  case  may  be ;  that  is  to  say,  by  a  majority  or 


'  Thompson  v.  Lee  County,  S  Wall.  327 
(1865);  County  of  Ralls  v.  Douglass,  105 
U.  S.  728  (1881);  State  v.  Macon  County 
Court,  41  Mo.  453  (18fi7);  State  v.  County 
Court  of  Sullivan  County,  51  Id.  522 
(1873).  Cf.  State  v.  Dallas  County,  72  Id. 
329  (1880);  McCallie  v.  Chattanooga,  3 
Head  (Tenn.),  317  (1859);  Chicago,  &c., 
R.  R.  Co.  V.  Aurora,  99  111.  205  (1881); 
OUie   County   v.  Baldwin,    111    U.   S.    1 


)k)fc 
188 


(1883). 

*  Starin  v.  Town  of  Genoa,  23  N.  Y. 
439  (1861);  Gould  v.  Town  of  Sterling, 
23  Id.  456  (1861);  Bank  of  Rome  v.  Vil- 
lage of  Rome,  18  Id.  38  (1868);  s.  c.  19 
Id.  20  (1859) ;  People  v.  Batchellor,  53  Id. 
128, 138  (1873);  Town  of  Duanesburch  v. 
Jenkins,  57  Id.  177,  192  (1874);  Hobart 
I'.  Supervisors,  17  Cal.  23  (1860);  Slacks. 
Maysville.  (fee,  R.  R.  Co.,  13  B.  Mon.  1 
(lb5li);  Winters.  City  Council  of  Mont- 
gomery, 65  Ala.  403  (1880).  In  Harring- 
ton t).  Phinview,  27  Minn.  224  (1880),  it 
is  held  that  where  a  submission  to  the 
people  is  provided  for,  it  must  be  to  the 
legal  voters  of  the  municipality,  and 
caimot  lawfully  be  confined  to  resident 
tax-payers,  whether  legal  voters  or  not. 
Cf.  Babcock  v.  llelana,  34  Ark.  499 
(I879j;  Walnut  v.  Wade,  103  U.  S.  683 
(1880).  Again,  where  a  popular  vote, 
taken  in  accordance  with  a  statute,  au- 
thorized a  subscrijition  to  a  designated 
railway,  and  the  bonds  were  issued  to  an- 
other railway,  these  facts  appearing  on 
the  face  of  the  bond,  the  invalidity  of  the 
transiiction  is  held  to  appear  on  the  face 
of  it.     County  of  Bales  u.  Winters,  97  U. 


S.  83  (1877).  Cf.  Chicot  Co.  v.  Lewis,  103 
Id.  164  (1880);  Schaeffer  v.  Bonham,  95 
111.  368  (1880).  But  where  a  town  is  au- 
thorized to  subscribe  not  exceeding  a  cer- 
tain sum  to  a  designated  railroad,  several 
subscriptions  made  at  different  times  and 
authorized  by  as  many  elections,  the  ag- 
gregate not  exceeding  the  amount  named 
in  the  act,  are  valid.  Empire  v.  Darling- 
ton, 101  U.  S.  87  (1879).  See  also  Hunt 
V.  Hamilton,  25  Kan.  76  (1881);  Society 
for  Savings  v.  City  of  New  London,  29 
Conn.  174(1860);  United  Stalest).  Knox 
County,  2  McCrary,  625.  Cf.  First  Nat. 
Bank  'v.  Concord,  50  Vt.  257. 

^  E.g.  in  New  York.  People  tJ.IIulbfrt, 
59  Barb.  446;  People  v.  Peck,  62  Id.  545; 
People  V.  Oliver,  1  Thomp.  &  C,  670 
(1873);  People  v.  Hugbitt,  5  Lans.  89 
(1871);  People  v.  Franklin,  5  Id.  129 
(1871);  People  ■§.  Smith,  45  N.  Y.  772 
(1871);  Wellsborough  v.  New  York,  tfec, 
R.  R.  Co.,  76  Id.  182  (1879).  Of.  St.  Jo- 
seph Township  v.  Rogers,  16  Wall.  644 
(1872);  Syracuse  Savings  Bank  v.  Seneca 
Falls,  21  Hun(N.  Y.),  ;U)4(1880);  Chou- 
teau V.  Allen,  70  Mo.  290  (1879);  Paris  v. 
Reynolds,  70  Ind.  360  (1880). 

■*  Craig  V.  Andes,  93  N.  Y.  405 ;  Peo- 
ple V.  Smith,  45N.  Y.  772  (1871).  and  the 
cases  generally  cited  in  the  preceding 
ni»te.  See  also  People  v.  Van  Valken- 
burg,  63  Barb.  1()5  (1872);  Evansvillc, 
&('.,  R.  R.  Co.  V.  Evansville,  15  Ind.  395 
(1860);  Chicago,  <fee.,  R.  U.  Co.  v.  MuUo- 
ry,  101  111.  583.  For  the  manner  in  Indi- 
ana of  conlestingan  election,  see  CJoddard 
V.  Stockman,  74  Ind.  400  (1881). 


[-1 


97 


§95.] 


MUNICIPAL  SUBSCRIPTIONS. 


[CH.  VI. 


two-thirds  of  the  voters  who  vote  at  the  election  called  for  the 
purpose,  and  not  two-thirds  or  a  majority  of  all  the  qualified 
electors  in  the  territory.  Those  who  fail  to  vote  against  the 
measure  will  be  assumed  to  favor  it.^ 


§  95.  What  officer  or  agent  of  the  municipality  may  make 
the  contract  of  subscription. — In  the  absence  of  any  express  pro- 
vision in  the  enabling  act  it  is  plain  that  the  proper  persons  to 
execute  the  contract  of  subscription  for  a  municipal  coi'poration 
are  those  whose  duty  it  is  to  execute  other  contracts  for  and  in 
the  name  of  the  municipality.  A  subscription  is  a  contract,  to  be 
executed  in  general  in  the  ordinary  way  in  which  any  other  con- 
tract may  properly  be  made.  But  the  act  authorizing  the  sub- 
scription frequently  provides  by  whom  and  in  what  manner  the 
contract  shall  be  executed.  When  this  is  the  case  the  provisions 
of  the  statute  are  to  be  strictly  complied  with.^    If  the  officers  or 


'  County  of  Cass  v.  Johnson,  95  U.  S. 
360  (187Y);  County  of  Cass  v.  Jordan,  95 
Id.  373  {1811);  St.  Joseph  Township  v. 
Rogers,  16   Wall.  644  (1872);  Milner  v. 
Peosacola,  2  Woods,  632  (1875);  Reiger 
V.  Beaufort,  70  N.  C.  319  (1874);  Hawkins 
V.  Carroll  Co.,  50  Miss.  735  (1874) ;  Louis- 
ville, <fec.,  R.  R.  Co.  V.  Tennessee,  8  Heisk. 
663  (1875) ;  Woodson  v.  Brassfield,  67  Mo. 
331  (1878);  Webb  v.  La  Fayette  Co.,  67 
Id.    353  (1878);  People  v.  Chapman,  66 
111.  137  (1872);  People  v.  Hoop,  67  Id.  62 
(1873);    Melvin   v.    Lisenby,    72    Id.    63 
(1874);  Harrington  v.  Plainfield,  27  Minn. 
224  (1880).    See  also  Cagwin  v.  Hancock, 
84  N.  Y.  532(1881);  Springport  v.  Teu- 
tonia  Savings  Bank,  84   Id.  403  (1881). 
And  for  a  cont)'ary  rule  well  argued  out, 
see  Harshman  v.  Bates  Co.  92  U.  S.  596 
(1875)  [overruled,  however,  in  County  of 
Cass  V.  Johnson,  95  U.  S.  360  (1877)],  and 
the    dissenting   opinions   of    Miller   and 
Bradley,  JJ.,  in  County  of  Cass  v.  John- 
son, 95  U.  S.  360,  370*(1877).     As  to  the 
right  of  a  voter  or  signer  to  revoke  his 
consent  once  granted,  see  People  v.  Wag- 
ner, 1  Thomp.  &  C.  221  (1873);  People  v. 
Deyoe,  1  Id.  142  ;  People  v.  Hatch,  1  Id. 
113  (1873)    Cf.  First  Nat.  Bank  v.  Dorset. 
16    Blatchf.    62    (1879);     Noble    v.    Vin- 
cennes,  42  Ind.  125  (1873),  and  see  Monad- 
nock   R.  R.  Co.  V.  Peterboro,  49  N.  H.  281 
(1870) ;  Hannibal  v.  Fountleroy,  105  U.  S. 
408  (1881).     If  a  legislature  have  power 
to  authorize  a  subscription  to  the  stock  of 
a  railway  company  by  a  township,  and  to 


provide,  as  a  condition  precedent  to  such 
a  subscription,  that  a  majority  of  the  le- 
gal voters  of  such  township  signify  their 
assent  thereto,  it  has  the  power  to  legalize 
an  election  held  for  that  purpose  before 
the  passage  of  the  act  of  authorization, 
and  to  validate  a  subscription  so  mad§. 
While  the  courts  of  the  United  States  ac- 
cept and  apply  the  construction  of  a  State 
constitution,  or  of  a  local  statute  upon 
which  the  rights  of  parties  depend,  which 
has  been  fixed  by  the  course  of  decisions 
ol'  the  State  courts,  it  is  the  settled  doc- 
trine of  the  Supreme  Court  of  the  United 
States  that  rights  accruing  under  one  con- 
struction will  not  be  lost  or  forfeited  mere- 
ly by  a  change  of  opinion  in  the  State 
court :  and  when  such  rights  have  accrued 
before  the  State  court  has  announced  its 
construction,  the  Federal  courts,  although 
leaning  to  an  aijreement  with  the  State 
courts,  will  determine  the  matter  upon 
their  own  independent  judgment.  Ander- 
son V,  Township  of  Santa  Anna,  Sup.  Ct. 
U.  S.  Feb'y  8, 1886.  Of.  State  v.  Holladay, 
72  Mo.  499  ;  Smith  v.  City  of  Fon  du  Lac, 
8  Fed.  Rep.  289  ;  McCall  v.  Town  of  Han- 
cock, 10  Id.  8  ;  Carroll  Co.  v.  '  '  ' 
U.  S.  556  (1884);  Green  Co. 
109  U.  S.  104  (1883). 

•2  Walnut  V.  Wade,  103 
(1880);  People  v.  Smith,  45 
(1871);  Town  of  Douglass  v.  Niantic  Sav- 
ings Bank,  97  HI.  228  (1881).  So,  for  ex- 
ample, where  the  act  provides  for  the  ap- 
pointment of  a  board  of  commissioners  to 


Smith, 

HI 

V.   ( 

^onness. 

U. 

S. 

683 

N. 

Y. 

772 

CH.  VI.]  MUNICIPAL   SUBSCRIPTIONS.  [§  96. 

agents  of  a  municipality  have  a  discretion  with  reference  to  the 
subscription,  to  make  it  or  not  as  it  may  seem  to  them  best  under 
the  circumstances,  their  exercise  of  that  discretion  is  final,  and 
cannot  be  reviewed  or  questioned.^  But  a  corporation  cannot  be 
bound  by  the  act  of  an  agent,  if  it  appears  that  the  other  contract- 
ing party  is  in  any  way  affected  with  knowledge  that  the  contract 
to  bind  the  company  should  be  signed  by  certain  officers  or  agents, 
the  contract  sought  to  be  enforced  not  having  been  so  executed, 
which  is  to  say,  that  a  contract  signed  by  an  agent  not  authorized 
to  sign,  cannot  bind  a  corporation  when  the  other  party  knew  or 
ought  to  have  known  that  some  other  agent  was  the  proper  person 
to  enter  into  the  contract  on  behalf  of  the  corporation,  and  that 
the  agent  assuming  to  act  was  in  reality  unauthorized.^ 

§  96.  Formal    requisites  of  a    municipal    subscrijHion. — 

Nugent  V.  The  Supervisors,^  is  the  leading  case.    Therein  it  is  held, 
^j     that  in  order  to  constitute  a  valid  municipal  subscription  to  the 
^     stock  of  a  railway  company,  it  is  not  necessary  that  there  be  an 
^     actual    act  of  chirographical  subscribing ;  that  a  resolution  by  a 
C^     duly  authorized  board  of  agents,  declaring  a  subscription  made,  is, 
^     upon  the  acceptance  of  the  subscription  in   that  shape  by  the 
(_,      railway  company,  and  a  notice  to  the  municipality  of  the  accept- 
►     ance,  a  good  and    binding  subscription,  although  there  was   no 
]      subscription  made  in  the  books  of  the  company,  and  that  the 
^-      delivery  by  the  proper  officers  of  the  municipality  to  the  rail- 
make  the  subscription,  they  only  are  com-     Bissell  v.  Township  of  Spring  Valley,  110 
petent  to  make  it ;  they  are  for  this  pur-     U.  S.  162  (1884);  In  re  Bradner,  87  N.  Y. 
pose  the  agents  of  the  municipality  for     171  (1881). 

which  they  act;  they  may  insert  condi-  '  Mercer  Co.  v.  Pittsburgh,  <fec.,  R.  R. 

tions  into  the  contract  which,  unless  repu-  Co.,  27  Penn.  St.  389  (1856).  Cf.  Falconer 
dialed  by  the  corporation,  are  v:ilid,  and  v.  Buffalo,  <fec.,  R.  R.  -Co.,  69  N.  Y.  491 
will  bind  all  parties  concerned;  their  pow-  (1877);  First  Nat.  Bank?;.  Concord,  50  Vt. 
«rs  are  to  be  exercised  jointly,  and  therein     257. 

all  must  act.  a  majoritv  not  being  suffi-  '  Head    v.    Providence    Ins.    Co.,    2 

cicnt  by  their  act  to  l)ind  tiie  municipali-  Cranch,  127  (1804);  Ilolbrook  v.  Fan- 
ty  ;  their  acts,  when  once  fully  performed,  quier,  &c.,  Co.,  3  Cranch  C.  C.  426  (1829)  ; 
are  final  and  binding,  and  cannot  be  re-  llenning  v.Unitcd  States  Ins.  Co.,  47  Mo. 
called  or  revoked.  Danville  v.  Montpe-  425  (1871);  Badger  v.  Am.,  Ac,  Ins.  Co., 
lier,  (fee,  R.  R.  Co.,  43  Vt.  144  (1870);  cf.  103  Mass.  244(1869);  Dana  v.  Bank  of  St. 
First  Nat.  Hank  v.  Arlington,  16  Blatchf.  Paul,  4  Minn.  385  (1860);  Barnes  v.  On- 
57  (1879);  People  v.  Hitchcock,  2  N.  Y.  tario  Hank,  19  N.  Y.  152  (1859);  Hulkley 
Super.  Ct.  134  (1873);  State  v.  Hancock  v.  Derby  Fisiiing  Co.,  2  Conn.  252  (1817); 
Co.,  11  Ohio  St.  183  (1860);  8.  c.  12  Id.  Salem  Bank  v.  Gloucester  Bank,  17  Mass. 
590;  Jackson  Co.  w.  Brush,  77  HI.  59  1(1820);  Walton's  Case,  26  L.J.  Chan. 
(1875);  Walnut  v.  Wade.  103  U.  S.  683  545  (1857).  This  is,  of  course,  a  general 
(1880);  People  v.  New  York,  <fec.,  R.  R.  rule  of  law,  and  one  applicable  to  all  con- 
Co  ,  84  xN.  Y.  565  (1881);  Kankakee  v.  tracts  executed  by  agents  of  corpi>ration9. 
^tna  Life  Ins.  Co.,  100  U.  S.  668  (1882);  »  19  Wall.  241  (1873). 

99 


§  97.]  MUNICIPAL   SUBSCRIPTIONS.  [CH.  VI. 

way  company  of  the  municipal  bonds  in  exchange  for  the  stock— 
the  levying  of  a  tax  to  pay  the  interest  on  the  bonds — and  voting 
as  a  share  owner,  estops  the  corporation  from  denying  the  sub- 
scription.^ 

But  the  vote  of  the  tax-payers  or  inhabitants,  as  the  case  may 
be,  is  not  a  subscription,  nor  does  it  amount  to  a  subscription, 
nor  does  it  in  general  vest  in  the  company,  for  whose  proposed 
benefit  the  vote  was  taken,  a  right  to  have  a  subscription 
made.'^  There  will  generally  vest  in  the  corporate  oflScer,  ex- 
pressly or  by  implication,  some  discretion,  even  after  the  elec- 
tion, as  to  the  subscription,  or  it  will  devolve  upon  them  to  do 
certain  acts  or  insist  upon  certain  conditions,  and  hence  until  such 
acts  are  performed,  or  the  conditions  made,  there  is,  by  virtue  of 
the  mere  vote,  no  valid  subscription.^ 

§  97.  Miinici])al  conditions  may  ie  conditional. — A  munic- 
ipal corporation  may,  as  of  course,  in  tlie  absence  of  statutory 
prohibition,  annex  to  its  subscrij)tion  any  condition  that  an  indi- 
vidual subscriber  might  lawfully  prescribe,  and  may,  in  conse- 
quence, make  the  payment  of  the  subscription  depend  upon  the 
performance  thereof.*  So  also  is  a  municipal  corporation  en- 
titled to  the  benefit  of  any  implied  conditions,  arising  from  the 
act  of  incorporation,  or  by  intendment  of  law,  to  which  an 
individual  subscriber  would  be  entitled.^ 

In  the  case  of  the  Madison  County  Court  v.  Eichmond,  &c., 


1  This  is  the  settled  rule  of  the  Su-  Sunday  will  be  invalid,  although  the  sig- 
preme  Court  of  the  United  States,  nature  is  by  the  proper  ofiicer.  DeForth 
County  of  Moultrie  v.  Rocldngham  Ten  v.  Wisconsin,  &c.,  R.  R.  Co.,  52  Wis.  320 
Cent  Savings  Bank,  92  U.  S.  631  (1875);  (188n. 

County    of  Cass    i).   Gillett,   100  Id.  585  '•  Brooaw  v.  Gibson  Co.,  73  Ind.  543 

(1879).      Cf.   State  v.   Jennings,  4    Wis.  (1881);  Portland,  &c.,  R.   R.  Co.  v.  In- 

649.  habitants  of  Hartford,  58  Me.  23  (1870); 

2  Cumberland,  <fec.,  R.  R.  Co.  v.  Bar-  Chicago,  Ac,  R.  R.  Co.  v.  Aurora,  99  111. 
ran  Co.,  10  Bush  (Ky.),  604  (1874);  205;  Noesen  v.  Port  Washington,  37 
Bates  County  v.  Winters,  97  U.  S.  83  Wis.  1€8  (1875);  Perkins  «>.  Port  Wash- 
(1877>;  Wadsworth  v.  St.  Croix  Co.,  4  ington,  37  Id.  177  (1875);  Town  of  Platte- 
Fed.  Rep.  378  (1880).  Cf.  Allen  v.  Louis-  ville  v.  Galena,  &c.,  K.  R.  Co.,  43  Id.  493 
iana,  lOS  U.  S.  80  (1880).  (1878);  Foote  v.  Mount   Pleasant,  1  Mc- 

3  People  V.  Pueblo  Co.,  2  Cal.  360  Crary,  101  (1878);  Atchison,  etc.,  R.  R. 
(1874),  and  the  cases  in  the  preceding  Co.  v.  Phillips  Co.,  25  Kan.  261  (1881). 
note.  Winter  V.  City  Council  of  Mont-  C/".  Memphis,  <fec.,R.  R.  Co.  t».  Thompson, 
gomery,  65  Ala.  403  (1880);  Syracuse  24  Kan.  170  (1880);  Red  Rock  «'.  Henry, 
Savino-s  Bank  v.  Town  of  Seneca  Falls,  106  U.  S.  576  (1882);  Shurtleff  v.  Wis- 
86    nT   Y.    317    (1881).       Cf.    Bank    of  casset,  74  Me.  130  (1882). 

Statesville  v.  Town  of  Statesville,  84  N.  ^  Lamb   v.    Anderson,    54  Iowa,    100 

C.  169  (1881).     The  bonds  if  signed  on  (1880). 

100 


CH.  VI.]  MUNICIPAL   SUBSCRIPTIONS.  [§  98. 

R.  K.  Co.,^  it  is  held  that,  wliile  a  coiintj  may  make  such  condi- 
tions as  may  seem  proper  to  it  before  submitting  the  question  of 
a  subscription  to  a  popular  vote,  the  county  court  cannot,  after 
the  vote  is  taken,  require  other  conditions,  or  alter  those  already- 
imposed,  or  by  a  second  election  change  the  terms  of  the  contract 
of  subscription  as  originally  made  and  entered  into.^ 

Wherfe  a  condition  precedent  has  not  been  fulfilled,  the  sub- 
scription is  not  enforceable,  and  bonds  issued  in  payment  will  be 
invalid  even  in  the  hands  of  hrma  fide  holders  ;  as  for  example, 
where  the  location  of  a  railway  in  a  certain  place  is  the  condition, 
and  the  location  is  not  made  as  required  by  the  condition.^  But 
if  it  be  a  condition  subsequent,  as  where  a  town  subscribed  for 
stock  in  a  railway  company,  upon  condition  that  the  road  should 
"  be  built  through  the  town  on  the  line  as  run  by  the  engineer, 
with  a  suitable  depot  for  the  convenience  of  the  public,"  a  failure 
to  perform  is  not  a  defense  to  an  action  to  collect  assessments.* 
In  New  York  it  is  held  that  where  a  town  imposes  as  a  condition 
precedent  to  its  subscription  that  the  road  be  located  and  con- 
structed through  the  town,  the  commissioners  have  no  power  to 
accept  any  agreement  from  the  company  or  any  substitute  in  lieu 
of  full  compliance.^ 

§  98.  A  munici2)a,l  suhscription  may  be  paid  in  bonds  instead 
of  money. — Generally  it  may  be  said  that,  where  a  municipal  cor- 
poration is  authorized  to  subscribe  to  the  stock  of  a  railway  or 
other  corporation,  or  to  lend  its  credit  thereto,  and  to  issue  bonds 
to  that  end,  it  may,  in  the  exercise  of  its  proper  discretion,  instead 
of  selling  the  bonds  and  applying  the  proceeds  to  the  payment  of 
the  subscription,  deliver  the  bonds  themselves  to  the  railway  com- 
pany in  exciiange  for  an  equivalent  amount  of  the  stock.®     The 


'  80  Ky.  16  (1882).  Clark,  23  Id.  422  (IS^Y);  State  v.  Lime, 

'  Ace.  Carroll  Co.  v.  Smith,  111  IJ.  S.  23  Id.  521  (1877). 
550  (1884).  5  Falconer  v.   Buffalo,  Ac,  R.  R.  Co., 

•t  .Mellen   V.    Town    of    Lansing,     19  09  N.  Y.  491  (1877).    As  to  tho  riifht  to 

Blatclif,  512(1871);  Chicago,  &c.,  R.  R.  revoke  a  consent  by   popular  vote,    see 

Co.    V.    Marseilles,    84    111.     145    (1876);  Town  of  Springport  ?>.   Teutonia  Savings 

Biicksport,    <fee.,  R.    R.  Co.  w.  Brewer,  67  Bank,  84  N.  Y.  403  (1881). 
Me.  29.')  (1877).  «  This  is  the  learning  in  the  case  of 

■•  Belfast,  Ac,  R.  R.  Co.  v.  Brooks,  f.O  Meyer  v.  the  Cil-y  of  Muscatine,  1  Wall. 

Me.  568  (1872).     Cf.  Chicago,  Ac,  R.  R.  384,  392  (1863),  and  e.\-cept  in  New  York, 

Co.  «.  Schewe,  45  Iowa,   7!)    (1876).     See  Starin   v.   Genoa,   23   N.  Y.   439  (1861); 

also  People  v.  Ilohlen,  82  111.  93  (1876);  Bank  of  Rome  v.  Village  of  Rome,  19  Id. 

Ilodgrnan   v.    St.  Paul,  Ac,  R.  R.  Co.,  23  20  (1859),  it  is  a  generally  acrepfcid  rule 

Minn.    153    (1876);  State   v.   ^Town     of  of  law.     ^cc.  Evansville,  Ac,  II.  R.  Co.  v. 

101 


§  99.]  MUNICIPAL   SUBSCRIPTIONS.  [CH.  VI, 

objection  to  this  doctrine,  as  urged  by  the  Court  of  Appeals  of 
New  York,  proceeds  upon  the  ground  that  a  town  might  pru- 
dently and  properly  undertake  to  negotiate  its  own  bonds  and 
use  the  proceeds  to  pay  for  stock  in  a  railway  company,  while  it 
might  be  very  improvident  and  unjust  to  allow  the  railroad  com- 
pany to  take  the  bonds  and  negotiate  them  for  very  much  less 
than  their  par  value  ;  which  is  to  say,  that  public  policy  dictates 
that  municipal  subscriptions  should  be  made  to  realize  the  full 
amount  to  the  company,  in  order  that  the  public  convenience 
contemplated  by  the  building  of  the  railway  may  be  most  eco- 
nomically and  completely  subserved.^  The  force  of  this  objection 
may  be  conceded,  but  it  is,  perhaps,  rather  an  apparent  than  a 
real  difficu"ty.  The  statute  authorizing  the  issue  of  bonds  usually 
provides  that  they  are  not  to  be  negotiated  for  less  than  par,  and, 
in  the  absence  of  such  a  statutory  provision,  the  courts  hold,  on 
general  common-law  grounds,  that  such  bonds  cannot  lawfully  be 
sold  for  less  than  par ;  ^  and  if  they  are  sold,  in  violation  of  the 
inhibition  of  the  statute,  below  par,  the  corporation  may  in  equity 
compel  the  holder  to  accept  in  satisfaction  the  sum  paid  by  the 
original  purchaser,  with  lawful  interest.^ 

§  99.  A  municipal  corporation  as  a  stocMolder. — When  a 
municipal  corporation  subscribes  to  the  stock  of  a  railway  com- 
pany, it  thereby  incurs  in  all  respects  the  same  liability  that 
attaches  to  any  other  shareholder  in  the  company.  It  becomes, 
in  other  words,  a  stockholder  in  just  the  same  sense  as  any  indi- 
vidual subscriber,  entitled  to  the  same  rights,  privileges,  and 
emoluments,  and  subject  to  the  same  burdens  of  duty  and  liabil- 
ity as  the  other  holders  of  the  stock.^ 


City  of  Evansville,  15  Ind.  395  (1860) :  14  Ind.  297  (1881),  is  the  leading  case.  In 
Curtis  V.  County  of  Butler,  24  How.  (U.  the  opinion  Woods,  J.,  says:  "  By  the  act 
S.)435  ;  Commonwealth  v.  Pittsburgh,  41  of  May  4,  1869,  the  legislature  'miide  an 
Penn.  St.  2*78 ;  Town  of  Concord  v.  Ports-  express  grant  to  the  defendant  of  the 
mouth  Savings  Bank,  92  U.  S.  625  (1871);  power  to  become  a  stockholder  in  a  rail- 
Town  of  Montclair  v.  Ramsdell,  107  U.  S.  road  company.  So  far  as  in  their  nature 
147  (1882).  they  could  be  exercised  or  enjoyed,  it  is 

1  See  Starin  v.   Genoa,  supra,   at  p.  clear  that  the  rights  and  privileges  of  an 

454.  ordinary  stockholder  belonged  to  the  city 

*  Neuse  River  Navigation  Co.  v.  Com-  when  it  became  a  stockholder  as  alleged, 

missioners  of  Newbern,  7  Jones  (N.  C),  and  it  seems  to  be  equally  clear  that  in 

275  ;  Dan.  Neg.  Instr.  (3d  ed.),  §  1633.  conferring  the  power  to  acquire  the  rights 

3  County  of  Armstrong  v.  Brinton,  47  and  benefits  the  legislature  must  have  in- 

Penn.  St.  357(1864).  tended  to  impose  the  attendant  burdens. 

^  Shipley  v.  The  City  of  Terre  Haute,  Indeed,  the  right  conferred  has  no  legal 

102 


CH.  VI.]  MUNICIPAL   SUBSCRIPTIONS.  [§§  100,  101. 

Tliis  doctrine  is  not  only  declared  in  the  cases  cited  in  the 
notes,  but  it  is  assumed  to  be  an  unquestioned  rule  of  law  in  all 
that  long  line  of  cases,  both  in  the  State  and  Federal  courts, 
which  involves  the  validity  of  municipal  bonds  issued  in  aid  of 
railway  or  other  corporations. 

§  100.  A  municipality  may  enforce  delivery  of  stock  to  itself 
in  a  x? roper  case. — Under  the  same  circumstances  and  conditions, 
and  to  the  same  extent  as  any  other  subscriber,  a  municipal  cor- 
poration may  compel  a  railway  or  other  corporation  to  deliver  to 
it  stock  to  which  the  subscribers  in  general  are  entitled.  It  is 
entitled,  like  any  other  subscriber,  to  wliatever  it  has  subscribed 
for  and  paid  for.  Whatever  would  prevent  an  individual  sub- 
scriber from  enforcing  such  delivery  will  equally  prevent  a  munic- 
ipality in  a  like  case.^  So  it  is  said  that  a  municipal  corporation, 
or  a  subscriber,  is  in  no  better  position  than  an  individual  sub- 
scriber in  this  respect.^  The  cases  plainly  make  no  distinction  as 
to  the  right  to  enforce  delivery  of  stock  between  classes  of  sub- 
scribers, and  the  municipal  subscriber  has  no  more  and  no  less 
right  in  respect  thereto  than  other  subscribers. 

§  101.  Change  in  the  State  constitution,  or  the  general  statu- 
tory laiv,  after  the  municipal  corporation  has  voted  to  suhscribe. 

— Constitutional  provisions,  or  general  statutes  prohibiting  munic- 
ipal corporations  from  subscribing  to  the  stock  of  other  corpora- 


existence  or  definition  apart  from  the  du-  Robinson  v.  Bank  of  Darien,  18  Ga.  C5; 

ties  and  obligations  expressly  connected  National  Banki;.  Case,  99  (J.  S.  628  (1878), 

therewith."  See  also  Wood  on  Railways,  §  118,  citing 

In   Gray  v.  The  State,   Y2   Ind.   567  to  the  point  that  a  municipal  subscription 

(1880).  it  is  Siiid  :   "  We  see  no  reason  why  makes  a  municipal  corporation  stand  in 

the  State,  as  a  debtor,  should  be  placed  in  the  same  relation  to  the  company  and  the 

any  other  or  different  situation  as  to  its  public  as  any  other  shareholder.     County 

obligation    to  pay  interest  than  tiiat  oc-  of  Morgan  w.  Allen,  103  U.  S.  498  (1880) ; 

cupii'd  by  any   private   debtor  or   other  Sawyer  r.   lloag,   17    Wall.   610  (187S); 

public  corporation."     1  Dan.  Neg.  Instr.,  Sanger  v.  Upton,  91  U.  S.  56(1875);  Up- 

t^  436;    Murray  v.   Charleston,  96  U.S.  ton  t\  Tribilcock,  91  Id.  45  (1876) ;    Wcb- 

432.  ster  v.  Upton,  91  Id.  65  (1875);   Hatch  v. 

In  the  case  last  above  cited,  the  court  Dana,  101  Id.  205  (1879);  Bank  of  U.  S. 

said,  at  page  445  :  "The  truth  is.  States  v.  Planters'  Bank,  9  Wheat.  904  ;  Morgan 

and  cities,  when  they  borrow  money  and  Coimty  v.   Thomas,    76    HI.    12o  (1875); 

contract  to  rep;iy  it  with  interest,  are  not  State  v.  Ilolladay,  72  Mo.  499. 
acting  as  sovereignties.    They  come  down  '  Wapello  Co.  v.  Burlington,  <fec.  R.  R. 

to  the  level  of  ordinary  individuals.  Their  Co. ,  44  lowa,  585(1876). 
contracts  have  tiic  same  meaning  as  that  '^  Pittsburgh,  (fee,  R.   R.  Co.   v.   Alle- 

of  similar  contracts  between  private  per-  gheny  Co.,  79  Penu.  St.  210  (1875).     Of. 

sons."  State  v.  Garoutte,  67  Mo.  445  (1878). 

Ace.  Curran  v.  The  State,  15  How.  304 ; 

103 


§  101.]  MUNICIPAL   SUBSCRIPTIONS.  [CH.  VI. 

tions,  or  from  lending  their  credit  thereto,  are,  as  we  have  seen,^ 
wholly  prospective  in  their  application. 

What  a  corporation  had  the  constitutional  or  statutory  right 
to  do,  and  what  it  has  done  in  pursuance  of  that  right  or  author- 
ity, cannot  be  affected  or  undone  by  subsequent  constitutional 
change  or  amendment,  or  by  the  passage  of  general  statutes. 
This  is  a  fundamental  rule  of  constitutional  law,  and  a  brief 
application  of  it  here  will  suffice.^  If  it  be  held  that  a  popular 
vote  does  not  give  the  company  proposed  to  be  benefited  a  vested 
right  to  the  subscription  by  the  municipality,  and  that  until  the 
subscription  is  actually  made,  the  contract  is  unexecuted,  and 
therefore  obligatory  upon  neither  party,  there  is  ground  for  hold- 
ing that  a  constitutional  prohibition,  taking  effect  after  the  elec- 
tion, but  before  the  subscription  is  made  pursuant  to  authority 
conferred  by  the  popular  vote,  will  be  sufficient  to  invalidate  the 
subscription.  This  was  the  view  taken  by  the  Supreme  Court  of 
the  United  States  in  the  case  of  Aspinwall  v.  Commissioners  of 
the  County  of  Daviess,^  and  affirmed  in  some  later  cases.^  The 
weight  of  authority  however  is,  it  is  believed,  in  favor  of  ihe 
rule  that,  after  the  corporation  has,  by  a  popular  vote  at  an  elec- 
tion lawfully  held,  voted  to  subscribe  for  stock,  subsequent 
changes  of  the  constitution  or  the  general  statutes  will  not  affect 
the  right  of  the  municipality  to  go  on  and  complete  the  contract ; 
that  is  to  say,  to  make  the  formal  subscription,  and  to  issue  the 
bonds  or  levy  the  special  tax  to  pay  the  calls.^ 


1  g  92.  braska,  see  State  v .  Lancaster  Co.,  6  Neb. 

^  Accordingly  we  find  it  held  that  the  214;  and  as  to  the  constitution  of  Mis- 
constitution  of  1870,of  the  State  of  Illinois,  souri,  of  1865,  see  Louisiana  D.Taylor,  105 
which  prohibits  municipal  subscriptions  U.  S.  454  (1881);  County  of  Cass  v.  Gil- 
or  donations,  does  not  attempt  to  affect  or  lett,  100  Id.  585  (1879) ;  County  of  Scot- 
impair  the  obligation  of  any  prior  con-  land  «.  Thomas,  94  Id.  682(1876);  County 
tract  with  respect  thereto,  iior  prohibit  of  Ray  2^.  Vansycle,  96  Id.  675  ;  County  of 
the  issue  of  bonds  which  are  necessary  to  Calloway  v.  Foster,  93  Id.  567  (1876). 
give  effect  to  subscriptions  or  donations  ^  22  How.  364  (1859). 
which  were  authorized  by  a  popular  vote,  *  Wadsworlh  v.  Supervisors,  102  U.  S. 
cast  at  an  election  lawfully  held,  before  534(1880).     See  also  Railroad  Co.  v.  Fal- 
the  day  on  which  the  constitution  went  coner,  103  Id.  821  (1880). 
into  effect.  '  See  the  cases  generally  cited  supra, 

County  of  Clay  v.  Society  for  Savings,  and  United  States  v.  Jefferson  Co.,  5  Dil- 

104   U.   S.   579  (1881);  People  ?;.  Logan  Ion,  310(1878);  Maenhantf.  New  Orleans, 

County,   63   111.   374   (1872);    County  of  3  Woods,  1  (1876);   Sibley  v.  Mobile,  3  Id. 

Moultrie  v.  Savings  Bank,  92  U.  S.  631  535  (1876);  Nicolay  v.  St.  Clair  County, 

(1876);  Louisville  v.  Savin2;s  Bank,  104  3  Dillon,  163(1874);  Huidekoper  ?;.  Dal- 

Id.  469  (1881).      To  the  same  effect,  with  las  County,  3  Id.   171   (1875).     Cf.  Red 

regard  to  the  constitution  of  1875,  of  Ne-  Rook  v.  Henry,  106  U.  S.  576  (1882). 

104 


CH.  VI.]  MUNICIPAL   SUBSCRIPTION'S.  [§§102,103. 

§  102.  Division  of  the  municipality  after  the  subscription. — 

We  find  a  line  of  cases  in  the  reports  of  some  of  the  Western 
States,  which  deal  with  the  questions  which  have  grown  out  of 
the  subdivision  of  towns  and  counties  in  those  States,  after  a  do- 
nation or  subscription  has  been  made  to  some  railway  or  otlier 
corporation,  and  before  the  bonds  have  been  issued,  or  before  they 
have  become  due  and  payable. 

It  is,  of  course,  not  competent  for  the  legislature  so  to  divide 
a  municipality  as  to  release  all  or  any  part  of  it  from  the  obliga- 
tion of  any  contract  into  which  the  whole  had  previously  entered.^ 
When  a  town  or  county  is  divided,  or  some  part  of  it  annexed  to 
some  other  town  or  county,  after  the  undivided  municipality  has 
voted  a  subscription,  and  it  is  provided  in  the  act  by  which  the 
division  is  accomplished,  that  each  part  shall  remain  liable  for  the 
previous  municipal  indebtedness,  such  provision  is  held  to  mean 
nothing  more  than  that,  as  concerns  the  subscription  voted,  each 
part  is  liable  for  its  proportion  only  of  the  debt  according  to  the 
valuation  of  ihe  property  of  the  undivided  municipality  at  the 
time  the  vote  was  taken. ^ 

§  103.  Consolidation  of  companies  after  the  municipal  aid  is 
voted. — When  the  company  proposed  to  be  benefited,  unites  or  is 
consolidated  with  another  company  or  companies  of  a  similar 
character,  after  the  aid  of  a  municipality  has  been  voted,  and  be- 
fore the  subscription  has  been  paid,  the  company  having  before 
the  election  the  right  to  consolidate,  the  bonds  may  lawfully  be 
issued  to  or  sold  for  the  benefit  of  the  new  or  consolidated  com- 
pany.^ When,  however,  the  consolidation  works  such  a  funda- 
mental change  in  the  constitution  and  purpose  of  the  original 
corporation  that  individual  subscribers  are  thereby   released,  a 


'  Sedgwick  Co.  v.  Bailey,  11  Kan.  631  Wilson  »«.  Salamanca,  99  Id.  499  (1878) ; 

(18Y3).    "cy.  State  v.  Lake  City,  25  Minn.  Empire  v.  Darlinjrton,  101  Id.  87  (1879) ; 

504  (1879)';  Marion  Co.  v.  Harvey  Co.,  26  Menasha  v.   Hazard,   102   Id.  81  (1880); 

Kan.  181  (1881);  Henderson  v.  Jackson  Harter  r;.  Kernoclian,  103  Id.  562  (1880); 

Co.,  12  Fed.  Rep.  676  (1881).  County  of  Tipton  v.  Locomotive  Works, 

Mlurtj;.  Hamilton,  25  Kan.  76(1881).  103  Id.  523  ( 1880) ;  State  v.   Green  Co., 

See  also   Eagle  v.  Beard,   33   Ark.   497  54  Mo.  540  (1874) ;  Vernon  w.  Uovcy,  52 

(1878);  McBride  v.  Hardin  Co.,  58  Iowa,  Ind.  563  (1876).     See  also  Nugent  v.  Su- 

219(1882).  pervisors,    19  Wall.   241  (1873);  County 

'*  New  Buffalo  v.   Iron  Company,  105  of  Henry  v.  Nicolay,  95  U.  S.  619  (1877); 

U.  S.  73  (1881) ;  County  of  Scotland   v.  County  of  Sclinyier  v.  Thomas,  98  Id.  169 

Thomas,  94  Id.  682(1876);  Town  of  East  (1877).      Cf.  Ilarshman  v.  Bates  County, 

Lincoln  v.  Davenport,  94  Id.  801  (1876);  92  U.  S.  569  (1875). 

105 


§  103.] 


MUNICIPAL  SUBSCRIPTIONS. 


[CH.  VI. 


subscription  by  a  municipality  will  be  invalidated/  but  otiierwise 
not.^  It  is  accordingly  said  that  municipal  bonds  voted  and  deliv- 
ered to  a  corporation  under  a  changed  name  are  not  by  such 
change  invalidated.^ 


1  Lynch  v.  Eastern,  (fee.  R.  R.  Co.,  57 
Wis.  430  (1883);  Harshman  v.  Bates 
County,  supra,  will  hardly  be  followed. 
It  does  not  accord  with  the  current  decis- 
ions.    Cf.  Taylor  on  Corp.,  §  324. 

2  Atchison,  <fec.,  R.  R.  Co.  v.  Phillips 
Co.,  25  Kan.  261  (1881);  Society  for  Sav- 
ings V.  New  London,  29  Conn.  174  (1860); 
Commonwealth  v.  Pittsburgh,  41  Penn. 
St.  278  (1861);  Illinois,  <fec.  R.  R.  Co.  v. 
Barnett,  85  111.  313  (1877);  Lewis  v. 
Clarendon,  5  Dillon,  329  (1878);  Chicka- 
ming  V.  Carpenter,  106  U.  S.  663  (1882). 

3  Town  of  Reading  v.  Wedder,  66  111. 
80  (1872).  Cf.  Town  of  Prairie  v.  Lloyd, 
97  Id.  179  (1880).  In  the  case  of  Marsh 
V.  Fulton  Co.,  10  Wall.  676  (1870),  where 
the  legislature  so  amended  the  charter  of 


a  railway  company  as  to  divide  the  road 
into  three  divisions,  and  each  division 
was  made  a  new  company,  so  that  there 
were  three  distinct  corporations  in  place 
of  the  original  corporation,  it  was  held  by 
the  Federal  Supreme  Court,  that  a  sub- 
scription of  stock  and  issue  of  county 
bonds,  authorized  by  a  popular  vote  to  be 
made  to  the  original  corporation,  could 
not  legally  be  made  to  one  of  the  three 
new  corporations.  The  court  may,  per- 
haps, have  regarded  this  as  a  case  of  novel 
impression.  Mr.  Justice  Field,  in  deliv- 
ering the  unanimous  judgment  of  the 
court,  cited  no  authorities,  but  seemed, 
in  an  opinion  of  some  length,  to  proceed 
to  tlie  conclusion  upon  general  considera- 
tions of  policy  and  convenience. 


106 


CHAPTER  VII. 


CALLS. 


104.  Definition  of  call. 

105.  Call  is  generally  necessary. 

106.  When  a  call  is  unnecessary. 

107.  In  New  York,  no  call  is  required. 

108.  In   case  of  corporate  insolvency, 

no  call  is  necessary. 

109.  Who  has  authority  to  make  calls. 

110.  Calls  by  directors. 

111.  Assignment  of  subscriptions   by 

corporation,  before  or  after  call. 

112.  Interest  runs  from  the  time  the 

call  is  due. 

113.  Stockholder  cannot  question  ad- 

visability of  call. 


114.  Calls  must  be  impartial  and  uni- 

form. 

115.  Method  of  making  calls. — No  for- 

malities necessary. 

116.  Time,  place,  amount,  and  person 

to  whom  payable. 

117.  Notice  of  calls.— Cases  holding  it 

not  necessary. 

118.  Cases  holding  it  to  be  neces- 
sary. 

119.  Methods  of  serving  notice  of  calls. 

120.  Demand,  waiver,  pleadings,  <fec. 


§  104.  Definition  of  call— A  "  call "  may  be  defined  to  be  an 
official  declaration,  by  the  proper  corporate  authorities,  that  the 
whole  or  a  specified  part  of  the  subscriptions  for  stocks  required 
to  be  paid.^  The  term,  however,  is  used  with  different  meanings, 
and  may  refer  to  the  resolution  of  the  ofiicials  that  a  part  or  the 
whole  of  the  subscription  must  be  paid,  or  to  the  resolution  and 
notification  thereof,  or  the  combination  of  facts  making  the  par- 
ties called  on  liable  to  an  action  for  non-payment  of  the  money 
called.^  An  assessment  is  a  term  often  used  to  designate  the 
same  thing  as  a  call,  but  sometimes  refers  to  payments  sought 
to  be  recovered  from  the  stockholders,  above  and  in  addition  to 
the  par  value  of  the  stock.  An  instalment  is  one  of  the  several 
part  payments  which  may  be  included  in  a  single  call. 


'  Braddock  v.  Phil.,  Marlton  &  Med- 
ford  II.  R.  Co.,  45  N.  J.  L.  363  (1883), 
holding  also  that  a  direction  by  the  di- 
rectors to  the  President  to  collect  the 
subscriptions  is  a  call.  In  tlu^  case  S[jang- 
ler  V.  Ind.  <fe  111.  Central  11.  II.  Co.,  21  111. 
276  (1850),  a  call  or  assesHment  is  rather 
vaguely  defined  as  "  a  rating  or  fixing  of 
the  proportion  by  the  board  of  directors, 
which  every  subscriber  is  to  pay  of  his 
subscription,  when  notified  of  it  and  when 
called  in."      Newry  di    Enniskillen    liy. 


Co.  V.  Edmunds,  2  Ex.  Rep.  118  (1848), 
holds  that  a  call  is  an  application  to  each 
shareholder  for  a  proportion  of  his  share. 
■^  Queen  v.  Londonderry  &  Coleraine 
Ry.  Co.,  13  Q.  B.  998.  In  Ambergate, 
N.  <fe  B.  <fe  E.  J.  Ry.  Co.  v.  Mitchell,  4 
Ex.  Rep.  510  (1819),'it  is  said  "the  word 
call  is  capable  of  three  neaiiings.  It  may 
either  mean  the  resolution,  or  its  noti- 
fication, or  the  time  when  it  becomes  i>ay- 
ahle.  It  must  mean  either  one  of  these 
tliree." 

107 


§§105,106.] 


CALLS. 


[CH.  Til. 


§  105.  Call  is  generally  necessary. — As  a  general  rule,  a  call 
must  be  made  before  a  subscription  or  any  part  tliereof  becomes 
due  and  payable  to  tlie  corporation.  A  contract  of  subscription, 
unlike  other  contracts  to  pay  money,  is  a  promise  to  pay  only  at 
such  times,  and  in  such  part  payments,  as  may  be  designated  by 
the  corporate  authorities  in  a  formal  declaration  known  as  a 
"  call."  ^  In  other  words,  the  subscription  is  a  debt  payable 
at  a  future  time.^  The  time  when  it  shall  be  paid  is  indefinite 
until  fixed  by  a  call. 

§  106.  Wheii  a  call  is  unnecessa/ry . — If,  however,  a  subscrip- 
tion contains  a  promise  to  pay  upon  a  certain  day,  no  call  is 
necessary,  but  the  subscriber  is  bound  to  pay,  at  all  events,  upon 
the  day  named.^  So  also  if  by  statute  or  the  charter  the  sub- 
scription becomes  payable  at   a  certain  specified   time,  a  call  is 


'  "  No  action  can  be  maintained  against 
a  stoclvliolder  for  an  instalment  on  his 
subscription  until  the  board  has  directed 
the  call  to  be  made."  Banet  v.  Alton  <fe 
Sangamon  R.  R.  Co.,  13  111.  504  (1851); 
Spaiigler  v.  Ind.  &  111.  Central  R.  R.  Co., 
21  111.  276;  Braddock  v.  Phil,  Marlton  <fe 
Medford  R.  R.  Co.,  45  N.  J.  L.  363  (1883). 
In  the  case  Grasse  Isle  Hotel  Co.  v. 
L' Anson's  Ex'rs,  42  N.J.  L.  10(1880); 
affi'd  43  N.  J.  L.  442  (1881),  the  court 
said  a  subscription  for  stock  '"  impoi'ts  an 
agreement  not  to  pay  at  once  the  whole 
sum  representing  the  value  of  the  shares 
subscribed  for,  but  a  stipulation  to  pay 
such  sum  when  called  for  by  the  direc- 
tors, in  amounts  duly  assessed."  And  in 
Bk  of  South  Australia  v.  Abrahams,  L. 
R.,  6  Privy  Council  App.  262  (1875), 
the  court  said  :  "  The  company  has  no 
absolute  right,  and  the  shareholder  is 
under  no  absolute  liability,  to  pay.  The 
right  only  arises  if,  and  when,  calls  are 
made  by  the  directors.  .  .  .  The  due 
making  of  the  call  by  the  resolution  of 
a  board  of  directors  is  an  essential  con- 
dition precedent."  To  the  same  effect, 
see  Wilbur  v.  Stockholders  of  the  Corpn., 
18  Bankr.  Reg.  178.  Where,  by  statute 
or  charter,  payment  is  to  be  in  such  man- 
ner, and  proportion,  and  times,  as  the  di- 
rectors may  order,  there  can  be  no  suit 
to  collect  until  after  a  call,  Grissell's 
Case,  L.  R.,  1  Ch.  App.  528,  535  (1866); 
Ala.  &  Fla.  R.  R.  Co.  v.  Rowley,  9  Fla. 
508  (1861).  Even  where  the  stock  is 
fraudulently  issued  as  paid  up,  in  pay- 
ment for  propertj',  and  the  transaction  is 
impeaclied  for  fraud,  a  call  is  necessary 

108 


before  the  subscription  can  be  enforced. 
Granite  Roofing  Co.  v.  Michael,  54  Md. 
65  (1880).  Where,  however,  for  failure 
to  furnish  the  property  due  on  a  sub- 
scription, a  suit  for  damages  is  brought 
by  the  corporation,  no  call  need  precede 
such  suit.  An  allegation  of  a  general 
demand  suffices.  Cheraw  &  Chester  R. 
R.  Co.  V.  Garland,  14  S.  C.  63  (1879); 
Ohio,  Ind.  <fe  111.  R.  R.  Co.  v.  Cramer,  23 
Ind.  490  (1864).  A  call  is  not  applicable 
to  stock  which  was  subscribed  for  after 
the  call  was  made.  Pike  v.  Shore  Line, 
68  Me.  445  (1878). 

^  The  subscription  "  is  a  present  debt, 
payable  at  a  future  dny."  Pittsburgh  & 
Connellsville  R.  R.  Co.  v.  Clarke,  29  Pa. 
St.  146(1857).  The  subscription  "cre- 
ates a  debt,  but  the  debt  does  not  accrue 
due  till  a  call  is  made."  Grissell's  Case, 
L.  R.,  1  Ch.  App.  528,  535  (1866);  hi  re 
China  Steamship  &  L.  Coal  Co.,  38  L.  J. 
(Ch.)  512  (1869).  the  court  says:  "The 
moment  a  call  is  made,  it  is  a  debt  due  in 
every  respect,"  although  it  cannot  be  col- 
lected by  suit  until  later.  The  bank- 
ruptcy act  does  not  release  an  applicant 
thereunder  from  liability  for  calls  made 
after  his  release  in  bankruptcy.  Glenn 
V.  Howard,  3  Atl.  Rep.  895  (1886). 

^  Estell  V.  Knightstown  &  Middletown 
Turnpike  Co.,  41  Ind.  174  (1872);  New 
Albany  &  Salem  R.  R.  Co.  v.  Pickens,  5 
Ind.  247  (1854);  Ross  v.  Lafayette  & 
Indianapolis  R.  R.  Co.,  6  Ind.  297(1853); 
Brudlove  v.  Martinsville  &  F.  R.  R.  Co., 
12  Ind.  114  (1859);  Waukim  &  M.  R.  R. 
Co.  V.  Dwyer,  49  Iowa,  121  (1878). 


CH.  VII.J  CALLS.  [§§107,108. 

thereby  dispensed  with,  and  is  not  required.^  A  stockholder,  on 
the  other  hand,  is  not  obliged  to  wait  for  a  call  even  when  entitled 
to  it.     He  may  pay  at  any  time.^ 

§  107.  Neiv  Yoric  rule. — In  New  York  it  seems  that  a  dif- 
ferent rule  prevails.  In  that  State  there  is  a  tendency  to  hold 
that  no  call  is  necessary  before  snit  is  brought  on  a  subscription 
for  stock.  The  subscriber's  obligation  to  pay,  and  the  time  and 
manner  of  payment,  must  be  sought  for  in  the  contract  itself. 
Unless  the  contract  provides  for  calls,  the  subscription  is  payable 
absolutely,  and  at  once  or  as  soon  as  the  corporation  is  duly 
orofanized.^  Accordine^lv,  in  an  action  brought  to  collect  a  sub- 
scription,  it  is  not  necessary  to  allege  that  a  call  has  been  made, 
unless  the  terms  of  the  subscription  or  the  provisions  of  the  cor- 
porate charter  expressly  provide  for  calls.  These  rules,  how- 
ever, seem  not  to  have  been  directly  passed  upon  in  New  York, 
and  it  is  doubtful  whether  they  can  be  considered  as  clearly  es- 
tablished in  that  State.^ 

§  108.  In  case  of  corporate  insolvency,  no  call  is  necessary. 
— When  a  corporation  becomes  insolvent,  and  there  exist  subscrip- 
tions which  have  not  been  fully  paid  in,  the  directors  frequently 
neglect  or  refuse  to  make  calls  for  the  purpose  of  paying  the  cur- 


'■  Phoenix  Warehousing  Co.  v.  Badger,  case,  by  the  terms  of  the  charter,  all  sub- 

67  N.  Y.  294  (1876).  scriptions  were  due  at  the  time  when  suit 

*  Marsh  v.  Burroughs,  1    Woods,  463  was  commenced.     Hence,  in  both  cases, 

(1871);  Poole's  Case,  L.  R.,  9  Ch.  D.  322  the  statements  in  reference  to  calls  have 

(1878).     But  if  such  payment  is  by  the  the  appearance   of  dicta.      In    Mann    v. 

directors  themselves,  and  it  is  immediate-  Pentz,  3  N.    Y.   415  (1850),  it  was  held 

ly  repaid  to  them  for  fees,  the  corpora-  that  a  receiver  could  not  collect  uncalled 

tion  being  insolvent,  the  transaction   will  subscriptions,   since  "  the   only  condition 

be  set  a-ide.     Syke's  Case,  L.  R.,  13  Eq.  upon  which  he    (the   subscriber)     could 

Cas.  255  (1871).     So  also  a  payment  in  have  been  made  liable  to  the  corporation, 

advance,  on  an  agreement,  that  such  pay-  was  by  regular  calls  made  in  pursuance 

ment  shall  be  only  a  loan  if  the  corpora-  of  the  charter."     See  also  Bauton  v.  Dry 

tion  is  successlul,  but  shall  be  a  payment  Dock,  Gd.  St.  &  S.  F.  Stage  Co.,  4  E.  D. 

of  the  subscription  if  the  corporation  be-  Smith,  420  (1855);  Seymour  y.  Sturgess, 

coHiCS  insolvent,    is  held   to  be    a    loan,  26  N,  Y.  1:34  (1862) ;  Savage  «;.  Medbury, 

though  insolvency  occurs.     Barge's  Case,  19  N.  Y.  32  (1859). 

L.  K.,  5  Fq_  Cas.  420(1868).     Frequently  ••  These   rules   seem    to    be    peculiar 

a  subscription  is  paid,  before  a  call,  by  to   New  York.     The  decisions   in   some 

"PP'}'"yt<^  ''**  payment  money  due  the  of  the  other   States,  hold,  however,   that 

subscriber  from  the  corporation.     Adam-  no  notice  of  calls  is  necessary.     See  t^  117. 

son's  Case,  L.  li.,  18  Eq.  Cas.  670  (1874).  Practically  such  a  rule  is  equivalent  to 

•  Lake  Ontario,  Auburn  (fe  N.  Y.  R.  II.  requiring' no    call  at   all,   since  in    both 

Co.  V.Mason,  16  N.  Y.  451  (1859);  Pha-nix  cases  collection  is  made  only  upon  orders 

Warehousing  Co.  v.  Hadgcr,  67  N.  Y.  294,  of  the  directors  or  other  officers,  and   in 

300  (1876).      In  the  former  case,  iKJwever,  both  cases  the  subscriber  is  not  informed 

calls  were  made  and  notice  given  by  ad-  of  such  orders, 
vtrtisement  in  a  newspaper.     In  the  latter 

109 


108.] 


CALLS. 


[CH.  VII. 


porate  debts.  In  such  cases  a  court  of  equity  will  disregard  the 
formality  of  a  call,  and  will  order  the  unpaid  subscriptions  to  be 
paid  to  a  receiver  for  the  benefit  of  the  corporate  creditors.^ 

The  courts  may  properly  hold  that  it  is  not  discretionary  with 
the  directors  to  say  whether  the  company's  debts  shall  be  paid  or 
not.  And  this  is  the  rule  even  though  the  statute  provide  that 
calls  shall  be  made  by  the  directors.^  There  has  been  some  doubt 
as  to  whether  the  writ  of  mandamus  would  lie  to  compel  the 
directors  to  make  the  call,^  but  the  authorities  seem  to  hold  that 


'  "  It  is  well  settled  that  when  stock 
is  subscribed  to  be  paid  upon  call  of  the 
company,  and  the  company    refuses    or 
neglects  to  make  the  call,  a  court  of  equity 
may  itself  make  the  call,  if  the  interests 
of  the  creditors  require  it."     Scoville  v. 
Thayer,  105  U.  S.  143  (1881) ;  Glenn  v. 
Williams,  60  Md.  93 ;  Glenn  v.   Sample, 
Alabama,  December,    1885.       "A    com- 
pany call  is  but  a  step  in  the  process  of 
collection,  and  a  court  of  equity  may  pur- 
sue its  own  mode  of  collection,  so  that  no 
injustice  is  done  to  the  debtor."     Hatch 
V.  Dana,  101  U.  S.  205  (1879).     See  also 
Myers  v.  Seeley,  10  Natl.  Bank.  Reg.  411 ; 
Sanger  v.  Upton,  91    U.   S.  56  (1875); 
Wilbur  V.  Stockholders,  etc.,  18  Bank.  Eg. 
178.     Where  the  corporation,  being  in- 
debted,  has  the  power  to  call,  and  does 
not  choose  to  exercise  it,  equity  at  the 
instance  of  creditors  will  exercise  it  for 
them.      Marsh   v.   Burroughs,  1  Woods, 
463   (1871);  Boeppler  I'.  Menown,  7  Mo. 
App.    447  (1885);  Adler  v.    Milwaukee 
Patent  B.  Mfa;.   Co.  13  Wis.  57  (1860); 
Glenn    v.   Dodge,    3    Central    Rep.     283 
(1886) ;  Ward  v.  Griswoldville  Mfg.  Co., 
16  Conn.  593(1844);    Miller's    Case.   54 
L.   J.  (Ch.)   141   (1885) ;  Henrv  v.   Ver- 
milion &  Ashland  R.  R.  Co.,  17  0.  187 
(1848) ;  Ogilvie  v.  Knox  Ins.  Co.,  22  Hun, 
380  (1859)";  Curry  v.  Woodward,  53  Ala. 
371  (1875);  Chandler  v.  Keith,  42  Iowa, 
99  (1875) ;  Shacklev    v.  Fislier,  75  Mo. 
498  (1882).     The  filing  of  the  bill  in  the 
suit   in   equity  is   equivalent   to   a   call. 
Hatch   V.    Dana,    101  U.   S.  205  (1879); 
Thompson  v.  Reno  Sav.  Bank.  Pac.  Rep., 
Jan'y  21,  1886  (ISTev.).     A  late  case  holds 
that  a  decree  in  a  chancery  suit  is  equiva- 
lent to  a  call.    Glenn  v.  Saxton,  California, 
January,  1886.     Where  an  assignment  is 
made  by  the  corporation  for  the  benefit 
of  creditors,  the    statute    of    limitations 
begins  to  run  within  a  reasonable  time, 
even  if  no  call  is  made.     Glenn  v.  Dor- 
sheimer,   24  Fed.    Rep.   536  (1885).     In 

liO 


Missouri  it  has  been  held  that  there  can 
be  no  garnishment  of  an  unpaid  subscrip- 
tion until  after  a  call  has  been  made. 
Parks  V.  Heman,  7  Mo.  App.  14  (1879). 
In  New  York  there  are  a  few  dicta  t  >  the 
effect  that  calls  by  the  directors  are  nec- 
essary before  unpaid  subscriptions  can 
be  enforced  for  the  benefit  of  corporate 
creditors.  Seymour  v.  Sturgess,  26  X. 
Y.  134  (1862);  Mann  v.  Pentz,  3  N.  Y. 
415  (1850).  But  the  prevailing  rule  is 
sustained  in  Sagory  v.  Dubois,  3  Sandf. 
Ch.  466  (1846),  which  says,  "  The  articles, 
it  is  true,  in  effect,  require  that  calls 
should  be  made  by  the  directors,  and 
probably  the  association  could  not  main- 
tain an  action  at  law  until  such  calls  were 
regularly  made,  but  that  does  not  impair 
the  remedy  in  behalf  of  the  receiver." 

-  Glenn  v.  Saxton,  supra;  Crawford 
V.  Rohrer,  59  Md.  699  (1882).  Contra, 
Paper  Co.«.  Waples,  3  Woods,  34  (1877), 
where  the  charter  prescribed  that  calls 
should  be  only  by  a  three  fourths  vote  of 
the  stockholders. 

2 "  A  chancellor  will  compel  the 
directors  to  make  the  calls  required  by 
the  charter  whenever  his  aid  is  invoked 
by  creditors  or  the  representations  of 
creditors."  Germantown  Passenger  Ry. 
Co.  V.  Fitler,  60  Pa.  St.  124  (1869).  The 
three  English  cases,  usually  cited  on  this 
point,  do  not  hold  that  a  mandamus  lies 
herein.  Queen  v.  Victoria  Park  Co.,  1 
Ad.  &  El.  N.  S.  544 ;  Queen  v.  Ledyard, 
Id.  616;  King  V.  Katharine  Dock  Co.,  4 
Barn.  &  Ad.  360  (1832).  In  the  case  of 
Dalton  &.  Morgniitown  R,  R.  Co.  v.  Mo- 
Daniel,  56  Ga.  191  (1876),  the  court  held 
that  a  mandamus  was  unnecessary,  on  the 
ground  that  the  remedy  by  bill  was 
easier  and  more  complete,  and  that  justice 
would  be  better  administered  in  this  way 
by  an  account  of  all  the  corporate  debts, 
and  of  all  liabilities  of  solvent  stock- 
holders, taken  bv  a  master  in  chancery. 
In  Hatch  v.  Dana,  101    U.  S.  205  (1879), 


CH.  VII.] 


CALLS. 


[§§  109,  110. 


the  writ  will  not  lie  for  this  purpose.  The  usual  procedure  to 
collect  unpaid  subscriptions  is  an  order  of  a  court  of  equity  made 
in  a  suit  brought  by  corporate  creditors  for  the  purpose  of  apply- 
ing corporate  assets  to  corporate  debts.^ 

§  109.  Who  has  authority  to  make  calls. — A  call,  in  order 
to  be  legal  and  enforceable,  must  be  made  by  the  proper  corporate 
authorities.  Generally  the  power  to  make  calls  is  vested  in  the 
directors  or  in  the  stockholders  at  large.  Unless  the  charter  or  a 
statute  makes  provisions  therefor,  the  question  as  to  who  shall 
make  calls  is  a  question  of  internal  arrangement.  If  no  provisions 
whatever  is  made  for  exercise  of  the  power,  it  seems  to  devolve 
upon  the  directors  under  the  general  principle  that  they  alone 
have  power  to  manage  and  superintend  the  financial  matters  of 
the  corporation,  and  to  exercise  all  corporate  powers,  except  those 
required  to  be  exercised  at  corporate  meetings.^  Even  though 
the  statute  authorizes  calls  by  the  stockholders,  yet  the  directors 
also  have  the  same  power.* 

§  110.   Calls  hy  directors. — Where  the  power  to  make  calls  is 

vested  in  the  directors,  a  call  made  by  those  who  are  directors  de 

facto  will  be  upheld.*    The  directors,  in  whom  the  power  to  make 


the  court  says  a  mandamus  "  can  avail 
only  when  there  are  directors.  The 
remedy  in  equity  is  more  complete."  In 
Ward  V.  Griswoldville  Mfg.  Co.,  16  Conn. 
693  (1844),  the  court  refused  a  manda- 
mus because  it  would  enforce  the  collec- 
tion of  only  a  few  debts.  Whereas  the 
remedy  in  equity  would  enforce  all  pro- 
portionately. 

'  "  Under  such  circumstances,  before 
there  is  any  obligation  upon  the  stock- 
holders to  pay  without  an  assessment  and 
call  by  the  company,  tliere  must  be  some 
order  of  a  court  of  competent  jurisdiction, 
or  at  the  very  least,  some  authorized 
demand  upon  him  for  payment."  Scoville 
V.  Thayer,  105  U.  S.  143  (1881).  In 
bankruptcy,  it  Heems,  the  assignee,  by 
succeeding  to  all  the  rights  of  the  cor- 
poration, may  make  a  call  and  enforce  it. 
Hatch  V.  Dana,  101  U.  S.  205  (1870). 

'  The  directors  may  make  calls  "  as 
they  may  do  all  things,  exce])t  such  as 
arc  to  be  done  by  the  shareholders  at  a 
general  meeting."  Ambergate,  N.  &  B. 
<t  E.  J.  Ily.  Co.  V.  Mitchell,  4  Ex.  Rep. 
640(1849). 

^  Id.     In  Ex  parte  Winsor,  3  Story  (C. 


C),  411  (1844),  it  was  held,  however,  that 
where  the  charter  gave  to  the  corpora- 
tion the  power  to  assess  stock,  it  must  be 
exercised  exclusively  by  the  stockholders 
in  meeting  assembled.  On  the  other 
hand,  in  Rives  v.  Montgomery,  S.  P.  R. 
Co.,  30  Ala.  92  (1857),  the  court  held  that 
stockholders  who,  by  charter,  have  power 
to  make  calls,  may  delegate  that  power 
to  the  directors. 

*  "  An  illegiil  election  of  directors  can- 
not be  set  up  in  resistance  of  the  payment 
of  stock,  but  would  be  a  case  for  a  quo 
warra7ito  to  oust  the  illegally  elected  di- 
rectors." Eakright  v.  Logansport  &  N. 
Ind.  R.  R.  Co.,  13  111.  404;  Johnson  v. 
Crawfordsville  R.  R.  Co.,  11  Ind.  280 
(1858);  Fairfield  C.  T.  Co.  v.  Thorp,  13 
Conn.  173  ;  Steinmitz  v.  Versailles  R.  R. 
Co.,  57  Ind.  457  (1877) ;  Macon  R.  R.  Co. 
V.  Vason,  57  Ga.  314  (1876);  Athcrton  v. 
Sugar,  (fee,  Co.,  67  Ind.  334  (1879).  In 
the  case,  however,  of  Teople's  Mut.  Ins. 
Co.  V.  Westcott,  80  Mass.  440  (1800),  a 
call  by  directors  elected  at  a  meeting  held 
without  notice  was  declared  invalid  and 
not  enforcc.-ible.  in  England  tlic  courts 
will  inquire  into  the  right  of  directors  to 

111 


§  111] 


CALLS. 


[CH.  VII. 


calls  is  vested,  cannot  delegate  their  authority.^  It  is  a  power, 
the  exercise  of  which  involves  a  discretion  which  cannot  be  dele- 
gated to  others.  A  call  by  a  minority  meeting  of  the  directors, 
no  quorum  being  present,  is  void.^ 

§  111.  Assignment  of  subscription  iy  corjwration,  before  or 
after  call. — The  unpaid  and  uncalled  subscriptions  for  stock  can- 
not be  mortgaged  or  sold  by  the  corporation.  If  the  transfer  by 
the  directors  were  allowed,  "the  consequence  would  be  that  thie 
discretion  which  they  are  bound  to  exercise  would  be  wholly  de- 
feated and  put  an  end  to."  ^  The  power  of  making  calls,  being  a 
discretionary  one,  cannot  be  transferred  to  other  parties.  The 
transfer  is  void.  The  subscribers  are  bound  to  pay  their  sub- 
scriptions only  when,  in  the  opinion  of  the  proper  corporate  au- 
thorities, or  of  a  court  of  equity,  the  money  is  needed  for  cor- 
porate purposes.  This  power  of  ascertaining  and  determining  the 
extent  of  the  corporate  needs  being  a  discretionary  power,  cannot 
be  transferred  or  delegated  to  others.  A  different  rule  prevails, 
however,  after  a  call  has  been  made,  but  not  yet  collected,  and  a 
transfer  of  the  amount  already  called  is  legal  and  valid.* 


their  office,  in  cases  involving  the  validity 
of  calls.  Swansea  Dock  Co.  v.  Lewien,  20 
L.  J.  (Ex.),  447  (1851).  If  the  directors 
were  not  legally  elected,  their  calls  and 
forfeitures  of  stock  based  thereon  will  be 
set  aside.  Garden  Gully  U.  Q.  M,.  Co.,  L. 
R.  1  App.  Cas.  39  (1875). 

'  Rutland  &  Burlington  R.  R.  Co.  i. 
Thrall,  35  Vt.  536  (1863),  the  court  say- 
ing :  "  Where  the  charter  requires  the  di- 
rectors to  do  some  specific  act,  there  seems 
to  be  a  stronger  reason  why  they  should  be 
held  incapable  of  delegating  such  author- 
ity than  when  mere  general  powers  are 
conferred  on  them."  See  also  Banet  v. 
Alton  <fe  Sangamon  R.  R.  Co.,  13  111.  504 
(1851);  like  v.  Shore  Line,  68  Me.  445 
(1878) ;  Silver  Hook  Road  v.  Greene.  12 
R.  L  164  (1878)  where  it  was  dele- 
gated to  the  treasurer ;  Mut.  Ins.  Co. 
V.  Chase,  56  N.  H.  341  (1876),  citing 
authorities;  Monmouth  Mut.  F.  Ins.  Co. 
V.  Lowell,  59  Me.  504  (1871).  But 
where  the  power  is  delegated  and  exer- 
cised, the  call  may  be  ratified  by  the  di- 
rectors, and  will  then  be  valid.  Read  v. 
Memphis  Gayoso  Gas  Co., 9  Heisk.  (Tenn.), 
545(1872);  Rutland  &  B.  R.  R.  Co.  w. 
Thrall,  35  Vt.  536  (1863).  Although  the 
directors   cannot  delegate  the  power  to 

112 


make  a  call,  yet  they  may  delegate  the 
power  "  to  determine  the  amount  of  some 
of  the  instalments,  and  to  designate  the 
times  of  payment."  Banet  v.  Alton  <fe  S. 
R.  R.  Co.,  supra.  It  is  not  necessary  to 
allege  that  the  directors  were  duly  elect- 
ed. Miller  v.  Wild  Cat  G.  Road  Co.,  52 
Ind.  51  (1875) ;  Steinmetz  v.  Versailles  & 
O.  T.  Co.,  57  Ind.  457  (1877).  But  proof 
must  be  given  that  the  proper  authorities 
made  the  call.  N.  J.  Midland  Ry.  Co.  v. 
Strait,  35  N.  J.  L.  322  (1872). 

"  Price  V.  Grand  Rapids  &  Ind.  R.  R. 
Co.,  13  Ind.  58  (1859);  Hamilton  v.  Id., 
13  Ind.  347  (1859). 

3  Ex  parte  Stanley,  33  L.  J.  (Ch.),  536 
(1864).  To  same  effect,  see  N.  J.  Midland 
Ry.  Co.  V.  Strait,  35  N.  J.  L.  322  (1872); 
Wells  V.  Rodgers,  50  Mich.  294  (1883); 
Wallingford  Mfg.  Co.  v.  Fox,  12  Vt.  804 
(1840);  Bk.  of  South  Australia  ^.  Abra- 
hams, L.  R.  6  P.  C.  App.  262  (1875); 
Hurlbert  v.  Root,  12  How.  Fr.  511  (1855); 
Hill  V.  Reid,  16  Barb.  280  (1853);  Hurl- 
bert V.  Carter,  21  Barb.  221  (1855).  Cf. 
Smith  V.  Hallett,  34  Ind.  519  (1870), 
where  the  subscription  was  not  for  stock, 
but  as  a  bonus. 

••  Humber  Ironworks  Co.,  16  Weekly 
Rep.  474,  667  (1868);  Hills  v.  Rodgers, 


CH.  VII.] 


CALLS. 


[§§  112,  113. 


§112.  Interest  runs  from  the  time  the  call  is  due. — A  sub- 
scriber who  has  failed  to  pay  for  liis  shares  according  to  the  terms 
of  his  contract,  is  properly  chargeable  with  interest  from  the  time 
of  the  default,  and  the  company  cannot  be  compelled  to  issue  the 
stock  until  principal  and  interest  are  paid.^ 

§  113.  Stockholders  cannot  question  advisability  of  calls. — 
The  necessity  or  advisability  of  making  a  call  is  a  matter  which 
rests  exclusively  within  the  discretion  of  the  corporate  authorities 
who  have  power  to  make  the  call.^  A  stockholder,  when  sued 
upon  an  unpaid  call,  cannot  set  up  in  defense  that  there  was  no 
occasion  or  use  for  the  money.  The  call,  however,  must  be  for 
the  honajlde  purpose  of  raising  money  for  corporate  purposes. 
It  must  not  be  for  the  purpose  of  enabling  the  stockholders  to  use 
the  money  paid  in  to  the  detriment  of  the  creditors  of  the  failing 
corporation.^  A  court  of  equity  will  set  aside  calls  and  payments 
made  and  managed  with  a  view  to  discharging  the  stockholders' 
liability,  and  at  the  same  time  preventing  the  proceeds  from  being 
applied  to  the  general  corporate  debts.  Equity,  however,  will  not 
interfere  with  a  call  merely  because  the  money  received  may  be 
diverted  by  the  directors  to  an  act  or  enterprise  beyond  the  pow- 


50  Mich.  294(1883);  Miller  v.  Maloney, 
3  B.  Monr.  (Ky.)  105  (1842),  where  the 
call  was  assigned  to  the  railroad  contrac- 
tor who  owed  the  subscriber  for  work 
done;  Downie  v.  Hoover,  12  Wis.  174 
(1800);  Morris  v.  Cheney,  51  111.  451 
(1809),  where,  however,  it  is  not  clear 
that  a  call  had  been  made.  A  call  which 
has  b<'en  determined  upon,  but  not  defi- 
nitely made,  may  be  transferred,  where  it 
is  afterwards  duly  made  by  the  direct- 
ors, lie  Sankr-y  Brook  Coal  Co.,  L.  R.  9 
Eq.  Cas.  72 1  ( 1 870).  A  mortga^^e  on  all  the 
land,  jirofjerty,  and  effects  of  the  corpora- 
tion does  not  include  uncalled  subscrip- 
tions. Pickering  ?•.  Ilfracombe  Hy.  Co., 
37  L.  J.  (C.  P.)  118  (1868);  Lishman's 
Claim,  23  L.  T.  Rep.  (N.  S.)  759  (1870); 
King  V.  Marshall,  33  Beav.  565.  Cf.  Re 
Marine  M.  Co.,  L.  li.  4  Kq.  Cas.  601 
(1867). 

'  GouM  V.  Oneonta,  71  N.  Y.  298 
(1877);  Rikhoff  v.  Brown's  Rotary,  <fec., 
Co.,  68  Ind.  388.     See  also  Burr  v.  Wil- 


cox, 22  N.  Y.  551  (1860).  Cf.  Stocken's 
Case,  L.  R.  5  Eq.  6  (1867);  Cleveland  v. 
Burnham,  55  Wis.  598  (1886). 

-  The  question  of  the  necessity  for  the 
call  "  was  a  matter  for  the  determination 
of  the  board  of  directors."  Chouteau 
Ins.  Co.  V.  Floyd,  74  Mo.  286  (1881). 
"  The  question  whether  these  necessities 
demanded  the  payment  of  the  money  was 
for  the  directors."  Judah  r.  American  L. 
S.  Ins.  Co.,  4  Ind.  333  (1853). 

2  Habertsf)n's  Case,  L.  R.  5  Eq.  Cas 
286  (1808).  Thus,  where  the  amount,  })aid 
in  is  immediately  paid  out  to  the  directors 
for  fees,  the  transaction  is  fraudulent,  and 
is  set  aside.  Syke's  Case,  L.  R.  13  Eq. 
Cas.  255  (1871).  Nor,  on  the  other  hand, 
can  the  directors  delay  calls,  in  order  to 
enahle  them«elves  to  transfer  their  stock 
and  avoid  liabilities.  Gilbert's  (,'ase,  L. 
R.  5  Ch.  App.  559  (1870);  Preston  v. 
Grand  Collier  Dock  Co.,  11  Sim.  327 
(1840). 


[8] 


113 


|§  114,115.] 


CALLS. 


[CFI.  VII. 


ers  of  the  corporation.^     The  corporation  cannot  contract  to  post- 
pone indefinitely  a  call.^ 

§  114.  Calls  must  he  impartial  and  uniform.— A.  call  cannot 
be  made  on  a  part  only  of  the  subscribers.  It  must  be  made  on 
all  alike,  or  it  will  be  void.^  The  courts  will  not  allow  the  di- 
rectors of  a  company  so  to  proceed  as  to  require  some  stockhold- 
ers to  pay  calls  and  not  to  require  others  to  do  the  same.  Any 
such  attempt  will  be  promptly  set  aside  and  rectified.'* 

§  115.  Method  of  maMng  call. — No  formality  necessary. — 
There  are  no  prescribed  or  established  rules  stating  how  a  call 
ishall  be  made  by  the  corporate  authorities  authorized  to  make  it. 
Any  act  or  resolution  which,  in "  a  court  of  law,  would  prove  a 
clear  official  intent  to  render  due  and  payable  a  part  or  all  of  the 
unpaid  subscriptions,  seems  to  be  sufficient.  The  call  need  not 
indicate  when,  or  to  whom,  or  where  payment  is  required  to  be 
raade.^  These  are  to  be  stated  in  the  notice  of  the  call.  Mere 
irregularities  are  disregarded,  and  will  not  invalidate  the  call.® 


^  In  the  case  of  Bailey  v.  Birkenhead, 
L.  &  C.  J.  Ry.  Co.,  12  Beav.  433  (1850), 
the  court  said  :  It  is  not  within  the  juris- 
diction of  courts  "to  take  the  accounts 
and  make  the  inquiries  necessary  for  the 
purpose  of  ascertaining  whether,  under 
the  circumstances  to  which  the  company 
is  reduced,  and  in  a  continuing  concern,  it 
is  proper  in  the  due  management  of  the 
affairs  of  the  company,  to  raise  monej'  by 
way  of  calls  from  the  shareholders." 
Corporate  meetings  are  the  places  for  such 
complaints.  f?ee  also  Yetts  v.  Norfolk 
Ry.  Co.,  8  De  G.  <fe  Sm.  293  (1849). 

-  McComb  V.  Credit  Mobilier  of  Amer- 
ica, &c.,  13  Phil.  Rep.  468  (1878);  Van 
Allen  V.  111.  Central  R.  R.  Co.,  7  Bosw.  (N. 
Y.),  515.  The  last  case  holding,  how- 
ever, that  this  principle  does  not  prevent 
the  issue  of  bonds  convertible  into  stock 
whenever  the  stockholder  desires. 

■*  Pike  V.  Bangor  &  Calais  S.  L.  R.  R, 
Co.,  68  Me.  445  (1878). 

■*  Preston  n.  Grand  Collier  Dock  Co.,  11 
Sim.  327  (1840). 

5  Fox  V.  Aliensville,  C.  S.  &  V.  Turn- 
pike Co.,  46  Ind.  31  (1874);  Andrews. 
Ohio  &  M.  R.  R.  Co.,  14  Ind.  169  (1860). 
In  the  case  Great  Noith  of  Eng.  Ry.  Co. 
V.  Biddulph,  7  Mees.  &  W.  243 '(1840),  B. 
Parke  held  that  the  resolution  for  a  call 
need  not  state  the  place  of  payment  nor 
the  person  to  whom  it  was  paj'able.    See 

lU 


also  Marsh  v.  Burroughs,  1  Woods,  463 
(1871),  holding  that  the  call  need  not 
specify  either  time  or  place.  See  also 
Rutland  v.  Burlington  R.  R.  Co.  v.  Thrall, 
35  Vt.  536  (1863),  that  the  place  need  not 
be  stated. 

Call  made  in  a  new  name  legally  as- 
sumed by  the  corporation,  is  binding  on 
subscribers  who  knew  of  the  change  of 
name.  Shackleford  v.  Dangerfield,  L.  R. 
3  C.  P.  407  (1868). 

•>  Irregularities  are  no  defense.  The 
remedy  is  to  revoke  or  set  aside  the  call. 
"  Call  in  fact  made  means  that  if  made, 
arid  notice  be  given,  ...  a  party 
shall  not  wait  to  take  advantage  of  any 
irregularity  at  the  trial."  Re  British 
Sugar  Ref.  Co.,  3  K.  &  J.  408  (1857); 
Southampton  Dock  Co.  v.  Richards,  2 
Railw.  Cas.  215,  234  (1840);  s.  c.  1  Man.  <fe 
Gr.  448.  See  also  Shackleford  v.  Danger- 
field,  L.  R.  3  C.  P.  407  (1868).  An  error 
in  the  call  may  be  corrected  and  cured  by 
a  subsequent  call  made  after  the  first  lia- 
bility accrued,  but  before  suit.  Phil.  & 
West  Chester  R.  R.  Co.  v.  Hickman.  28 
Pa.  St.  318.  A  director  who  participated 
in  making  the  call  cannot  set  up  infor- 
malities for  the  purpose  of  defeating  it. 
Hays  V.  Pittsburgh  &  S,  R.  R.  Co.,  38  Pa. 
St.  81  (1860);  Stone  v.  Great  Western 
Oil  Co.,  41  111.  85  (1866).  Payment  and 
acquiescence  in  inforiuality  as  to  one  call 


CH.  \ 


II.] 


CALLS. 


[§  116. 


The  substantial  fact  must  exist  that  the  proper  corporate  officers 
voted  or  declared  that  payment  be  required.  Hence  the  ele- 
ments of  a  call  seem  to  be  that  it  shall  be  by  the  proper  persons 
acting  officially ;  and  that  a  resolution,  susceptible  of  legal  proof/ 
be  passed,  that  a  certain  amount,  either  the  whole  or  part,^  of  the 
subscriptions  for  stock  shall  be  paid  in. 

§  IIG  Time,  place,  amount,  and  person  to  ivliom  payalile. — 
The  time,  and  place,  and  person,  to  whom  calls  are  to  be  paid  need 
not  necessarily  be  designated  or  fixed  by  the  persons  authorized 
to  make  the  call.*  These  are  duties  which  may  be  performed  by 
other  officers  of  the  corporation,  and  frequently  either  the  presi- 
dent or  treasurer  of  the  corporation  performs  this  work.  The 
time  of  payment  should  be  reasonable,*  as  also  siiould  be  the  place. 
If  no  place  or  person  to  receive  payment  is  designated,  it  is  to  be 
paid  to  the  treasurer  at  his  office.^  Tiie  amount  called  need  not 
be  made  payable  in  one  sum  at  one  time,  but  may  be  made  due 
in  instalments.® 


waives  it  as  to  another  call.  Macon  <fe 
Augusta  R.  R.  Co.  v.  Vason,  57  Ga.  314 
(1876). 

'  A  call  by  the  directors  is  valid,  al- 
though no  entry  of  the  resolution  is  made 
in  the  mitiutes  of  the  directors'  meeting. 
Hays  V.  Pittsburgh  &  S.  R.  R.  Co.,  supra. 
An  entry  of  the  resolution,  made  by  the 
eecrctary  in  the  book  containing  the  min- 
utes, is  sufficient.     Fox  v.  Allensville  C. 
S.  &  V.  T.  Co.,  46  Ind.  31   (1874).     An 
authorized  subsequent  call  is  competent 
proof  of  the  validity  of  a  previous  call. 
Bariiiglon  v.  Piitsburgh   &  S.  R.  R.  Co., 
34   Pa.    St.    358  (1859).     The   corporate 
books  are  competent  to  prove  both  the 
call  and  the  mode  of  payment.    Barington 
V.  Pittsburgh,  <fec.,  R.  R.  Co.,  supra;  Com- 
fort V.  Leland,  3  Whurt.  (Penn.)  81  (1837). 
''  The  c:dl  may  be   for  the  wiiole  siil)- 
scription.      Fox  v.  Allensville  C.  S.  &  V. 
T.  (;o.,  46  Ind.  31  (1874).     May  be  for  the 
whole  or  for  part.     Jlann  v.  Mulbeiry  & 
Jefferson  G.  R.  Co.,  33  Ind.  103  (1870); 
Stone  V.  Great  Western  Oil  Co.,  41  111.  85 
(1866);   Spanglcrv.  Ind.  &  III.  Central  R. 
R.  Co.,  21    III.  276  (187)9);   Ross  ?;.  Lafa- 
yette &  Indianapolis  li.  R,  Co.,  6  Ind.  297 
(1855).     Kveii  though  it  be  expressly  pro- 
vided that  only  a  certain  sum  shall  be 
assessed  at  one  time,  yet  several  assess- 
ments, each  one  not  in  excess  of  the  stated 
sum,  maj'  be  oidereil    by  a  single  vote. 
Penobscot  R.  R.Co.  w.Dummer,4UMe.l72; 


Penobscot  R.  R.  Co.  v.  Dunn,  39  Me.  587 
(1855). 

■^  See  supra,  note  5.  The  directors 
themselves  may  fix  the  time,  place,  and 
manner  of  payment,  even  at  a  meeting 
subsequent  to  the  meeting  ordering  a  call. 
The  call  may  be  prospective.  The  direct- 
ors may  order  that  on  a  certain  date  a 
call  payable  at  a  later  date  shall  be  made. 
Sheffield  &  Manchester  Ry.  Co.  v.  Wood- 
cock, 7  Mees.  &  W.  574  (1840).  The  sub- 
scription itself  may  regulate  the  time  of 
payment.  N.  J.  Midland  Ry.  Co.  v. 
Strait,  35  N.  J.  L.  322  (1872);  Roberts  v. 
Mobile  A  0.  R.  R.  Co.,  32  Miss.  373(1856). 
Even  though  the  statute  provides  other- 
wise. Iowa  &  Minn.  R.  R.  Co.  v.  Perkins, 
28  Iowa,  281  (1869). 

■*  Fairfield  County  Turnpike  Co.  v. 
Thorp,  13  Conn.  173  (1839).  The  time 
between  payment  of  instalments  is  entire- 
ly within  the  discretion  of  the  directors, 
there  being  no  provision  regulating  the 
subject.  Hall  v.  U.  S.  Ins.'  Co.,  4  Gill 
(Md. ),  484. 

•''  A  resolution  of  the  directors  that  the 
instalments  should  be  paid  in  at  the  times 
therein  designated,  "  imports  thiit  pay- 
ments should  be  made  to  the  treasurer, 
who  is  the  proper  and  only  otfici'r  to  re- 
ceive and  keep  the  moneys  of  the  cor- 
poration." I)anl)ui'yife  Norfolk  \l.  R.Co. 
V.  Wilson,  22  (.'onn.'4:!r.  (185;i). 

'*  London  <fe  Nortii  West.   Ry.   Co.   v. 

115 


§§117,118.] 


CALLS. 


[CH. 


VII. 


§  117.  Notice  of  calls. — Cases  holding  it  not  necessary. — 
There  is  a  wide  and  irreconcilable  difference  of  opinion  among 
the  authorities  on  the  question  whether  notice  of  a  call  must  be 
given  to  a  stockholder  before  suit  can  be  brought  for  the  collec- 
tion of  the  call. 

Frequently  either  the  charter,  or  a  statute,  or  the  by-laws  of 
the  corporation,  require  notice  to  be  given,  and  in  such  cases  no- 
tice is,  of  course,  necessary,  in  order  to  sustain  suit.^  But  where 
there  is  no  provision  in  the  charter,  or  statute,  or  by-laws,  or  sub- 
scription itself,  prescribing  that  notice  of  calls  shall  be  given  to 
the  stockholders,  the  weight  of  authority  holds  that  no  notice  is 
necessary,  and  that  an  action  to  collect  the  call  may  be  maintained 
without  averring  or  proving  such  a  notice.^ 

§118.  Notice  of  calls. — Cases  liolding  it  necessary. — There 
is,  however,  sti-ong  authority   for  the  rule  that  notice  of  calls 


McMidiael,  4  Eng.  L.  &  Eq.  459  (1851): 
Birkenhead  L.  &  C.  Ry.  Co.  i^.Webster,  Id. 
461  (1851);  Ambergate  Ry.  Co.  v.  Nor- 
cliff,  Id.  461  (1851);  not  following  Strat- 
ford &  M.  Ry.  Co.  V.  Stratlon,  2  B.  tfe  Ad. 
519  (1831).  In  Birkenhead  L.  &  E.  lly. 
Co.  V.  Webster,  as  reported  in  6  Ex.  277, 
the  court  says  :  "  We  are  unanimously  of 
opinion  that  a  coll  payable  by  instalments 
is  good,  although  debt  will  not  lie  for  one 
instalment  until  all  the  instalments  are 
due  and  payable."  In  Hays  v.  Pitts- 
burgh &  Steubenville  R.  R.  Co.,  38  Pa.  St. 
81  (I860),  the  court  held  that  the  direc- 
tors by  one  resolution  could  call  in  the 
balance  of  the  subscriptions,  making  the 
call  payable  in  instalments,  due  at  differ- 
ent times.  To  the  same  effect  see  Rutland 
<fe  Burlington  R.  R.  Co.  v.  Thrall,  35  Yt. 
536  (1863);  Lewis'  Case.  28  L.  T.  (N.  S.) 
396,  holding  that  several  assessments, 
payable  at  different  times,  may  be  made 
by  one  vote,  where  the  call  was  by  the 
court. 

'  In  many  of  the  States  there  exist 
statutes,  very  similar  in  their  terms,  that 
notice  shall  be  given  of  calls,  and  that  in 
case  of  non-payment  the  stock  may  be 
forfeited.  These  statutes  have  received 
different  interpretations  in  different 
States.  The  usual  construction  is  that 
the  notice  required  therein  refers  only  to 
the  forfeiture  proceedings,  and  does  not 
necessitate  notice  before  bringing  a  suit  at 
law  for  the  collection  of  the  call.  Smith 
V.  lud.  &  111.  Ry.  Co.,  12  Ind.  61  (1859); 
Lake  Ontario,  Auburn,  <fe  N.  Y.  R.  R.  Co. 

116 


V.  Mason,  16  N.  Y.  451,  464  (1857).  In 
other  States  such  a  statute  is  construed 
to  require  notice  before  suit.  Hughes  v. 
Antietam  Mfg.  Co.  34  Md.  316  (1870); 
Granite  Roofing  Co.  v.  Michaels,  54  Md. 
65  (1880) ;  Dexter  &  Mason  P.  R.  Co.  v. 
Millerd,  3  Mich.  91  (1854);  111.  River  R. 
R.  Co.  V.  Zimmer,  20  111.  654  (1858), 
holds  that  a  statute  regulating  notice  of 
calls  does  not  release  tlie  stockholder. 

•^  Wilson  V.  Wills  Valley  R.  R.  Co., 
33  Ga.  466  (1 863) ;  Eppes  v.  Miss.,  Gaines- 
ville, <fe  Tuscaloosa  R.  R.  Co.,  35  Ala. 
33  (1859);  Grubb  v.  Mahoning  Nav. 
Co.,  14  Pa.  St.  302  (1850);  Gray  v. 
Moiiongahela  Kav.  Co.,  2  W.  &  S.  (Pa.) 
166  (1841);  Grubbe  v.  A^icksburg  & 
Brunswick  R.  R.  Co.,  50  Ala.  398  (1873); 
Eakright  v.  Logansport  &  Northern  Ind. 
R.  R.  Co.,  13  Ind.  404;  Johnson  v.  Craw- 
fordsville  R.  R.  Co.,  11  Ind.  280  (1858); 
New  Albany  &  Salem  R.  R.  Co.  v.  McCor- 
mick,  10  Ind.  499  (1858);  Fisher  v.  Evans- 
ville  &  C.  R.  R.  Co.  7  Ind.  407  (1856); 
Ross  V.  Lafayette  &  Indianapolis  R.  R. 
Co.,  6  Ind.  297  (1855);  Smith  v.  Ind.  & 
111.  Ry.  Co.,  12  Ind.  61  (1859).  In  the 
last  case  the  court  says :  "  These  decisions 
rest  upon  the  ground  that  the  contract  to 
pay  by  instalments  is  in  effect  a  promise 
to  pay  on  demand,  and  the  demand  in- 
volved in  the  suit  itself  was  alone  suffi- 
cient." In  New  York,  since  no  call  is 
necessary,  no  notice  is  necessary.  Cf. 
Macon  &  Auiinsta  R.  R.  Co.  v.  Vason,  57 
Ga.  314  (1876). 


CH.  VII.] 


CALLS. 


[§  119. 


must  be  given  before  suit  is  brought  for  their  collection.^  The 
reason  for  this  rule  seems  to  accord  vrith  sound  legal  principles 
and  with  business  expediency.  It  is  a  well  established  principle 
of  law  that  when  the  fact  or  circumstances  upon  which  the  per- 
formance of  a  contract  depends  lies  more  particularly  in  the 
knowledge  of  the  promisee  than  the  promisor,  the  former  must 
give  the  latter  notice.  Hence  it  would  seem  that  since  a  sub- 
scription is  not  due  absolutely,  but  only  on  call,  and  the  time, 
place,  and  amount  of  the  call  is  fixed  by  persons  other  than  the 
subscribers,  the  better  and  more  reasonable  rule  would  be  that 
notice  of  the  call  should  be  required  and  must  be  given. 

§  119.  Methods  of  serving  notice  of  calls.— The  manner  and 
mode  of  giving  notice  has  given  rise  to  some  controversy.  Unless 
provision  is  expressly  otherwise,  the  notice  must  be  given  by 
handing  to  the  subscriber  a  written  notice,  or  by  informing  him 
orally  that  the  call  has  been  made,  giving  the  amount,  time, 
place,  and  person  to  whom  payment  is  to  be  made.^  Where 
the  notice  is  served,  not  personally,  but  by  mail,  the  notice  is 
effective  only  in  case  it  is  actually  received.^  Whether  it  was 
80   received  is  a  question   for  the   jury.*      A  publication  of  a 


'  Wear  v.  Jacksonville  &  Savannah 
R.  R.  Co.,  24  111.  593(1860);  Shansjler  v. 
Ind.  &  111.  Central  R.  R.  Co.,  21  111.  276 
(1859).  Cf.  Peake  v.  Wabash  R.  R.  Co., 
18  III.  88(1856),  holding  that  notice  is 
unnecessary.  In  the  case  Carlisle  v.  Ca- 
hawba  <fe  Marion  R.  R.  Co.,  4  Ala.  (N.  8.) 
70  (1842),  tlie  court  says  thai  notice  must 
be  given,  since  "  the  times,  amount  of 
instalments,  and  manner  of  payment  were 
all  to  be  prescribed  by  the  president  and 
directors  cf  the  corporation,  dept'iuled 
upon  their  volition  and  action,  and  con- 
sequently was  more  properly  within  their 
knowledge."  See  also  Scarlett  v.  Acad- 
emy of  Music,  43  M<1.  203(1875);  Essex 
Bridge  Co.  v.  Tuttlo,  2  Vl.  393  (1830); 
Rutland  A  liurlington  R.  R.  Co.  v.  Thrall, 
35  Vt.  536  (1863J;  Miles  v.  Bough,  3  Q. 
B.  845  (1842);  Alabama  &  Florida  R.  R. 
Co.  V.  Rowley,  9  Fla.  508  (1861).  In 
Hughes  V.  Antietam  Mfg.  Co.,  34  Md.  316 
(1870),  t,he  court  says:  "To  say  that  it 
[notice]  is  unnecessary,  because  the  sub- 
scribers, who  may  be  living  in  ilifTcrciit 
parts  of  the  county,  and  perliaps  the 
State,  are  presumed  in  law  to  know  all 
that  is  done  by  the  directors,  seeins  to  us 
to  be  raising  a  presumption  again.st  the 
truth   itself." 


-  The  notice  need  not  be  written. 
Verbal  notification  suffices.  Smith  v. 
Tallahassee  Plank  Road  Co.,  30  Ala.  650- 
666  (1857).  *  Notice  to  pay  to  the  treas- 
urer sufficiently  indicates  the  place  of 
payment.  It  is  understood  to  be  at 
his  office.  Muskingum  Valley  T.  Co.  v. 
Ward,  13  0. 120  (1844).  Contra,  Dexter 
<Sl  Mason  P.  R.  Co.  v.  Millerd,  3  Mich.  91 
(1854).  It  must  be  proved  to  have  been 
sent  bv  authorized  persons.  Miles  v. 
Bough,^  3  Q.  B.  845  (1842).  Notice  to 
various  parties  in  the  neighborhood  is 
not  sufficient.  New  Jersey  Midland  Ry. 
Co.  V.  Strait,  35  N.  J.  L.  322  (1872).  No 
particular  form  of  notice  is  necessary. 
The  only  question  is  "  whether  the  notice 
gives  tlie  shareholder  to  understand  that 
a  call  has  been  made,  and  that  lie  is  re- 
quired to  pay  the  amount  on  a  given  daj'." 
Shackleford  v.  Dangerfield,  L.  R.,  3  C.  P. 
407(1808). 

•*  "Constructive  notice  by  mail  is  not 
a  personal  notice,  althoiigli  in  some  cases 
by  express  statutory  provision,  it  is  suf- 
ficient to  bind  parti-s."  Hughes  v.  .\n- 
tietam  Mfg.  Co.,  34  Md.  316  (1870). 

•■  \  notice  of  a  call  may  be  by  mail. 
If  the  subscriber  denies  thai  he  received 
it,  the  question  is  for  the  jury.    nraddr)ck 

117 


119.] 


CALLS. 


[CH.  vn. 


notice  in  a  newspaper  is  not  binding  and  effectual,  unless  it 
be  proved  that  the  subscriber,  who  is  sued,  actually  read  the 
notice  as  published.^  A  personal  notice  is  sufficient,  although 
the  charter,  statute,  or  by  laws  provides  for  notice  by  publica- 
tion.^ An  express  promise  of  the  subscriber  to  pay  a  call  which 
has  been  already  made,  is  presumptive  evidence  that  he  had 
notice  of  that  call.^  ]N^otice  by  publication,  given  under  the 
autliority  of  a  statute,  charter,  or  by-law,  must  strictly  comply 
with  the  provisions  prescribed  as  to  the  time  and  formalities.* 


R.    Co.   V. 
the    court 


V.  Phi].,  Marlton  &  Medford  R.  R.  Co., 
45  N.  J.  Law  R.  363  (1883).  Only  the 
person  actually  mailing-  the  notice  can 
testify  to  that  fact.  Jones  v.  Sisson,  72 
Mass.  288  (1856). 

'  In  Alabama  &  Fla.  R 
Rawley,  9  Fla.  508  (1861), 
says  such  a  mode  of  n(jtice  "might  be 
attended  with  irreparable  injury  to  inno- 
cent parties."  See  also  dichcm,  in  Lake 
Ontario,  Auburn  &  N.  Y.  li.  R.  Co.  v. 
Mason,  16  N.  Y.  451  (1857).  In  the  case 
of  Schenectady  <fe  S.  P.  R.  Co.  v.  Thatcher, 
11  N.  Y.  102  (1854),  where  the  char- 
ter prescribed  notice  by  publication  or 
by  mail,  a  director  who  aided  in  givino; 
the  notices  was  held  to  have  had  personal 
notice  and  to  be  bound.  "  Personal  serv- 
ice of  due  notice  is  clearly  more  advan- 
tageous CO  the  defendant,  than  either  an 
advertisement  in  a  newspap*,  or  a  notice 
sent  by  mail."  See  also  Lexington  & 
West  Cambridge  R.  R.  Co.  v.  Chandler, 
13  Mete.  311. 

In  the  case  of  Lincoln  v.  Wright,  23 
Penn.  St.  76  (1854),  not  a  corporation  case, 
Judge  Jeremiah  Plack  said  that  a  notice 
by  publication  in  a  newspaper  was  no 
notice,  unless  actually  read  by  the  person 
charged  with  the  notice.  "It  must  be 
proved  that  he  read  it,  otherwise  it  is  no 
stronger  than  proof  that  the  fact  was 
orally  and  publicly  uttered  at  a  place 
where  lie  was  not  present.  .  .  Where 
the  law  requires  notice  to  be  given  to  a 
party  before  a  liability  can  be  fixed  upon 
him,  and  the  mode  of  giving  such  notice 
is  left  undetermined,  it  should  be  given 
personally  and  in  fact,  and  so  proved." 
On  the  other  hand,  in  Hall  v.  U.  S.  Ins. 
Co.,  4  Gill  (Md.),  484  (1847),  notice  of  a 
call  by  newspaper  was  held  sufficient. 
The  court  said  :  "  There  is  no  propor- 
tionate object  attained  by  the  great  in- 
convenience, labor,  and  expenses  incident 
to  personal  notice.  The  substitution  of 
such   newspaper   publication    in    lieu    of 

118 


personal  notice,  has  so  long  been  an  uni- 
versal usage,  and  of  a  notoriety  equal  to 
that  of  a  publication  of  newspapers  them- 
selves, that  the  cu.stoni  of  doing  so  has 
become  a  part  of  the  law  of  the  land." 
See  also  Louisville  &  E.  T.  R.  Co.  v. 
Meriwether,  5  B.  Monr.  (Ky.)  13  (1844), 
to  the  same  effect,  and  dictum  in  Danbury 
&  Norfolk  R.  R.  Co.  v.  Wilson,  22  Conn. 
435  (1853). 

'^  lu  the  case  Miss.,  Ouachita  &  Red 
River  R.  R.  Co.  v.  Caster,  20  Ark.  455 
(1859),  the  statute  prescribed  sixty  days 
notice  by  publication.  Actual  personal 
notice  was  given,  and  no  publication  was 
had.  The  court  sustained  the  notice  and 
said :  "  One  of  the  criterions  by  which  to 
determine  whether  the  requirements  of  a 
statute  are  imperative  or  merely  directory 
is  that  those  acts  which  are  of  the  essence 
of  the  thing  required  to  be  done  are  im- 
perative, while  those  which  are  not  of  the 
essence  are  directory.  .  .  The  giving 
of  sixty  days  notice  is  imperative  and 
must  be  strictly  complied  with,  because 
it  is  of  the  essence  of  the  thing  re- 
quired to  be  done — the  mode  of  doing  so 
is  directory,  because  not  of  the  essence, 
and  may  be  either  by  jmblication  in  the 
manner  prescribed  by  the  charter  or  by 
actual  personal  notice."  Cf.,  xemble,  in 
Tomlin  v.  Tonica  <fe  Petersburg  R.  R.  Co., 
23  111.  429  (1860). 

3  Miles  V.  Bough,  3  Q.  B.  845  (1842); 
Fairfield  County  Turnpike  Co.  v.  Thorp, 
13  Conn.  173  (1839). 

''  Where  twenty  days  notice  was  re- 
quired, jjroof  of  sending  notice  is  insuf- 
ficient. Must  prove  the  time  of  sending. 
Cole  V.  Juliet  Opera  House  Co.,  79  111.  96 
(1875).  Notice  by  publication  "  at  least 
sixty  days  "  is  satisfied  by  one  publica- 
tion sixty  days  or  more  before  the  time 
of  payment.  Muskingum  Valley  T.  Co. 
V.  Ward,  13  0.  120  (1844):  Marsh  v. 
Burroughs,  1  Woods,  463  (1871);  Frx  v. 
AUensville,  C.  S.  &  V.  T.  Co.,  46  Ind.  31 


CH.  vn.] 


CALLS. 


[§  120. 


§  120.  Demand,  waive)',  pleadings,  c&c. — After  notice  lias 
been  ^'iven,  no  demand  is  necessary  before  bringing  suit  to 
collect.^  The  subscriber  may,  by  his  acts  or  express  agree- 
ment, waive  the  call  itself,  or  informalities  in  its  making,  or 
notice  thereof.^  It  is  immaterial  that  other  shareholders  liave 
had  no  notice  of  the  call,^  The  proof  of  calls  and  of  notice, 
when  required,  must  be  clear  and  complete.^  The  pleadings  in 
an  action  on  calls  must  allege  the  various  facts  which  complete 
the  obligation  of  the  subscriber  to  pay,^ 


(1874).  Fifty-nine  days  is  insufficient 
where  sixty  days  is  prescribed.  Macon 
<fe  Augusta  R.  R.  Co.  v.  Vason,  57  Ga. 
314  (1876).  The  printed  notice  must  be 
put  ia  evidence.  Rutland  &  Burlington 
R.  R.  Co.  V.  Thrall,  35  Vt.  536  (1863). 
Proof  of  several  insertions  is  by  copy  of 
first  insertion  and  the  testimony  of  the 
publisher  that  the  others  were  made. 
Unthank  v.  Henry  County  T.  Co.,  6  Ind. 
125  (1855).  The  secretary  of  the  corpo- 
ration caimot,  by  a  certificate,  prove  pub- 
lication of  notice.  Tomlin  v.  Tonica  & 
P.  R.  R.  Co.,  23  111.  429  (1860). 

'  Peoobscot  R.  R.  Co.  v.  Dummer,  40 
Me.  172;  Goodrich  v.  Reynolds,  31  111. 
491  (1863);  Winters  v.  Muscogee  R.  li. 
Co.,  11  Ga.  438  (1852).  Cf.  Spangler  v. 
Ind.  <fe  111.  Central  R.  R.  Co.,  21  111.  276 
(1859),  holding  that  one  demand  made 
for  several  assessments  suffices. 

"-  iMacon  &  A.  R.  R.  Co.  v.  Vason,  57 
Ga.  314  (1876).  Payment  of  pai-t  of  sub- 
scription is  no  waiver  of  right  to  have  a 
call  made  for  the  balance  before  prtyinent. 
Grosse  Isle  Hotel  Co.  v.  Ex'rs  of  L' Anson, 
42  N.  J.   L.  442  (1881).     The  vote  of  a 


city  to  pay  a  call  is  no  waiver  of  its  in- 
validity. Pike  V.  Bangor  &  Calais  Shore 
Line  R.  R.  Co.,  68  Me.  445  (1878).  The 
waiver  must  be  clearly  proved,  Rutland 
&  B.  R.  R.  Co.  V.  Thrall,  35  Vt.  536 
(1863). 

2  Newry  &  Enniskillen  Ry.  Co.  v,  Ed- 
munds, 2  Ex.  Rep.  118  (1848);  Shackle- 
ford  V.  Dangerfield,  L.  R.,  3  C.  P.  407 
(1868). 

*  Scarlett  v.  Academy  of  Music,  43 
Md.  203  (1875).  This  case  holds  also  that 
calls  may  be  proved  by  reading  extracts 
from  the  minutes  of  the  directors'  meet- 
ings, without  putting  the  books  in  evi- 
dence. 

'  Must  allege  that  the  instalments  are 
all  due  and  payable,  where  several  are  sued 
on.  Betliel  <fe  Hanover  T.  Co.  v.  Bean, 
58  Me.  89(1870).  At  common  law,  the 
count  set  out  in  the  declaration,  shoiJd 
be  not  on  the  contract  of  subscription, 
but  iu  indebitatus  assumpsit  for  calls,  or 
instalments  due.  Peake  v.  Wabash  R.  R. 
Co.,  18  111.  88  (1856).  For  the  customary 
averments,  see  Spangler  v.  Ind.  <fe  111. 
Central  R.  R.  Co.,  21  III.  276  (1859). 


119 


CHAPTER  VIII. 


FORFEITURE  OF  SHARES  FOR  NON-PAYMENT. 


121.  The  various  remedies, 

122.  The  remedy  by  a  strict  foreclos- 

ure. 

123.  Tlie  remedy  by  forfeiture  and  sale 

of  stock  is  by  statutory  authority 
only. 

124.  The  remedy  by  forfeiture  is  cumu- 

lative. 
126.  When  one  remedy  is  exhausted 
the  corporation  cannot  usually 
resort  to  another. 

126.  Ground  for  contrariety  of  view  as 

to  succession  of  remedies. 

127.  Forfeiture  relieves  the  shareowner 


whose  shares  are  forfeited,  from 
liability  to  corporate  creditors. 

128.  Motives  inducing  the  forfeiture  of 

stock. 

129.  Statutory  formalities  and  general 

method  of  forfeiture. 

130.  Notice  in  cases  of  forfeiture. 

131.  Notice  is  not  the  same  thing  as 

forfeiture. 

132.  Tender,    by   stockholder,    before 

forfeiture. 

133.  Surplus   after  valid  forfeiture,  be- 

longs to  the  corporation. 

134.  Equity  will  relieve  a  shareholder 

from  an  unauthorized  forfeiture. 


§  121.  The  various  remedies. — Whenever  a  subscriber  fails 
or  refuses  to  pay  for  the  shares  of  stock  for  which  he  has  sub- 
scribed, there  frequently  are  open  to  the  corporation,  particularly 
in  those  jurisdictions  where  the  contract  of  subscription  is  inter- 
preted to  be  a  contract  to  pay,  several  methods  for  enforcing 
the  contract.  There  is  the  remedy  of  a  close  foreclosure,  the 
remedy  by  forfeiture,  and  sometimes  there  is  but  one — name- 
ly, that  by  the  common  law  action  of  assumpsit.  The  last 
is  the  general  and  well  nigh  universal  remedy  in  most  cases. 
Still  another,  and,  perhaps,  the  most  unusual  remedy,  is  where 
the  corporation,  on  failure  of  the  subscriber  to  pay,  sues  for  the 
amount  of  the  subscription,  obtains  judgment,  and  then  proceeds 
to  sell  the  stock  under  an  execution  levied  to  collect  the  judg- 
ment.-^ 

Again,  it  has  been  held  that  the  corporation  may  have  an 
action  at  law  for  breach  of  contract,  the  measure  of  damages  be- 
ing the  difference  between  the  value  of  the  stock  at  the  price 
which  the  subscriber  was  to  pay  and  the  market  value  at  the  date 
of  the  refusal  to  pay.^ 


1  Chase  v.  East  Tenn.,  &c.,  R.  R.  Co.,  '  Rand  v.  White  Mountains  R.  R.  Co., 

5  Lea,  415.  40  N,  H.,  79   (1860). 

120 


CH.  VIII.]     FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.  [§  123. 

§  122.  Tlie  remedy  hy  a  strict  foreclosure. — A  strict  fore- 
closure of  shares  of  stock  corresponds,  in  general,  to  a  strict  fore- 
closure of  a  mortgage  of  realty.  Like  the  usual  foreclosure  of 
stock  by  a  forfeiture  and  sale,  it,  is  statutory,  and  can  be  em- 
ployed only  under  the  enabling  power  of  the  statute.  At  an 
early  day  in  New  England,  a  strict  foreclosure  in  these  cases  was 
practically  the  onl^^  remedy  open  to  the  corporation.  Upon  such 
a  foreclosure  the  stock  is  not  sold  at  public  sale,  but  is  taken  back 
into  the  possession  of  the  corporation  itself.  It  amounts  to  a 
statutory  cancellation  of  the  contract.-^ 

§  123.  The  remedy  hy  forfeiture  and  sale  of  stock  is  l)y 
statutory  authority  only. — In  addition  to  the  remedy  of  an  ac- 
tion at  law  to  compel  payment  of  a  subscription  for  stock,  there 
frequently  is  given  to  the  corporation  the  right  to  sell  the  sub- 
scriber's stock  for  non-payment  of  his  subscription,  and  apply 
the  proceeds  to  the  payment  of  that  subscription.  This  is  called 
a  forfeiture  of  the  stock.  It  is  not  a  common-law  remedy,  and, 
consequently,  can  be  resorted  to  by  the  corporation  only  w^hen 
power  to  make  the  forfeiture  is  given  to  the  corporation  by  stat- 
ute, or  by  the  act  of  incorporation.^ 

The  authority  to  forfeit  shares  for  non  payment  of  the  sub- 
scription cannot  be  created  by  a  by-law.^  Such  forfeitures  are 
wholly  void,  and  transfers  based  thereon  confer  no  rights  upon 
the  transferee.* 


•  Connecticut,  die,  R.  R.  Co.  V.  Bailey,  Perrin  v.  Granger,    30  Vt.    595  (1858); 

24Vt.  4G5;  Franklin  Glass  Co.  i;.  White,  Clarke  v.   Hart,   fi  H.   of   L.  Cases,   mz 

14  Mass.   286  (1817).      The  corporation  (1858) ;  ^xpaWe  Fletcher,  37  L. . J.  (Chan.) 

may  then  lawfully  sell  it  for  less  tlian  par.  49;   Stanhope's  Case,    L.    R.  1    Chan.  KU 

In    re    Exchange,    <fec.,    Co.    (Ramwell's  (18(55);     Kelk's    Case,    L.    R.    9   Eq.    107 

Case),  .^)U  L.  J.  (Chan.)  827  (1881).     Cf.  (1869);  Campbell's  Case,  L.  R.  9  Chan.   1 

the  leading  case,  People  v.  Albany  &  Siis-  (1873);  Dixon  v.  Evans,  L.  R.  5  II.  of  L. 

quehanna  R.  R.  Co.,  55  Barb.  344  (1869).  606  (1872). 

This  strict  foreclosure  in  the  case  of  stock  In  New  York,  by  statute,  this  power 

subscribed    but     not     paid    for,    is    fre-  is  conferred  both   on   railway  and  miiim- 

qiiently  called  a  forfeiture,    but   it   is  be-  facturiiig  companies.      Laws  of   1850,  ch. 

I'eved  that  it  is  more  strictly  accurate  to  140,  g  7  ;  Laws  of  1848,  ch.  40,  t^  6. 
apply  the  term  forfeiture  to  that  remedy  ^  Master    Stevedores'    A.s.sociation    v. 

only  which   involves  a  sale  of  stock  for  Walsh,  2  Daly,  14;   Matter   of  the  Long 

non-payment  of    subscription.     The   ten-  Island  R.  R.  Co.,  19  Wend.  37(1837);   s. 

deiicy  of  the  acts  of  iiicorjjoration  as  well  c.  32   Am.  Dec.  429;    Kirk   v.    Nowill,    1 

as  of  the  decisions,   is   to  discourage  and  Term    Rep.    llS  (1786).      Cf.    Kennebfc, 

do  away  with  a  .strict  foreclosure.  &c.,  R.  K.  Co.  v.   Kendall,    31    Me.   470 

MVestcott  V.  Minnesota,  (fee,  Co.,  23  (1850);    Cosenback    v.   Salt  Springs  Na- 

Mich.  145    (1871);   Williams   v.    Lowe,  4  tional  Bank,  53  Barb.  506. 
Neb.    382    (1876);     Ex    parte    Barton,    4  ^  Matter  of  the  Long  island  R.  R.  Co., 

De  G.  tfe  .1.  46  ;  s.  c.  28  L.  .1.  (CIku).)  637;  supra.     Yet  where  such  a  power  wascou- 

]21 


124.]         FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.       [CH.  vm. 


§  124.  The  remedy  hy  forfeiture  is  cumulative. — Frequently 
wheu  a  corj)oration  is  authorized  by  statute  to  forfeit  shares  for 
non-payment  of  the  subscription,  the  question  arises  whether  the 
statutory  remedy  of  forfeiture  excludes  the  common-law  remedy 
of  an  action  of  assumpsit  on  the  contract.  It  is  the  weil  estab- 
lished rule  tiiat  it  does  not.  A  grant  of  the  power  to  declare  a 
forfeiture  of  the  shares  of  a  subscriljer  for  non-payment  of  calls, 
does  not,  by  implication,  deprive  the  corporation  of  its  common- 
law  right  to  sue  for  the  unpaid  subscrij)tion,  but  the  corpo- 
rate agents  may,  in  their  discretion,  upon  the  failure  of  the  sub- 
scriber to  pay  for  his  stock,  either  proceed  against  him  by  suit  to 
collect  the  unpaid  calls,  or  may  forfeit  his  shares  of  stock.     The 


ferred  by  a  by-law  adopted  at  a  tneeting 
of  the  stockholders,  a  stockholder  whose 
stock  had  been  declared  forfeited  under 
the  by-law,  and  who  is  shown  to  have  as- 
sented to  the  by-law,  will  not  be  heard  to 
cjuestion  the  validity  of  the  forfeiture 
upon  the  ground,  as  it  seems,  of  estoppel, 
since  no  rule  of  law  forbids  stockhold- 
ers to  enter  into  an  arrangement  such 
as  this,  which  is  plainly  not  contrary  to 
public  policy,  nor  forbidden  by  the  terms 
of  the  charter.  Lesseps  v.  Architects' 
Co.  4  La.  Ann.  316  (1849). 

But  in  Perrin  v.  Granger,  30  Vt.  595 
(1858)  it  is  said  that  a  corporation  formed 
under  the  general  law  has  no  authority, 
simply  by  virtue  of  the  provision  of  the 
statute,  to  enforce  the  collection  of  assess- 
ments by  forfeiture  unless  its  constitution 
or  by-laws  contain  an  express  provision  to 
that  effect,  and  prescribes  the  mode  of 
sale,  etc. 

The  corporation  cannot,  by  a  by-law, 
forfeit  shares  temporarily  until  assess- 
ments or  fines  shall  have  been  jiaid  Ad- 
ley  V.  Reeves,  2  Maule  &  S.  53  (1849),  by 
Lord  Ellenborough ;  Cartan  v.  Father 
Matthews,  <fec. ,  Society,  3  Daly,  20 
(1859).  Cf.  Pentz  v.  Cftizens  Fiie,  &c., 
Co.,  35  Md.  73  (1871);  Kirk  v.  Nowill,  1 
Term  Rep.  118  (1786). 

But  only  the  stockholder  can  object 
to  a  forfeiture  on  the  ground  that  it  is  by 
bj^-law.  Detweiler  v.  Breckenkamp,  83 
Mo.  45(1884). 

In  Knight's  Case,  L.  R.  2  Chan.  321 
(1867),  it  appears  that  in  the  articles  of 
association  of  a  joint-stock  company  it 
was  provided  that  if  a  shareholder  should 
fail  to  pay  any  call,  the  company  might 
give  him  notice  that  in   default  cf  pay- 

122 


ment  within  a  specified  time,  his  shares 
would  be  forfeited ;  that  if  the  requisi- 
tions of  any  such  notice  were  not  duly 
complied  witli  the  shares  might  be  for- 
feited by  a  resolution  to  that  effect  by  the 
directors ;  that  when  any  share  had  been 
so  forfeited,  notice  of  the  forfeiture  should 
be  givern  to  the  delinquent  shareowner, 
and  an  entry  made  in  the  register  staling 
the  date  of  the  forfeiture,  and  that  the 
share  should  thereupon  become  the  prop- 
erty of  the  company.  Knight,  a  share- 
holder, being  in  default  in  payment  of 
his  calls,  a  notice  was  sent  him  in  due 
form  that  unless  he  paid  the  calls  by  a 
day  named,  his  shares  would  be  forfeited. 
The  time  having  elapsed  without  payment, 
the  secretary  of  the  company  made  entry 
in  the  proper  book,  on  the  day  following  the 
day  named  in  the  notice,  that  the  shares 
were  forfeited,  and  that  they  had  become 
the  property  of  the  company.  It  did  not 
appear  that  there  had  been  any  resolu- 
tion by  the  directors,  or  that  notice  had 
been  sent  to  Knight  of  the  forfeiture.  It 
was  argued  that  if  Knight  had  claimed  to 
be  a  shareholder,  the  company  could  not 
have  successfuU}'  contested  his  claim, 
but  it  was  held  tliat  Knight  having  acqui- 
esced, and  the  company  having  mani- 
fested an  evident  intention  to  forfeit  his 
shares,  his  name  could  not  be  placed  on 
the  list  of  contributories  as  a  member  of 
the  company  on  the  winding  up. 

To  same  effect  see  King's  Case,  L.  R. 
2  Chan.  714,  731  (1867);  "Brotherhood's 
Case,  31  Beav.  365  (1868).  Compare 
Lyster's  Case,  L.  R.  4  Eq.  233  (1867); 
and  especially  Ilouldsworth  v.  Evans,  L. 
R.  3  H.  of  L.  263  (1868),  and  Spackman 
V.  Evans,  Id.  171  (1868). 


CH.  VIU.]      FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.        [§  124. 


corporation,  by  sucli  a  statute,  is  given  its  choice  of  remedies,  and 
may  pursue  either.  Tlie  remedies  may  be  said  to  be  alternative, 
or,  as  it  is  expressed  in  the  decisions,  the  remedy  by  forfeiture 
is  merely  cumulative.^ 

It  is  to  be  borne  in  mind,  however,  that  in  the  New  England 
States,  the  right  to  forfeit  stock  for  non-payment  of  assessments 
does  not  jmply  a  right  to  the  corporation  to  sue  for  such  assess- 
ments, nor  does  the  latter  right  exist  unless  it  is  given  by  statute 
or  by  the  express  promise  of  the  subscriber.^  But  where  both 
remedies  do  exist,  the  corporation  has  its  election  which  remedy 
to  pursue. 


'  Delaware,  <fec.,  Co.  v.  Sansom,  1 
Binn.  70  (1803);  Instone  v.  Frankfort 
Bri<]ge  Co.,  2  Bibb.  576  (1812);  Rens- 
selaer, <fec.,  R.  R.  Co.  V  Barton,  16  N.  Y. 
457  (1857);  Lake  Ontario,  &c.,  R.  R.  Co. 
v.  Mason,  16  Id.  451  (1857) ;  Buffalo,  <fec., 
R.  R.  Co.  V.  Dudley,  14  Id.  336  (1856); 
Harlem,  &c.,  R.  R.  Co.  v.  Seixa.s,  2  Hall 
(N.  Y.  Super.  Ct.),  504  (1828);  Fort 
Edward,  <fec.,  Co.  v.  Payne,  17  Barb. 
567  (1854) ;  Rensselaer,  &c.,  R.  R. 
Co.  V.  Wetzel,  21  Id.  56  (1856)  ;  Sagory 
V.  Dubois,  3  Sandf.  Chan.  466  (1846); 
Troy,  tfec,  R.  R.  Co.  v.  MeChesney,  21 
Wend.  296(1839);  Herkimer,  &c.,Qo.v. 
Small,  21Id.273(l  839);  Ogdensburgb,<fec., 
R.  R.  Co.  V.  Frost,  21  Barb.  541  (1856); 
Northern  R.  R.  Co.  v.  Miller,  10  Id.  260 
(1857);  Trov,  <fec.,  R.  R.  Co.  v.  Tibbits, 
18  Id.  297  (1854);  Id.  v.  Kerr,  17  Id.  581 
(1854);  Union  Turnpike  Co.  ?;.  Jenkins, 
1  Caines'  Cas.  381  (18(i3).  Compare  with 
this  case  Tovvnsend  v.  Goewev,  19  Wend. 
424  (1S38)  ;  Highland,  <fec.,'^Co.  v.  Mc- 
Kean,  11  Johns.  98(1814);  Dutchess,  Ac., 
Co.  V.  Davis,  14  Id.  239  (1817);  Goshen, 
<fec..  Co.  V.  Hurtin,  9  Johns.  217  (1812); 
McDonough  r.  Phelps,  15  How.  Prac.  372 
(1850);  WilliMms  v.  Lowe,  4  Neb.  382 
(1876);  Freeman  v.  Winchesti-r,  18  Miss. 
577  (1848);  Hartford,  <fcc.,  R.  R.  Co.  v. 
Kennedy,  12  Conn.  499(1838);  Mann  i^. 
Cooke,  20  Id.  178  (1849);  Essex  Bridge 
Co.  V.  Tuttle,  2  Vt.  393  (1830) ;  Connecti- 
cut, <tc.,  R.  R.  Co.  V.  Bailey,  24  Vt.  465; 
Rutland,  <tc.,  R.  R.  Co.  v.  Tlirall,  35  Id. 
636  1 1863);  New  IlMmpsliire,  <fec.,  li.  R. 
Co.  p.  Jolinson,  30  N.  H.  390  (1855); 
White  Mountains  R.  R.  Co.  v.  Eastman, 
34  Id.  124,  147  (1856)  ;  Piscatnqua  Ferry 
Co.  V.  Jones,  39  Id.  491  (lH59j;  lligli- 
tower    V.  Thornton,    8  Ga.  486   (1850); 


Hughes  V.  Antietam.  tfec.,  Co.,  34  Md.  316 
(1870);  Beene  v.  Cahawba,  tfec,  R.  R. 
Co.,  3  Ala.  660  (1842);  Selma,  &c.,  R.  R. 
Co.  V.  Tipton,  5  Id.  787(1843);  Gratz  v. 
Redd,  4B.  Mon.(Ky.)  178(1843);  Boston, 
&c.,  R.  R.  Co.  V.   Wellington,    113  Mass. 

79  (1873).  [Compare  with  this  case 
Worcester,  <fec.,  Co.  v.  Willard,   5  Mass. 

80  (1809)  ;  Andover,  <fec..  Co.  v.  Gould,  6 
Id.  39  (1809);  New  Bedford,  <fec.,  Co.  v. 
Adams,  8  Id.  138  (1811);  ChesterGlass 
Co.  V.  Dewey,  16  Id.  94  (1819);  City 
Hotel  V.  Dickinson,  6  Gray,  586  ((1856); 
Mechanics,  <fec.,  Co.  v.  Hall,  121  Mass. 
272(1876).]  Mexican  Gulf,  (fee,  R.R.  Co. 
V.  Viavant,  6  Rob.  (La.)  305  (1843) ;  New- 
Orleans,  <fcc.,  Co.  V.  Bri'j:os,  27  La.  Ann. 
318  (1875);  Greenville,  (fee,  R.  R.  Co.  v. 
Cathcart,  4  Rich.  Law,  89  (1850);  Klein 
V.  Alton,  Ac,  R.R.  Co.,  13  111.  514(1851); 
Peoria,  <fec.,  R.  R.  Co.  v.  Elting,  17  Id. 
429  (1856);  8p:nigler  v.  Indiana,  (fee.,  R. 
R.  Co.,  21  Id.  276  (1859);  Kirksey  v. 
Florida,  Ac.,  Co.,  7  Fla.  23  (1857);  Tar 
River,  Ac,  Co.  v.  Neal,  3  Hawks  (N.  C), 
520(1825);  Stokes i'.  Lebanon,  tfec,  Co, 
6  Humph.  241  (1845);  South  Bay,  <fec, 
Co.  V.  Gray,  30  Me.  547  (1849);  Angell 
&  Ames  on  Corp.,  v5§  449,  450  ;  Frank- 
lin Glass  Co.  V.  Alexander,  2  N.  11.  380; 
8.  c.  9  Am.  Dec.  92,  and  the  note  at 
pp.  96-104  ;  Thompson's  Liability  of 
Stockholders,  ^  193.  For  a  learned  dis- 
cussion of  the  general  question  how  far 
the  jurisdiction  of  a  court  of  equily  may 
be  affected  by  statutes  conferring  similar 
jurisdiction  upon  the  courts  of  law — an 
incpiiry  germane  to  the  matter  of  the  pres- 
ent section — see  the  note  to  the  ciise  of 
Payne    v.  Bull.ud,   23  Miss.  83  (1851),  in 

.65"Am.  Dec  74,  77. 
''  iSee  Chapter  IV. 

123 


§  125.]         FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.      [CH.  VIII. 

§  125.  When  one  remedy  is  exliausted  the  corporation  cannot 
usually  resort  to  another. — Although,  as  has  appeared,  a  corpora- 
tion having  the  right  to  dedare  a  forfeiture  of  shares  for  non- 
payment of  calls,  may  generally,  at  its  option,  either  forfeit 
the  stock  or  bring  an  action  to  collect  the  amount  due,  it  does  not 
follow  that  it  can  forfeit  the  stock  and  then  bring  an  action  for 
the  unpaid  calls,  or  any  part  thereof  tliat  may  remain  lyisatisfied 
by  the  forfeiture.  The  corporation,  when  a  shareholder  is  in 
default,  may  pursue  either  the  one  remedy  or  the  other  in  its 
discretion,  but  it  cannot  pursue  botli.  It  must  elect  its  remedy 
and  then  pursue  it,  and  to  choose  the  one  is  to  exclude  the  other.^ 
Such  also  seems  to  be  the  rule  in  England.'*  In  order,  however, 
to  bar  the  remedy  of  an  action  on  the  contract,  the  forfeiture 
must  be  complete  and  actual.  Consequently  a  mere  threat  that 
a  forfeiture  will  be  made  if  the  call  be  not  paid  on  or  before  a 
day  named,  nor  an  unsuccessful  attempt  to  sell  the  shares,  will 
not  be  sufficient  to  bar  the  action.^  So  long  as  the  stockholder's 
right  to  the  shares  and  to  the  immunities  and  emoluments 
attached  to  them  remain,  his  obligation  to  pay  is  not  extin- 
guished.* 


1  Small  V.  Herkimer,  &c.,  Co.,  2  N.  Y. 
830  (1849);  reversing  Herkimer,  (fee., 
Co.  V.  Small,  21  Wend.  273  (1839);  s.  c. 
2  Hill,  127  (1841);  Northern  R.  R.  Co.  v. 
Miller,  10  Barb.  260,  271  (1851)  ;  Ogdens- 
burg,  <fec.,  R.  R.  Co.  v.  Frost,  21  Id. 
541  (1866);  Mills  v.  Stewart,  41  N.  Y. 
384  (1869);  Macauly  v.  Robinson,  18 
La.  Ann.  619  (1866)  ;  Athol,  <fec..  R. 
R.  Co.  V.  Inhabitants  of  Prescott, 
110  Mass.  213  (1872);  Mechanics,  &c., 
Co.  V.  Hall,  121  Id.  272  (1876).  With 
these  later  Massachusetts  cases  compare 
Andover,  &c.,  Co.  v.  Gould,  6  Mass.  40 
(1809);  Franklin,  Ac,  Co.  w.  White,  14 
Id.  286  (1817);  Chester  Glass  Co.  v. 
Dewev,  16  Id.  94(1819)  ;  Ripley  w.  Samp- 
son, I'o  Pick.  371  (1830);  Cutler  w.  Middle- 
sex, <fec.,  Co.,  14  Id.  483  (1833);  Rutland, 
<fec.,  R.  R.  Co.  V.  Thrall,  35  Vt.  536(1863); 
Macon,  <fec.,  R.  R.  Co.  v.  Vason,  57  Ga. 
314(1876);  Ashton  v.  Burbank,  2  Dill. 
435  (1873). 

'•  It  is  very  plain  to  us,"  say  the  Su- 
preme Court  of  Vermont,  "  that  it  was  the 
intent  of  the  legislature,  that  the  company 
should  not  declare  the  stock  forfeited,  and 
after  that  sue  the  stockholder.    The  corpo- 

124 


ration  can  sue  or  declare  the  stock  forfeit- 
ed, at  their  option, and  may  defer  forfeiture 
till  they  have  exhausted  their  remedy  by 
suit.  If  thev  sue  and  collect  the  subscrip- 
tion, the  subscriber  remains  a  stockhold- 
er. If  they  declare  the  stock  forfeited, 
the  stockholder  loses  alt  previous  pay- 
ments, and  ceases  to  be  a  member  of  the 
corporation.  To  make  him  lose  his  pre- 
vious payments  and  his  stock,  and  still  be 
liable  for  the  deficiency  which  the  compul- 
sory sale  of  his  stock  fails  to  pay,  would 
be  injustice,  unless  the  charter  or  general 
law  made  such  a  rule,  and  the  subscriber 
signed  with  knowledge  of  it."  Rutland, 
<fec.,  R.  R.  Co.  V.  Thrall,  35  Vt.  536,  553 
(1863). 

•■!  King's  Case,  L  R..  2  Chan.  714 
(1867),  Knight's  Case.  Id.  321  (1867); 
Snell's  Case,  L.  1.,  5  Chan.  22  (1869). 
Compare  Great  Northern,  tfec,  Ry.  Co.  v. 
Kennedy,  4  Exch.  417  (1849). 

3  Macon,  <fec.,  R.  R.  Co.  v.  Vason,  87 
Ga.  314  (1876). 

■*  Instone  v.  Frankfort  Bridge  Co.,  2 
Bibb.  576.  Cf.  Buifalo,  &c.,  R.  R.  Co.  v 
Dudley,  14  N.  Y.  336,  347  (1856). 


CH, 


VIII.]       FORFEITURE  OF   SHARES   FOR  NON-PAYMENT.         [§1^5. 


There  is,  however,  a  line  of  cases  in  which  a  contrary  rule  is 
contended  for,  and  in  which  it  is  said  that  the  forfeiture  of  shares 
is  like  the  foreclosure  of  a  mortgage,  and  that,  just  as  a  mort- 
gagee may  have  judgment  against  the  mortgagor  for  a  deficiency, 
so  may  a  corporation  have  its  action  of  assumpsit  against  a  sub- 
scriber, whose  stock,  having  been  forfeited,  has  failed  to  sell  for 
enough  to  pay  his  entire  indebtedness  to  the  corporation  on  the 
subscription.^  This  rule  is  also  held  equally  applicable  to  the  case 
of  any  stockholder  who,  as  transferee  of  an  original  subscriber, 
owns  stock  which  is  liable  to  assessment,  and  who  is  in  arrears. 
Such  a  stockholder  is  liable,  under  this  rule,  for  any  balance  due 
upon  assessments,  after  applying  the  proceeds  of  stock  sold  for 
default.^ 

In  this  country,  as  already  stated,  it  is  a  well  established 
rule  in  all  the  States  that,  where  the  contract  of  subscription 
is  in  the  form  of  an  express  promise  to  pay,  the  subscriber 
will  be  liable  personally  for  the  performance  of  his  contract, 
and  may  be  sued  thereon,  although  a  remedy  by  forfeiture  and 


'  Cixrson  v.  Arctic  Mining  Co.,  5  Mich. 
288;  Danbury,  etc.,  R.  R.  Co.  v.  Wilson, 
22  Conn.  435  ( 1 853) ;  Great  Northern  Ry. 
Co.  V.  Kennedy,  4  Exch.  417,  425  (1849). 

-  Merrimac  Mining  Co.  v.  Bagley,  14 
Mich.  501  (1866).  C/.  Hartford,  &c.,  R. 
R.  Co.  V.  Kennedy,  12  Conn.  499  (1838); 
Brockenbrough  v.  James  River,  (fee,  Co., 
1  Palton  &  H.  iVa.)  94  (1855);  Mann  v. 
Currie,  2  Barb.  294  (1848). 

It  is  sometimes  provided  expressly  by 
statute,  or  by  the  charter  of  the  company, 
that  when  shares  shall  have  been  regu- 
larly forfeited  and  sold,  in  case  the  price 
realized  be  not  sufficient  to  pay  the  costs 
and  cliarges  of  the  sale  and  the  sum  due 
and  in  arrear  to  the  company,  the  delin- 
quent stockholder  or  the  original  sub- 
scriber, or  both,  and  the  heirS,  executors, 
or  administrators  of  each  or  either  of 
them,  shall  be  liable  for  the  payment  of 
the  balance.  Brockenbrough  v.  James 
River,  <fec.,  Co.,  1  Patton  &  II.  94(1855); 
Danbury,  <fec.,  R.  K.  Co.  v.  Wilson,  22 
Conn.  435,  456  (1853);  Great  Northern 
Ry.  Co.  V.  Kennedy.  4  Exch.  417  (1849); 
Mann  v.  Cooke,  20  Conn.  178(1 84'.)).  But 
see  Athol,  die.,  R.  R.  Co.  v.  Inhabitants  of 
Prescott,  110  Mass.  213  (1872);  Allen  v. 
Montgomery  R.  R.  Co.,  11  Ala.  437  (1847); 


Mills  V.  Stewart,  41  N.  Y.  384  (1869).  Or 
that  any  shareowner,  whose  shares  shall 
have  been  forfeited  for  non-payment  of 
assessments,  shall  nevertheless  be  liable 
to  pay  to  the  company  all  calls  owing  on 
such  shares  at  the  time  of  the  forfeiture. 
This  seems  to  be  a  common  provision  in 
the  articles  of  association  of  English  com- 
panies. Creyke's  Case,  L.  R.  5  Chan.  63 
(1869);  St.ocken's  Case,  L.  R.  5  Eq.  6 
(1867).  But  in  such  a  case  interest  is  not 
collectible.  Stocken's  Case,  &npra.  It  is, 
however,  otherwise  in  ordinary  defaults. 
Gould  ('.  Oneonta,  71  N.  Y,  2'J4  (1877); 
Rikhoff  V.  Brown,  <fec.,  Co.,  68  Ind.  388. 
In  Great  Northern  Railway  Co.  v.  Ken- 
nedy, 4  Exch.  417  (1849),  in  the  Court  of 
Exchequer,  it  was  held,  construing  the 
statute  8  &  9  Vict.,  ch.  10,  that  the  29.th 
section,  which  enabled  the  company  to 
declare  shares  forfeited,  was  not  meant 
to  provide  an  alternative  remedy,  but 
rather  that  it  gave  a  further  security  for 
the  payment  of  calls  in  the  nature  of  a 
mortgage  or  pledge,  and  that  until  the 
conii)any'8  debt  is  fully  satisfied,  it  may 
maintain  an  action  against  tlie  defaulting 
owner  for  the  amount  of  the  calls,  or  for 
such  pait  of  it  as  may  remain  unpaid  after 
sale  of  the  shares. 

125 


126.]  FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.      [CH.  Vlir. 


sale  be  allowed  by  tlie  charter  of  the  corporation.^  In  such  a 
case  it  has  been  held  that,  after  forfeiture  and  sale,  if  there  be 
still  a  deficiency,  the  corporation  may,  upon  the  ground  of  the 
express  promise,  have  its  action  against  the  subscriber  for  the 
balance  due.^  But,  on  the  other  hand,  where  the  terms  of  the 
subscription  contain  no  promise  to  pay,  and  the  charter  only 
authorizes  a  forfeiture  of  the  shares  for  non-payment,  it  has  been 
held  that  a  close  foreclosure  of  the  shares  to  tlie  company  itself 
will,  in  such  a  case,  bar  a  recovery  against  the  subscriber,  just  as 
in  the  more  usual  case  of  a  forfeiture  and  sale.^ 

§  126.  Ground  for  contrariety  of  view  as  to  the  succession  of 
remedies. — If  it  be  conceived  that  the  right  of  the  corporation  to 
forfeit  shares  for  non-payment  of  calls  is  analogous  to  the  right 
of  a  mortgagee  to  foreclose  his  mortgage  upon  non-payment  of 
the  mortgage  bond,  then  the  right  of  the  corporation  to  take  a 
judgment  against  the  subscriber  in  the  event  that  the  stock  does 
not  bring  enough  to  pay  the  debt  in  full,  and  the  corresponding 
duty  on  the  part  of  the  corporation  to  account  to  the  subscriber 
in  case  the  stock  sells  for  more  than  the  amount  of  the  debt,  will 


'  This  is  the  rule,  even  in  New  Eng- 
land, since  the  promise  to  pay  is  express. 
Boston,  <fec.,  R.  R.  Co.  v.  Wellington,  113 
Mass.  79  (1873);  City  Hotel  v.  Dickinson, 
6  Gray,  586  (1856);  Buckfield,  <fec.,  R.  R. 
Co.  V.  Irish,  39  Me.  44  (1854);  Stokes  v. 
Lebanon  Turnpike  Co.,  6  Humpii.  241 
(1845).  See  also  lustone  v.  The  Frankfort 
Bridge  Co.,  2  Bibb,  576  ;  also  Hartford, 
<fec.,  R.  R.  Co.  V.  Kennedy,  12  Conn. 
599  (1838),  in  which  a  large  number  of 
the  earlier  authorities  are  collected  and 
critically  reviewed. 

^  Stokes  V.  Lebanon  Turnpike  Co.,  su- 
pra. 

■'  Allen  V.  Montgomery,  &c.,  R.  R.  Co., 
U  Ala.  i'47  (1847);  Mills  v.  Stewart,  41 
N.  Y.  384  (1869). 

In  a  leading  case  in  New  York,  Small 
V.  The  Herkimer,  &c.,  Co.,  2  N.  Y.  330 
(1849),  it  was  held  that  the  exaction 
of  the  forfeiture  operates  as  a  rescis- 
sion or  satisfaction  of  the  contract  of 
subscription,  and  thnt  in  consequence 
there  is  no  remedy  over  for  a  deficiency. 
It  was,  moreover,  said  that  when  a  cor- 
poration, undei'  such  circumstances,  exer- 
cises its  right  to  forfeit  the  shares,  and 
the  stock  is  of  a  greater  value  than  the 

126 


whole  amount  due  on  the  subscription, 
the  subscriber  cannot  recover  the  surplus, 
inasmuch  as  by  the  forfeiture  his  right  to 
the  shares  is  wholly  taken  away.  But 
the  rule  seems  to  be  otherwise  in  Eng- 
land Great  Northern  Ry.  Co.  v.  Ken- 
nedy, 4  Exch.  417  (1849). 

In  Giles  v.  Hutt,  3  Exch.  18  (1848), 
where  the  corporation  had,  by  its  deed  of 
settlement,  the  right,  upon  non-payment 
of  calls,  either  to  forfeit  the  shares  or 
bring  an  action  to  enforce  payment,  it 
was  held  that  the  directors,  having  elect- 
ed to  proceed  to  judgment  against  a  sub- 
scriber for  the  recovery  of  the  amount  of 
the  calls  due  upon  certain  shares,  could 
not  subsequently  and  in  addition  declare 
the  share  s  forfeited,  and  that  a  declara- 
tion of  forfeiture  under  such  circumstances 
was  wholly  void. 

Baron  Pollock,  in  the  opinion,  says : 
"  It  appears  to  us  that  they  might  either 
sue,  or  instead  of  suing,  that  is  enforcing 
payment,  they  might  declare  the  shares 
forfeited;  l)ut  the  one  being  expressly 
s;iid  to  be  in  substitution  of  the  other,  we 
are  of  opinion  that  the  company  cannot 
resort  to  both." 


CH.  VIII.]       FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.        [§  127. 

be  conceded.^  But  if,  on  the  other  hand,  the  right  to  forfeit  be 
regarded  as  merely  a  remedy  in  the  alternative — a  statutory  right 
conferred  upon  the  company,  of  which  it  may  avail  itself  in  its 
discretion  in  lieu  of  the  action  of  assumpsit — a  cumulative  remedy, 
to  enable  an  incorporated  company  the  more  surely  and  speedily 
to  realize  upon  its  assets  of  subscription,  then  it  is  clear  that  by 
the  forfeiture  tlie  company  must  be  held  to  have  elected  to  rescind 
the  contract,  and  the  subscriber  to  have  been  thereby  released. 
The  company  has  elected  to  lose  the  subscriber  as  a  member  and 
to  take  the  proceeds  of  the  sale  of  the  stock.  The  subscriber 
loses  what  he  has  paid  in,  his  right  to  membership  and  his  right 
to  participation  in  the  future  profits  of  the  company. 

This  is  the  more  current,  and,  it  seems,  the  better  view.  By 
the  Michigan  rule,  a  subscriber  for  stock,  who  has  been  compelled 
to  pay  therefor  after  the  stock  itself  has  been  forfeited,  will  have 
no  stock  even  after  he  has  paid  for  it.  It  has  been  forfeited. 
But  the  contrary  rule  works  no  injustice  to  either  party.  The 
corporation  cannot  complain,  since  it  may  pursue  either  remedy. 
The  subscriber,  if  he  loses  his  stock,  is  nevertheless  exempt  from 
further  payments.  If  he  pays  for  it,  no  previous  forfeiture  can 
have  cut  off  his  right  thereto. 

§  127.  Forfeiture  relieves  the  shareholder  tvhose  shares  are 
forfeited,  from  liahility  to  corporate  creditors. — In  the  absence  of 
fraud  and  collusion,  it  is  a  settled  rule  that,  where  a  corporation 
has  authority  to  declare  a  forfeiture  of  shares  for  non-payment  of 
calls,  and  a  forfeiture  is  regularly  declared,  such  formal  declara- 
tion puts  an  end  to  the  liability  of  the  shareowner,  and  corporate 
creditors  cannot  subsequently  hold  such  an  expelled  or  released 
shareholder  liable.'^  This  is  the  rule,  even  though  the  debt  was 
contracted  by  the  company  before  the  stock  was  forfeited.^  The 
same  principle  of  law  that  prevents  the  corporation  from  suing  on 
a  subscription  after  the  stock  has  been  forfeited,  prevents  the  cor- 


'  Thia  is  the  rule  in  the  State  of  Mich-  Dawes'   Case,  L.   R.   6    Eq.  232   (1868); 

igan.     See  SM/ira.  Snell's  Case,  L.  U.  5  Chan.  22  (18fi9).    Nor, 

''Allen   V.  Monffjomery   R.  R.  Co.,  11  on  tlie   other   hati.l,  can   the   stockholder 

Ala.  437,  450  (1847,1;   Macauly   w.  Robin-  claim,    alter    tlie    forfeiture,    any    of   the 

son,    18    La.   Ann.   019   (18t;(;);  Mills   v.  ri^jhts  of  .stocklioldcrship.    St.  Louis,  <fec., 

Stewart,  41   N.  Y.  384  (1809);  Woollas-  Co.    v.    Sandoval,    Ac,   Co.    (111.    Jan'y, 

ton's  Case,  4  De  G.  A  J.  437  ;   Ex  parte  1886),  12  Am.  A  Kng.  Corp.  Cases,  286. 
Beresforfl,  2    MacN.    A    G.    197   (1850);  »  Mills  z;.  Stewart,  «M»ra. 

Kelk's   Case,   L.  11.    9    Eq.    107   (1869); 

127 


§  128,]    FORFEITURE  OF  SHARES  FOR  NON-PAYMENT.   [CH.  vm. 

porate  creditors  also  from  doing  the  same.  But.  on  the  other 
hand,  inasmuch  as  fraud  vitiates  all  acts  into  which  it  enters,  a 
forfeiture  of  shares  by  collusion  between  the  shareholders,  or  any 
individual  shareholder,  and  the  board  of  directors  of  the  corpora- 
tion, will  not  release  a  shareholder  from  liability  to  contribute  in 
the  event  of  the  insolvency  of  the  company.^  In  such  a  case  the 
creditors  may  invoke  the  interposition  of  a  court  of  equity  to  pre- 
vent the  consummation  of  an  inchoate  forfeiture,  or  to  set  aside 
one  already  accomplished.^ 

§  128.  Motives  inducing  the  forfeiture  of  stock. — The  for- 
feiture of  stock  for  non-payment  of  calls  has  been  justly  regarded 
as  a  somewhat  extreme  remedy.  In  consequence  of  that  view, 
many  controversies  have  arisen  where  the  validity  of  the  forfeit- 
ures has  been  questioned.  Efforts  are  frequently  made  to  impeach 
a  forfeiture  of  stock  on  the  ground  that  the  forfeiture  was  uncon- 
scionable and  due  to  a  fraudulent  intent  of  the  corporate  officers. 
The  motives  which  induce  the  corporate  officers  to  forfeit  a  share- 
holder's stock  are  important  when  the  validity  of  the  forfeiture  is 
in  question,  and  its  validity  may  be  attacked  by  corporate  cred- 
itors as  well  as  by  the  stockholder  himself. 

Thus  it  is  well  settled  that  the  power  of  forfeiture  cannot 
lawfully  be  exercised  for  the  purpose  of  enabling  members  to 
escape  from  their  liability  on  their  stock,  either  to  the  corporation 
or  its  creditors.^ 


'  Slee  V.  Bloom,  19  Johns.  456  (18'22) ;  it  did  not,  is  no  defense  as  against  the  cor- 

Burket>.  Smith,  16  W^all.  394  (1872) ;  Mills  porate  creditors.    Mann  v.  Currie,  2  Barb. 

V.  Stewart,  41  N.  Y.  S84  (1869);  Walters'  294  (1848);  Sagory  v.   Dnbois,  3  Sandf. 

Second  Case,  3  De  G.  <fe   Sm.  244  (1850) ;  Chan.  496  (1846);  Hightower  v.  Tliornton, 

Richmond's  I'ase,  4  Kay  &  J.  30a  (1858);  8   Ga.  486,  502  (1850).     If  a   transaction 

Spackman's  Case,   11   Jur.   (N.  S.),   207;  between  a  shareholder  and  the  directors  is 

Stanhope's    Case,    L.    R.    1    Chan.     161  irregular,  but  attempted  to  be  supported 

(1S66);  Stewart's  Case,  L.  R.  1  Chan.  511  by  the  plea  of  acquiescence  and  lapse  of 

(1866);  Gower's   Case,   L.   R.    6    Eq.  77  time,  it  is  incumbent  upon  the  party  set- 

(1868).    Cf.  Creyke's  Case,  L.  R.  5  Ch.  63  ting  up  such  a  defense  to  show  that  the 

(1869),  where  it  was  held  that  under  the  transaction  was  fully  made  known  to  the 

Companies  Act  a  stockholder  was  liable  general  body  of  the  shareholders,  and  he 

to  corporate  creditors,  although  his  stock  cannot  be  heard  to  insist  that  it  was  the 

had  been  forfeited,  the  forfeiture  being  by  duty  of  the  governing  body  to  state  the 

by-law,  not  by  statute.  facts  of  the  transaction  in  question  to  the 

-  Germantown,  »fec.,  Ry.   Co.  v.  Fitler,  other  shareholders,  i.e.  to  the  corporation, 

60  Penn.  St.  124  (1869).     See  also  Grand  and  that  he  trusted  them  to  do  so.    Spack- 

Rapids  Savings  Bank  v.  Warren,  52  Mich,  man's  Case,  11  Jur.  (N.  S.),  207. 

557  (1884).    The  fact  that  the  corporation  ^  Spackman  v.  Evans,  L.  R.  3  H.  of  L. 

might  have  forfeited  the  stock,  if  in  fact  171    (1868);    Stanhope's   Case,   L.    R.    1 

128 


CH.  VIII.]       FORFEITURE  OF   SHARES   FOR   NON-PAYMENT.         [§  128. 


It  is  the  duty  of  the  directors,  both  tovvardthe  corporation  and 
its  creditors,  to  enforce  full  payment  of  subscriptions  for  shares, 
unless  they  have  substantial  reasons  to  believe  that  the  subscriber 
is  not  in  circumstances  which  will  enable  him  to  pay  the  sum  for 
which  the  suit  should  be  brought.^  Neither  should  there  be  a  for- 
feiture for  non-payment  of  assessments,  if  the  subscriber  be 
solvent  and  the  corporation  insolvent,  so  that  the  real  effect  of  the 
forfeiture  would  be  prejudicial  to  creditors.^  Nor  can  a  stock- 
holder, by  mere  abandonment  of  his  shares,  forfeit  them  himself, 
and  thus,  by  his  own  act,  discharge  himself  from  his  obligation  on 
the  subscription.^  The  power  to  forfeit  shares  must  be  exercised 
honafide,  and  for  the  benefit  of  the  corporation,  and  with  due  re- 
gard, also,  to  the  claims  of  the  corporate  creditors.  The  corpo- 
rate management  has  plainly  no  right  to  emasculate  the  corpora- 
tion, to  destroy  its  power  to  act,  to  give  away  its  assets,  or  to  de- 
prive it  in  any  way  of  any  of  its  means  for  accomplishing  in  full 
the  purpose  for  which  it  was  incorporated.  It  is  an  abuse  of  their 
trust  for  directors  to  single  out  some  of  the  subscribers  to  the  cap- 


Chan.  161  (1865);  Richmond's  Case,  4 
Kay  &  J.  305  (1858);  Manisty's  Case,  17 
Solicitor's  Jour.  745 ;  Gower's  Case,  L.  R. 
6  Eq.  77  (1868);  Ex  parte  Jones,  27  L.  J. 
Chan.  666 ;  Hall's  Case,  L.  R.  5  Chan.  707 
(1870);  Mills  v.  Stesvart,  41  N.  Y.  384 
(1869).  Cf.  Dixon  v.  Evans,  L.  R.  5  H. 
of  L.  606  (1872);  Lord  Belhaven's  Case, 
11  Jur.  (N.  S.).  .^72  (1865);  s.  c.  12  L.  T. 
(N'.  S.),  595  (1867).  It  is  accordingly  said 
that  a  forfeiture  is  to  be  enforced  only  for 
its  true  purpose,  with  due  regard  to  for- 
malities, and  only  under  circumstances 
fully  justifying  a  forfeiture.  Clarke  v. 
Hart,  6  House  <.f  Lords  Cases,  633  (1858); 
Garden  Gully,  (fee,  Co.  v.  McLiister,  L.  11. 
1  App.  Cas.  39  (1875);  Sweny  v.  Smith, 
L.  R.  7  Eq.  324  (1869);  Gower's  Case,  L. 
U.  6  Eq.  77  (1868).  So  where  the  di- 
rectors (jf  a  cornpniiy  made  an  arrange- 
ment with  a  dissatisfied  shareholder,  who 
wished  to  retire,  that  on  payment  by  him 
of  a  sum  of  money  as  consideration,  his 
shares  gh(juld  be  declared  forfeited  for 
non-payment  of  a  call  which  had  been 
made.wnd,  in  pursuance  of  this  compact, 
the  money  was  paid  and  the  shares  trans- 
ferred to  the  company,  it  was  held  that 
the  arrangement  was  ^dtra  vires,  and  in 
fraud  ol  the  other  shareholders,  and  that 
the  widow  of  the  shareholder  who  had 
been    allowed   to   retire   must,   althoujrh 


[9] 


twelve  years  had  elapsed,  be  held  liable 
as  a  contributory.  Stanhope's  Case,  L.  R. 
1  Chan.  161  (1865).  And  again,  in  Gow- 
er's Case,  L.  R.  6  Eq.  77  (1868),  where 
certain  shares  were  tiken  in  the  joint 
names  of  a  father  and  son,  and  the  father 
was  made  a  director,  it  was  held,  where 
the  father  having,  as  he  said,  discovered 
that  the  company  had  been  fraudulently 
organized,  demanded  in  writing  that  he 
and  his  son  be  allowed  to  retire,  in  pur- 
suance of  which  demand  a  resolutioii  was 
passed  by  the  management  forfeiting  the 
shares  as  if  for  non-payment;  that  such 
so-culled  forfeiture  was  void,  and  that  the 
recalcitrant  subscribers  were  bound. 

'  Spackman  v.  Evans,  L.  R.  3  H.  of  L 
171  (1868), 

^  Chouteau  v.  Dean,  7  Mo.  App.  211 
(1879).  This  is  also  the  clear  import  of 
the  English  cases,  many  of  which  are 
cited  supra.  Cf.  Bedford  R.  R.  Co.  v. 
Bowser,  48  Penn.  St.  29  (1864). 

*  Rockville,  ike..  Turnpike  Co.  v.  Max- 
well, 2  Crunch  C.  V.  451.  Cf.  Mills  v. 
Stewart,  41  N.  Y.  3f<4  (1869).  For  sun- 
dry illustrations  of  what  will  or  will  not 
justify  a  forfeiture,  see  particularly  Sweny 
V.  Smith,  L.  R.  7  Eq.  324  (1869);  Stock- 
en's  Case,  L.  R.  3  Chan.  412  (1867);  Count 
Pahlen's  Case,  L.  R.  9  Eq.  107  (1869); 
Thomas'  Case,  L.  R.  13  Eq.  437. 

129 


§120.]  FORFEITURE  OF  SHARES  FOR  NON-PAYMENT.       [CH.  VIII. 

ital  stock  and  release  them  from  their  liability,  and  this  equally 
without  regard  to  whether  the  motive  be  to  injure  the  shareholder 
released,  or  to  prevent  corporate  creditors  from  making  their 
claims,  or  to  shield  the  shareholder  from  the  full  measure  of  any 
part  of  his  just  responsibility  as  a  subscriber.^ 

§  129.  Statutory  formalities  and  general  method  of  forfeit- 

iire. — The  general  method  of  forfeiting  shares  for  non-payment 
of  calls  is  usually  prescribed  in  detail  by  the  statute  authorizing 
the  forfeiture.  The  power  can  exist  only  by  virtue  of  an  express 
statutory  provision,  and  when  it  is  conferred  upon  a  corporation, 
the  steps  to  be  pursued  in  the  exercise  of  the  power  are  usually 
prescribed  also.  In  the  earlier  cases  there  may  be  observed 
some  tendency  to  hold  that  a  substantial,  in  distinction  from  a 
strict,  compliance  with  the  requirements  of  the  statute  is  all  that 
is  necessary  to  a  valid  forfeiture.^  But  in  later  cases,  English^ 
and  American,*  it  is  plainly  declared,  and  it  may  be  taken  as  a 
settled  rule,  that  the  validity  of  the  forfeiture  and  sale  of  the 
shares  of  a  subscriber  in  arrears,  depends  upon  a  strict  and  for- 
mal compliance  with  the  requirements  of  the  enabling  statute.^ 


'  Bedford  R.  R.  Co.  v.  Bowser,  48 
Penn.  St.  29  (1864),  and  the  English  cases 
which  have  been  cited  in  this  section  su- 
pra. 

■  Catchpole  v.  Ambergate,  (fee,  Ry. 
Co.,  1  Ellis  &  B.  HI  (1852);  Naylor  w. 
South  Devon.  Ry.  Co.,  1  De  G.  <fe  Sm. 
32  (1846).  Of.  Howbeach,  <fec.,  Co.  v. 
Teague,  5  Hurl.  &  N.  151  (1860);  Nolan 
V.  Arabella,  &c.,  Co.,  6  W.  W.  &  A.  B. 
(Australian),  38. 

^  Clarke  v.  Hart,  6  House  of  Lords 
Cases,  633  (1858);  Johnson  v.  Lvttle's 
Iron  Agency,  46  L.  J.  (Chan.)  786  (1877). 
Cy.  Knight's  Case,  L.  R.,  2  Chan.  321 
(1867) ;  "Garden  Gully,  &c.,  Co.  v.  Mc- 
Lister,  L.  R.,  1  A]m.  Cas.  39  (1875); 
London  &  B.  Ry.  Co.  v.  Fairclough,  2 
Mann  &G.  674(1841). 

4  Portland,  <fcc.,  R.  R.  Co.  v.  Graham, 
11  Mete.  1  (by  Shaw,  C.  J.,  1846);  Ger- 
mantown.  <fec.,  Rv.  Co.  v.  Filler,  60  Penn. 
St.  124  (1869);  Eastern,  &c.,  Plank  Road 
Co.  V.  Vaughan,  20  Barb.  155  (1855); 
York,  tfec,  R.  R.  Co.  v.  Ritchie,  40  Me. 
425  (1855);  Lewey's  Island  R.  R.  Co.  v. 
Bolton.  48  Id.  451  (1800);  Downing  v. 
Potts,  23  N.  J.  (Law),  66 ;  Matter  of  the 
Long  Island  R.  R.  Co.,  19  Wend.  37 
(1837);  Mitchell  v.  Vermont  Copper  Min- 
ing Co.,  40  N.  Y.  Super.  Ct.  406  (1876); 

130 


Occidental,  <fec.,  Assoc,  v.  Sullivan,  62 
Cal.  394  (1882).  Cf.  Johnson  v.  Albany, 
(fee,  R.  R.  Co.,  40  How.  Prac.  193  (187<V) ; 
Rutland,  .fee,  R.  R.  Co.  v.  Thrall,  35  Vt. 
536  (1863);  Perrin  v.  Granger,  30  Id.  595 
(1858). 

°  Accordingly  we  find  it  said,  that 
powers  of  forfeiture  are  strirtixsimi  juris, 
that  they  must  exist  by  statute,  or  the 
clear  terms  of  a  contract,  that  they  are 
penal  in  their  nature  and  must,  therefore, 
be  strictly  construed.  Garden  Gully,  »fec., 
Co.  V.  McLister,  L.  R.,  1  App.  Cas.  39 
(1875).  And  that  unless  all  the  condi- 
tions precedent  have  been  duly  fulfilled, 
modo  et  forma,  the  forfeiture  may  be  set 
aside.  Garden  Gully,  (fee,  Co.  v.  Mc- 
Lister, supra;  Germantnwn,  (fee,  Rv.  Co. 
V.  Fitler.  60  Penn.  St.  124  (1869).  In  the 
opinion  in  this  case,  Sharswood,  J.,  said: 
"  "VVe  must  look  to  the  charter  for  the 
power  of  the  directors  to  forfeit  the  stock. 
No  doubt  the  power  given  must  be  strictly 
pursued,  and  if  (iny  restrictions  or  limita- 
tions there  provided  have  been,  disre- 
garded, the  alleged  act  of  forfeiture  must 
be  declared  invalid.  This  is  so  for  the 
special  reason  that  it  is  one  of  those 
forfeitures  against  which,  if  regular, 
equity  does  not  relieve,"  citing  1  Red- 
field  on  Railways,  214.     When  the  cor- 


CH.  Vni.]       FORFEITURE  OF   SHARES  FOR   XON-PAYMEXT.         [§129. 


Thus  a  sale  of  the  shares  at  private  sale,  when  a  sale  by  public 
auction  was  prescribed,  has  been  held  to  invalidate  the  forfeiture.-^ 
There  must  be  a  properly  constituted  board  of  directors  to  declare 
a  forfeiture  of  shares.^  Inasmucli  as  the  right  of  forfeiture  is 
purely  a  statutory  right,  there  are,  aside  from  the  statutes,  no 
definite  common  law  rules  to  regulate  the  matter  of  declaring 
and  etfecting  a  forfeiture.  It  is,  however,  held,  in  general,  that, 
in  the  absence  of  statutory  provisions  as  to  order  or  details,  the 
mode  of  forfeiture  must  be  reasonable  and  just.^  The  forfeiture, 
under  such  circumstances,  may  be  regularly  effected  by  a  resolu- 
tion of  the  board  of  directors,  ordering  a  sale  of  all  stock  on 
which  assessments  shall  remain  unjjaid  at  a  day  named  in  the 
future.* 

It  is  a  well  established  rule  also,  that  a  forfeiture  of  shares, 
where  the  forfeiture  was  irregular  or  defective  in  its  form,  or 
even  where  there  was  no  power  to  forfeit,  is  not  void,  but  void- 
able, and  that  by  subsequent  knowledge  and  acquiescence,  the 


poration  has  power  to  sell  the  stock  of  a 
subscriber  for  the  failure  to  pay  each  or 
any  call  as  it  is  made,  it  will  lose  its 
right  to  a  remedy  by  forfeiture  and.  sale, 
by  failing  to  sell  the  stock  at  the  first  de- 
fault and  waiting  until  all  the  calls  are 
made.  Stokes  v.  Lebanon,  <fec.,  Co.,  6 
Humph.  241  (1845).  It  is  doubtful,  how- 
ever, whether  this  is  good  law,  as  a  gen- 
eral rule.  The  interest  of  both  parties 
is  frequently  best  subserved  by  delay, 
during  which  time  the  subscriber  may  be 
able  to  pay  up. 

'  Levey's  Island  R.  R.  Co.  v.  Bolton, 
48  Me.  451  (1860),  as  to  what  is,  in  gen- 
eral, sufficieni  to  satisfy  the  requirements 
of  the  rule  th  it  powers  of  forfeiture  are 
to  be  construed  strictly  and  exercised  or 
pursued  strictly.  See  Giles  v.  Hutt,  3 
Exch.  18  (1848);  Catchpole  v.  Amber- 
gate,  (fee,  Ry.  Co.,  1  Ellis  &  B.  HI 
(1852);  birmingham,  &c.,  Ry.  Co.  i: 
Locke,  1  Q.  B  256  (1841);  Graham  v. 
Van  Pieman's  Land  Co.,  1  Hurl.  <fe  iV. 
541  (1856);  Sweny  v.  Smith,  L.  R.,  7  Eq. 
a24  (186H):  Stockeri's  Case,  L.  R.,  a  Chan. 
412  (1867);  Count  Pahlen's  Case,  L.  H., 
a  Eq.  107  (1869)  ;  Thomas'  Case,  L.  R., 
13  Eq.  437;  (Power's  Ca^e,  L.  R.,  6  Eq. 
77  (1868).  It  has,  however,  been  held  in 
an  Eni^lish  case — In  re  North  Hallen- 
beagle  Mining  Co.,  Knight's  Case,  L.  R., 
2  Chan  321  (1867);  s.  <;.  15  L.  T.  (N.  S.) 
546  (1^6'.)),— that  when  it  is  a  in:itter  of 
mere  form,  rather  than  of  substance  that 


has  not  been  strictly  followed,  in  proceed- 
ings to  forfeit  sliares,  tlie  forfeiture  will 
not  necessarily  be  thereby  invalidated. 

''  Garden  Gully,  &c.,  Co.  v.  McLister, 
L.  R,  1  App.  Cases,  39,  55(1875). 

3  Rutland,  &c.,  R.  R.  Co.  v.  Thrall,  35 
Vt.  536  (1863);  Mitchell  v.  Vermont  Cop- 
per Mining  Co.,  67  N.  Y.  28u  (1876). 

*  Rutland,  <fec.,  R.  R.  Co.  v.  Thrall,  35 
Vt.  536  (1863).  Ace.  WooUaston's  Ca?e, 
4  De  G.  (fe  J.  437.  Under  such  a  resolu- 
tion a  sale  of  the  stock  is  not  necessary 
to  complete  tlie  forfeiture  where  the  effect 
of  the  foi'feiture  is  to  release  the  stock- 
holder from  any  future  liability,  and 
where  he  is  not  entitled  to  the  surplus,  if 
any  there  be,  after  sale.  Rutland,  ike..  R. 
R.  Co.  V.  Thrall,  supra.  It  is,  however, 
said  elsewhere  ihat  a  general  resolution, 
not  specifying  the  stock  which  is  forfeited, 
but  merely  assuming  to  forfeit  any  and 
all  stock  whose  owners  are  in  arrears, 
does  not  effect  a  valid  forfeiture.  John- 
son V.  Albany,  ifec,  R.  R.  Co.,  40  How. 
I'rac.  193  (1870).  When,  after  default 
mad«!  in  the  payment  of  assessments,  no- 
tice is  given  by  the  corporation  that  the 
shares  of  owners  in  arrears  will  be  for- 
feited unless  full  payment  of  what  is  due 
be  made  by  a  day  named,  there  is  a  pre- 
sumption that  the  subsequent  proceed- 
ings of  the  conqiany,  looking  to  perfect- 
ing the  forfeiture,  are  valid  and  regular. 
Knight's  Case,  15  L.  T.  (N.  S.)  546 
(1867). 

131 


§  130.]         FORFEITURE   OF   SHARES   FOR   NONPAYMENT.      [CH.  VIII. 


shareholder  and    the  company  are  ah'ke  estopped   to   deny  its 
validity.' 

§  130.  Notice  in  cases  of  forfeiture. — A  notice  to  the  de- 
linquent subscriber,  that  his  shares  will  be  forfeited  at  a  day 
named,  is  generally  requisite  to  the  validity  of  a  forfeiture. 
The  subscriber  is  entitled  to  full  knowledge  of  the  fact  that 
unless  he  pays  up  within  a  specified  time,  he  will  lose  his 
stock.  The  requirements  of  the  statute  or  charter,  with  respect 
to  the  contents  of  the  notice,  and  the  length  of  time  which  is 
to  elapse  between  the  notice  and  the  forfeiture,  must  all  be 
strictly  complied  with.  Notice  of  a  forfeiture  is  generally  a 
condition  precedent  to  the  validity  of  that  forfeiture,  and  un- 
less the  notice  be  in  all  respects  regular  and  conformable  to 
the  law  authorizing  the  forfeiture,  the  forfeiture  itself  will  be 
invalid  and  void.^  It  is  accordingly  lield,  that  the  notice  must 
state  correctly  the  amount  due  for  non-payment  of  which  the 
stock  is  to  be  forfeited.®     The  time  also  within  which  payment 


'  King's  Case,  L.  R.,  2  Chan.  714,  731 
(1867);  Woollaston's  Case,  4  De  G.  &  J. 
437  ;  Webster's  Case,  32  L.  J.  Chan.  135 
(1868)  ;  Knight's  Case,  L.  R.,  2  Chan.  321 
(1867);  Kelk's  Case,  L.  R.,  9  Eq.  1(7 
(1869);  Austin's  Case,  24  L.  T.  (N.  S.) 
932(1871);  Pendergast  d.  Turton,  1  Y. 
&  C  (Ch.)  98  (1841).  Cf.  Lyster's  Case, 
L.  R.,  4  Eq.  233  (1867);  Campbell's  Case, 
L.  R.,  9  Chan.  1  (1873);  Teasdale's  Case, 
L.  R.,  9  Chan.  54  (1873);  Phosphate,  &c., 
Co.  V.  Green,  L.  R.,  7  C.  P.  43  (1871); 
Eouldsworth  v.  Evans,  L.  R.,  3  H.  of  L. 
263  (1868);  Spacl^man  v.  Evans,  L.  R.,  3 
H.  of  L.  171  (1868);  Brotherhood's  Case, 
31  Bcav.  S65  (1862);  Lesseps  v.  Archi- 
tects Co.,  4  La.  Ann.  316  (1849).  And 
see  also  Matter  ol' Long  Island  R.  R.  Co., 
19  Wend.  37  (1837) ;  Kennebec,  <fce.,  R. 
R.  Co.  V.  Kendall,  31  ]\!e.  470  (1850); 
Kirk  V.  Nowill,  1  Term  Rtp.  118  (1786); 
Lindley  on  Partnership,  744  et  s(q.  ; 
Garden  Gully,  Ac,  Co.  v.  McLister,  L.  R., 
1  App.  Cas.  39,  55  (1875).  h(-lding  that 
mere  laches  does  not,  of  itself,  di^cntille 
the  holder  of  shares  to  equitable  relief 
against  an  invalid  declaration  of  forfeiture. 

-  Heaston  v.  Cincinnati,  &c.,  R.  R. 
Co.,  16  Ind.  275  (1861);  Lexington,  &c., 
R.R.  Co.  V.  Chandler,  ISMe^c.  811  (1847); 
Lewey's  Island  R.  H.  Co.  v.  Bolton,  48 
Me.  451  (1860);  Rutland,  Ac,  R.  ]).  Co. 
«>.  Thrall,   86  Vt.    546  (1868);  Late   On- 

132 


tario,  &c.,  R.  R.  Co.  v.  Mason,  16  N.  Y. 
451  (1854) ;  Sands  v.  Sanders,  26  Id.  289 
(1863);  Mississippi,  Ac,  R.  R.  Co.  v. 
Caster,  20  Ark,  455  (1859);  Hughes  v. 
Antielam,  Ac,  Co.,  34  Md.  817  (1870); 
Johnson  v.  Lyttle's  Iron  Agency,  46  L.  J. 
(Chan.)  786  (1877);  Cockerell  v.  Van 
Dienian's  Land  Co.,  26  L.  J.  (C.  P.)  203  ; 
Watson  V.  Eales,  23  Beav.  294  (1856); 
Eirniirgham,  <fec.,  Ry.  Co.  v.  Locke,  1  Q. 
B.  256  (1841);  Knight's  Case,  L.  R.,  2 
Chan.  821  (1867).  (/.  Eppes  v.  Missis- 
sippi, Ac,  R.  R.  Co.,  35  Ala.  83  (1859); 
BiEgs  V.  Duckinfield,  18  N.  Y.  592 
(1859);  Schenectady,  Ac,  R.  R.  Co.  v. 
Thatcher,  11  Id.  lo2  (1854);  Harlaem, 
Ac,  Co.  V.  Seixas,  2  Hall  (N.  Y.  Super. 
Ct.),  £04  (1829);  Mitchell  v.  Vermont 
Copper  Minirg  Co.,  40  N.  Y.  Super.  Ct. 
406  (1876);  JSew  Albanv,  Ac.  R.  R.  Co. 
V.  McCormick,  10  lid.  499  (1857). 

^  So  where  the  notice  stated  that  un- 
less the  amount  of  a  certain  call,  together 
■with  lawlul  interest  from  the  date  of  the 
call,  was  paid  on  or  before  a  certain  day, 
the  shares  would  be  liable  to  forfeiture, 
it  Mas  held  that,  as  interest  was  only  pay- 
able from  the  day  fixtd  for  payment,  and 
n(.t  from  the  date  of  the  call,  the  notice 
was  irregular,  and  that  a  forfeiture  found- 
ed on  a  Lon-ccnipliance  with  such  a  notice 
was  bad.  Johnson  v.  Ljttle's  Iron 
Agency,  46  L.  J.  (Chan.)  786  (1877). 


CH.  VIII.]     FORFEITURE   OF   SHARES   FOR   NON-PAYMENT.         [g  131. 


is  to  be  made  must  be  accurately  stated/  and  also  the  place 
where  the  sale  is  to  be  made.^  The  mode  of  giving  notice  of  a 
contemplated    forfeiture  of  stock  is  generally  specified  in   the 


statute  authorizing  the  forfeiture.^ 


§  131.  Notice  is  not  the  same  thing  as  forfeiture. — A  notice 
of  a  probable  or  certain  forfeiture  in  the  future,  which  may  per- 
haps be  described  as  a  threat  of  forfeiture,  is  not  forfeiture,  and 
does  not  become  forfeiture  merely  by  non-payment  of  the  call  or 
assessment  within  the  time  specified  in  the  notice.^     A  forfeiture 


'  A  notice  that  the  stock  will  be  for- 
feited "on  Monday,  tiae  9th,"  when  in 
point  of  fact  the  9lh  comes  on  Friday,  is 
not  a  sufficient  notice.  Watson  v.  Eales, 
23  Beav.  294  (1856). 

-  Accordingly  a  notice  in  all  other  re- 
spects regular,  which  does  not  state  the 
place  of  sale,  is  insufficient,  although  it 
name  the  daj'  of  sale,  and  the  auctioneer, 
who  was  and  had  long  been  an  auctioneer 
in  the  place  at  which  the  notice  was  dat- 
ed. Lexington,  <fec.,  R.  R.  Co.  v.  Stajjles, 
71  Mass.  520(1855)  (by  Shaw,  C.  .J.).  In 
the  absence  of  a  statutory  provision  as  to 
time,  it  is  said  that  tliree  days  notice  of 
the  lime  and  place  of  the  sale  of  shares 
for  non-payment  of  assessments  is  too 
short  and  unreasonable,  where  the  owner 
of  the  shares  lived  at  a  distance  in  an- 
other State.  Lexington,  (fee,  R.  R.  Co. 
V.  Staples,  supra.  In  Rutland,  <fec.,  R.  R. 
Co.  V.  Thrall,  35  Vt.  536  (1863),  a  thirty 
days  notice  is  said  to  be  sufficient  and 
reasonable.  And  where  the  charter  pro- 
vided that  notice  of  an  assessment  should 
be  given  to  the  subscriber  thirty  days  be- 
fore the  order  of  the  directors  to  sell  the 
.shares,  a  notice  thirty  days  before  the 
sale  was  held  insufficient.  Lewey's  Island 
R.  R.  Co.  V.  Bolton,  48  Me.  451  (I860); 
Louisville,  <fec.,  Turnpike  Co.  v.  Meri- 
wether, 5  B.  Mon.  13.  A  printed  notice 
in  designated  newspapers,  published  in 
cities  where  the  subscribers  reside,  is 
good.  Louisville,  <fec.,  Turnpike  Co.  v. 
Meriwether,  supra. 

*  In  Mississippi,  Ouachita  &  Red 
River  R.  R.  Co.  v.  Gaster,  20  Ark.  455 
(1859),  it  is  said  that  the  mode  of  giving 
a  notice  in  these  cases  is  directory,  rather 
than  mandiitory,  and  that  where  the  char- 
ter provided  that  notice  bo  given  in  cer- 
tain newspapers,  a  personal  notice  would 
be  sufficient,  Ace.  Knight's  Case,  L.  11., 
2  Chan.  321  (1867).  So,  where  a  by-law 
provided  for  notice  by  letter,  seasonably 


put  into  the  mail,  it  was  held  that  this 
by-law  was  only  directory  to  the  treas- 
urer, and  not  a  condition  precedent,  and 
that  a  written  notice,  signed  by  the  treas- 
urer, in  other  respects  sufficient  and  reg- 
ular, would  not  be  invalidated  merely 
because  it  was  delivered  to  the  owner  of 
the  shares  or  left  at  his  dwelling-house 
instead  of  being  deposited  in  the  mail, 
when  it  appeared  that  it  was  received  by 
him  as  soon  as  he  was  entitled  to  receive 
it  by  mail.  Lexington,  &c.,  R.  R.  Co.  v. 
Chandler,  13  Mete.  311  (1847).  But  see 
Lewey's  Island  R.  R.  Co.  v.  Bolton,  48 
Me.  451  (1860).  In  general,  as  to  the 
effect  of  such  a  notice  left  at  one's  resi- 
dence or  place  of  business,  or  where 
similar  notices  have  previously  been  left, 
and  been  duly  received,  but  which,  for 
some  reason,  never  reach  the  person  for 
whom  they  are  intended,  see  Cockerell 
V.  Van  Dieman's  Land  Co.,  26  L.  J.  (C.  P.) 
203.  Cf.  Birmingham,  (fee,  Ry.  Co.  v. 
Locke,  1  Q.  B.  256  (1841);  Graham  v. 
The  Van  Dieman's  Land  Co.,  1  Hurl.  & 
N.  541  (1856)  (a  case  in  which  notice  was 
held  properly  served  on  a  bankrupt  though 
his  effects  were  in  the  hands  of  an  as- 
signee). See  also  South  Staffordshire  Ry. 
Co.w.  Burnside,  5  Exch.  129  (1850). 

■*  Macon,  (fee,  R.  R.  Co.  v.  Vason,  67 
Ga.  314  (1876);  Bigg's  Case,  L.  R.,  1  Eq. 
309  (1865);  Cockerell  v.  Van  Dieman's 
Land  Co.,  26  L.  R.  (C.  P.)  203;  Water 
Valley  Mfg.  Co.  v.  Seaman,  53  Miss.  655 
(1876),  where  only  a  threat  was  made. 
But  see  contra,  Knight's  Case,  L.  R.,  2 
Chan.  321  (1867).  It  is  said  that  mere 
non-payment  of  cidls,  where  the  corpora- 
tion has  p()w<!r  to  forfeit  for  non-payment, 
produces  only  an  inchoate  forfeiture, 
which  is  not  complete  until  duo  notice 
thereof  is  given  to  the  delinquent  owner 
of  the  stock,  and  the  shares  have  bi'on 
duly  declared  forTeited  at  a  regular  .and 
lawful      meeting     of     the     corj>i)ration. 

l:"53 


§  133.]         FORFEITURE   OF   SHARES  FOR   NON-PAYMENT.      [cH.  VIII, 


is  void  if  declared  for  the  non-payment  of  assessments,  when  all 
or  any  one  of  the  assessments  were  illegal  or  unauthorized.^ 

§  132.  Tender,  hy  stockholder,  lefore  forfeiture.— ^here  the 
amount  due  on  a  subscription  for  non-payment  of  which  a  for- 
feiture is  about  to  take  place,  is  tendered  to  the  proper  officer 
of  the  corporation  at  any  time  before  the  sale  actually  takes 
place,^  the  forfeiture  is  thereby  prevented.  Thus,  in  Walker 
V.  Ogdei),^  it  has  been  held  that  where  the  articles  of  associa- 
tion do  not  provide  an  express  mode  in  which  stock  is  to  be 
forfeited,  a  valid  forfeiture  cannot  be  made  without  the  de- 
cree of  a  court  of  equity ;  that  after  such  a  foreclosure  there  is 
a  right  to  redeem  ;  and  that,  where  the  subscriber  had  given  se- 
curity for  the  payment  of  his  assessments  overdue,  and  subse- 
quently paid  the  amount  due,  principal  and  interest,  the  corpora- 
tion would  be  compelled  to  make  and  deliver  to  him  the  proper 
certificate,  and  to  recognize  him  as  a  stockholder. 

§  133.  Surplus  after  valid  forfeiture,  belongs  to  tlie  corpora- 
tion^ — Upon  a  sale  of  the  stock  forfeited,  if  the  amount  realized 
is  more  than  the  debt  due  the  corporation,  the  surplus  belongs  to 


Cocterell  v.  Van  Dieman's  Laud  Co. 
supra.  But  on  the  other  hnnd  it  is 
argued  that  the  notice  is  not  of  the 
essence  of  the  forfeiture,  while  the  non- 
payment is ;  that  the  forfeiture  is  effected 
and  consummated  when  the  time  has 
elapsed  within  whicli  payment  of  the 
assessment  ought  to  have  been  made, 
witliout  a  valid  payment,  and  that  the 
provision  as  to  sending  a  notice  may  well 
be  regarded  mandatory.  Knight's  Case, 
L.  R.,  2  Chan.  321  (1867).  In  Austin's 
Case,  24  L.  T.  (N.  S.)  932  (1S71),  it  is 
said  that  a  corporation,  after  forfeiting 
shares,  cannot  set  the  forfeiture  aside, 
ex  mero  molu,  and  hold  the  owner  liable 
as  a  subscriber,  on  the  ground  that  the 
notice  given  him  was  irregular,  or  faulty, 
or  insufficient.  It  is  for  the  subscriber 
alone  to  raise  that  objection  to  the  validity 
of  the  forfeiture.  But  the  facts  involv- 
ing the  matter  of  notice  may  be  of  such  a 
nature  that  even  after  forfeiture,  the 
owner  of  the  shares  will  not  be  heard  to 
allege  that  his  shares  have  been  forfeited, 
nor  the  corporation  be  precluded  from 
treating  him  as  a  stockholder.  Birming- 
ham, (tc,  Ry.  Co.  V.  Locke,  1  Q.  B.  256 
(1841). 

'  Stoneham,  &c.,  R.  R.  Co.  e.  Gould,  2 

184 


Gray,  277(18.54);  Lewey's  Island  R.  R. 
Co.  V.  Bolton,  48  Me.  451. 

5  Swenv  V.  Smith,  L.  R,  7  Eq.  324 
(1869);  W'nlker  v.  Ogden,  1  Biss.  287 
(1859).  In  Mitchell  v.  Vermont  Copper 
Mining  Co.,  67  N.  Y.  280  (1876),  it  ap- 
pears that  the  directors  of  the  mining 
company,  having  imposed  an  assessment 
upon  the  share-,  advertised  those  ofM., 
for  sale  for  non-payment  thereof,  M. 
being  in  default.  Prior  to  the  sale,  how- 
ever, M.  tendered  to  the  president  df  the 
company,  at  its  office,  during  business 
hours,  his  check  for  the  amount  due. 
which  without  any  objection  as  to  the 
form  or  amount  was  declined,  and  the 
stock  was  subsequently  sold  to  the  presi- 
dent. M.  repeatedly  thereafter  oflered  to 
the  company  and  to  the  president  the 
amount  of  the  assessment  and  the  charges 
and  expenses  of  the  sale,  but  without 
being  able  to  recover  his  stock.  In  an 
action  to  set  aside  the  sale  and  to  prevent 
a  triinsfer  to  the  purchaser,  the  court  held 
the  tender  good,  the  pretended  forfeiture 
of  the  shares  inequitable  and  void,  and 
that  the  plaintiff  was  entitled  to  equitable 
relief. 

3  1  Biss.  287  (1859). 


CH.  vm.]     FORFEITURE   OF   SHARES   FOR   NON-PAYMEXT.         [^^  134. 

the  corporation.^  The  purchaser  at  the  forfeiture  sale,  if  the 
stock  has  been  only  partially  paid  for,  must  pay  the  instalments 
due  and  to  come  due,  and  if  he  fail  to  make  these  payments  the 
stock  must  be  sold  again.'^ 

§  134.  Equity  will  relieve  a  sliareliolder  from  an  unau- 
tliorized  forfeiture.— The  sliareowner  himself,  as  well  as  a  cor- 
porate creditor,  may,  in  a  proper  case,  invoke  the  aid  of  a  court 
of  chancery  when  his  shares  have  been  forfeited  in  an  unau- 
thorized, or  an  unlawful  manner.  Usually  in  such  a  case,  the 
shareholder  may,  by  bill  in  equity,  obtain  a  decree  annulling  the 
forfeiture.*  So  also  equity  will  sometimes  set  aside  a  forfeiture 
upon  purely  equitable  grounds,  as,  for  example,  where  a  forfeit- 
ure was  declared  for  non-payments  of  calls,  which,  it  was  shown, 
were  not  paid,  because  the  shareholder  died,  and  no  administrator 
had  been  appointed  until  the  time  for  payment  had  fully  elapsed.* 
But  it  seems  that  the  weight  of  authority  is  to  the  effect  that  a 
forfeiture  of  shares,  lawful  and  regular,  for  non-payment  of 
assessments,  is  one  of  those  forfeitures  from  which  equity  will 


1  Small  V.  Herkimer,  (fee,  Co.,  2  N.  Y. 
330  (1849).  But  compare  cases  on  p.  129, 
and  see  Sturges  v.  Stetson,  1  Biss.  246 
(1858). 

-Sturges  I'.  Stetson,  1  Biss.  246,  251 
(1858). 

■i  S^veny  v.  Smith,  L.  R.,  7  Eq.  324 
(1869) ;  Mitchell  v.  Vermont,  <fec.,  Co.,  67 
N.  Y.  280  (1876);  Adley  v.  Whitstable  Co., 
17  Ves.  315  (1810,  by  Lord  Eldon) ; 
Sloman  v.  Bank  of  Kughind,  14  Sim.  475 
(1845);  Tavlor  v.  Midland  Ry.  Co.,  28 
Beav.  287  "(1860);  s.  c.  29  L.  J.  (Chan.) 
731.  Of.  Telegraph  Co.  v.  Davenport, 
97  U.  S.  369  (1878)  ;  Germantown,  <fcc., 
Ry.  Co.  V.  Fitler,  60Penn.  St.  124(1869); 
Pratt  V.  Taunton,  <tc.,  Co.,  123  Mass.  110 
(1877);  Lowry  i).  Commercial,  <fec..  Bank, 
Taney  C.  C.  310  ;  Sewall  v.  Boston,  Ac, 
Co.,  4  Allen,  277(1862):  Chew  v.  Bank 
of  Baltimore,  14  Md.  299  (1859) ;  Pollock 
i;.  The  National  Bank,  7  N.  Y.  274  (1852) ; 
Weaver  v.  Barden,  49  Id.  286  (1872); 
Cohen  v.  Gwynn,  4  Md.  Chan.  357  (1848) ; 
Naylor  v.  South.  <fcc.,  Ry.  Co.,  1  De  G.  <fe 
S.  32  (1846);  Norman  v.  Mitchell,  5  De 
G.,  M.  &  G.  648;  Johnson  w.  Ronton,  L. 
R.,  9  Eq.  181  (1871));  Cottam  v.  Eastern, 
&c.,  Ry.  Co.,  1  Johns.  &  H.  243  (1860); 
Swan  V.  North  Britisli,  (fee,  Co.,  7  Hurl, 
(fe  N.  603;  Dalton  v.  Midland  Ry.  Co.,  22 
Eng.  L.  (k  Eq.4.j2  (1852)  ;  Davis  v.  Bank 


of  England,  2  Bing.  393 ;  Hilgard  v. 
South  Sea  Co.,  2  P.  Wms.  76  (1722); 
Ashby  V.  Blackwell,  2  Eden,  299  (1765). 
Thus  a  forfeiture  of  shares  for  non-pay- 
ment of  calls  declared  at  a  meeting  held  out 
of  the  State  in  whicli  the  company  was 
incorj)orated,  the  meeting  being  in  con- 
sequence an  unlawful  meeting,  maj-  be 
set  aside  upon  a  proper  application  to  a 
court  of  chancery,  at  any  time  within  the 
period  prescribed  by  the  statute  of 
limitations  for  briiigring  an  action  for 
conversion.  Ormsby  v.  Vermont,  &c., 
Co.,  56  N.  Y.  623  (1874).  An  unlawful 
attempt  to  forfeit  shares  is,  it  is  said, 
equivalent  to  a  conversion  of  them. 
Freeman  v.  Harwood,  49  Me.  195  (1859) ; 
Van  Dieman's  Land  Co.  v.  Cockerell,  1 
C.  B.  (N.  S.)732. 

*  Glass  V.  Hope,  16  Grant  (Up.  Can. 
Chan.)  420  (1869).  In  one  case,  the 
extreme  ground  has  been  taken  that,  in 
any  event,  a  court  of  equity  may  grant 
relief  by  ordering  that  upon  payment  in 
full  of  the  amount  due  principal  and 
interest,  the  complainant  sliall  be  allowed 
to  redeem.  Walker  v.  Ogden,  1  Biss.  287. 
Tliis,  however,  is  very  doubtful  law, 
since  a  court  of  equity  rarely  grants  relief 
from  a  forfeiture  clearly  and  legally  im- 
posed. Vatable  V.  New  York,  L.  E.  <k  W. 
R.  R.  Co..  96  N.  Y.  49(1884). 

135 


§134.]  FORFEITURE   OF  SHARES   FOR  NON-PAYMENT.      [CH.VIII. 

not,  except  in  very  exceptional  cases,  afford  relief.^  When  the 
shareholder  lias  lost  his  shares  by  an  irregular  or  unlawful  forfeit- 
ure, his  suit  should  be  for  the  recovery  of  his  shares,  and  not  for 
an  undivided  interest  in  the  property  of  the  company.^  Acquies- 
cence or  delay,  as  we  have  seen,  on  the  part  of  the  shareholder, 
will  usually  bar  his  right  in  a  court  of  equity,  to  have  such  a  for- 
feiture as  we  have  considered  above,  set  aside.^ 


'  Sparks  v.  The  Company  of  Proprie- 
tors of  the  Liverpool  Water  Works,  13 
Ves.  428  (ISO'Z);  Germaiitown,  <fec.,  Ry. 
Co.  V.  Fitler,  60  Penn.  St.  124  (1869). 
Equity  will  not  relieve  from  such  forfeit- 
ures, because  to  do  so  would,  it  is  said, 
be  in  contravention  of  the  direct  expres- 
sion of  the  legislative  will.  Small  v. 
Herkimer,  &c.,  Co.,  2  N.  Y.  330,  340 
(1849).  Neither  can  a  shareowner  have 
a  forfeiture  set  aside,  merely  because  the 
calls,  which  he  relused  to  pay,  were  for 
the  purpose  of  paying  debts  which  the 
company  would  not  have  owed  but  for 
the  previous  misappropriation  of  the  cor- 
porate funds  of  the  trustees.  Marshall 
V.  Golden  Fleece,  Ac,  Co.,  16  Nev.  156. 
See  Wilkins  v.  Thorne,  60  Md.  253  (1883); 
Petersborongh  R.  R.  Co.  v.  Nashua,  &c., 
R.  R.  Co.,  59  N.  H.  385. 

'-  Smith  V.   Maine   Boys   Tunnel   Co., 
18  Cal.    Ill    (1861). 
herein  the  court  says  : 
mistaken  his  remedy. 


In    the    opinion 

'  The  plaintiff  has 

U  his   stock  has 


been  improperly  sold,  he  may  maintain 
an  action  for  its  recovery,  but  he  cannot 
sue  the  corporation  for  a  specific  interest 
in  the  corporate  property.  It  appears 
that  he  was  one  of  the  original  incorpora- 
tors, and  that  the  property  in  question 
has  been  held  as  corporate  property  from 
the  time  the  corporation  was  formed. 
Under  these  circumstances  he  should  not, 
we  think,  be  permitted  to  question  the 
title  of  the  corporation."  The  suit  to 
set  aside  the  forfeiture  must  be  brought 
in  the  State  where  the  corporation  is 
domiciled.  North  State.  Ac,  Co.  v.  Field, 
64  Md.  151(1885);  Sudlow  v.  Dutch  R. 
R.  Co.,  21  Beav.  43  (1855). 

2  Vide  §  129,  supra.  It  will,  more- 
ever,  sometimes  be  found  that  a  general 
statute,  or  the  charter  of  the  corporation, 
fixes  or  limits  the  time  within  which  a 
shareholder  will  be  allowed  to  make  such 
an  application  to  a  court  of  chancery. 
Thus  in  California  such  an  application 
must  be  made  within  six  months. 


i;',6 


CHAPTER  IX. 


PAROL    AGREEMENTS    AND    FRAUDULENT    REPRESENTATIONS 
INDUCING   SUBSCRIPTIONS  FOR  STOCK. 


141. 


142. 


§  135.  Scope  of  the  subject. 

136.  Definitions. 

137-38.  Parol  agreements. 

139-40.  Corporations  chargeable  with 
the  fraudulent  representations  of 
their  agents. 

The  misrepresentations  must  be  by 
the  authorized  agents. 
Misrepresentations  at  public  meet- 
ings. 

143.  Misrepresentations  by  prospec- 
tuses. 

144.  Misrepresentations  by  reports. 
14.5.  What  misrepresentations  amount 

to  a  fraud. 

Statements  as  to  questions  of  law. 
Misrepresentations  by  suppression 
of  the  truth. 

Misrepresentation  without  knowl- 
edge of  their  falsity. 


146. 
147. 

148. 


149.  Immaterial  misrepresentations. 

150.  Subscribers  not  bound  to  investi- 
gate. 

151.  Subscription    not  void,   but  void- 
able. 

152.  Remedies. 

153.  Remedy  by  Rescission  without  le- 
gal proceedings. 

154.  Remedy  by  defense  to  action  for 
calls. 

155-56.  Remedy  by  bill  in  equity. 
157-58.  Remedy  by  action  at  law  for 
deceit. 

159.  Remedy  by  action  for  money  had 
and  received. 

160.  Ratification  as  a  bar. 
161-62.  Laches  as  a  bar. 

163-64.  Corporate  insolvency  as  a  bar. 
165.  Necessary  allegations,  <fec. 


§  135.  Scope  of  the  subject — Parol  a^^reements  and  fraudu- 
lent representations  inducing  subscriptions  to  stock  have  been  a 
prolific  source  of  litigation,  both  in  this  country  and  in  England. 
As  a  defense  to  actions  brought  for  the  collection  of  subscriptions, 
and  as  the  basis  of  suits  in  equity  to  set  aside  subscriptions  and 
compel  a  repayment  of  money  already  paid  on  such  subscriptions, 
the  agreements  and  representations  made  to  induce  persons  to 
subscribe  for  stock  have  given  rise  to  intricate  principles  of  law 
peculiar  to  this  subject. 

§  136.  Definitions. — A  parol  agreement  includes  all  represen- 
tations and  stipulations  made  before  or  at  the  time  of  subscribing, 
but  not  included  in  ihe  written  subscription,  whereby  the  cor- 
poration is  to  do  something  or  refrain  from  doing  something  in 
the  future.  A  fraudulent  representation,  on  the  other  hand,  is  a 
statement  as  to  j)ast  acts  or  existing  facts,  or  the  omission  of  such 
a  statement,  which  amount  to  a  fraud  on  one  who,  relying  there- 
on, subscribes  to  the  stock  of  the  company.     DifKculty  sometimes 

137 


137.] 


PAROL  AGREEMENTS  AND  FRAUD. 


[CH. 


IX. 


arises  in  determining  whether  a  statement  by  a  corporate  agent 
inducing  a  subscription  is  merely  a  parol  agreement  or  is  a  fraud- 
ulent representation.  This  question  is  one  which  must  be  de- 
cided first  of  all.  since  the  rules  of  law  applicable  to  parol  agree- 
ments, as  a  defense  to  an  action  on  a  subscription,  differ  greatly 
from  those  applicable  to  fraudulent  representations. 

§  137.  Parol  agreements. — Where  a  subscription  contract  is 
absolute  on  its  face,  it  is  well  settled,  both  in  equity  and  at  law, 
tliat  parol  evidence  of  previous  or  cotemporaneous  negotiations, 
stipulations,  terms,  or  agreements,  is  not  admissible  except  for  the 
purpose  of  proving  that  the  parties,  at  the  time  of  consummating 
the  agreement,  intended  and  understood  that  such  terms  and 
stipulations  would  be  incorporated,  but  omitted  the  same  by  acci- 
dent, fraud,  or  mistake.^  This  rule,  forbidding  the  introduction 
of  parol  evidence  to  explain,  contradict,  or  vary  a  written  instru- 


'  Piscataqiia  Ferry  Co.  v.  Jones,  39 
N.  H.  491  (1859);  Kennebec  &  Portland 
R.  R.  Co.  V.  Waters,  34  Me.  369(1852); 
Cincinnati  Union  &  Ft.  Wayne  R.  R.  Co. 
V.  Pearce,  28  Ind.  502  (18tl7);  Scarlett  v. 
Academy  of  Music,  46  Md.  132  (1876); 
Dili  V.  Wabash  Valley  R.  R.  Co.,  21  111. 
91  (1859);  East  Tenn.  &  Va.  R.  R.  Co.  v. 
Gammon,  5  Sneed.  (Tenn.)  567  (1858); 
Corwith  V.  Culver,  69  111.  502  (1873); 
Jack  V.  Naher,  15  Iowa,  450  (1863)  ; 
Thornbnro-h  v.  Newcastle  &  D.  R.  R.  Co., 
14  Ind.  499  (1860);  Gelpcke  v.  Blake,  15 
Iowa,  387  (1863),  holding  that  it  is  imma- 
terial that  the  agent  acted  in  good  faith. 
Johnson  v.  Pensacola  <fc  Ga.  R.  R.  Co.,  9 
Fla.  299  (1860);  xMiss.,  0.  &  R.  R.  Co. 
V.  Cross,  20  Ark.  443  (1859);  Ridgefield 
&,  N.  Y.  R.  R.  Co.  V.  Brush,  43  Conn.  86 
(18')5);  Phoenix  Warehousing  Co.  v. 
Badger,  6  Hun,  293  (1875) ;  affi'd,  67  N. 
Y.  294;  Whitehall  <fe  P.  R.  R.  Co.  v. 
Myers,  16  Abb.  Pr.  (N.  S.)  34  (1872). 
But  see  Brewers  Fire  Ins.  Co.  v.  Burger, 
10  Hun,  56  (1877),  holding  that  where 
the  original  subscription  contract  is  ver- 
bal and  complete,  and  a  part  only  of  it  is 
afterwards  reduced  to  writing,  it  is  com- 
petent to  prove  the  whole  agreement.  See 
also  Hendrix  v.  Academy  of  Music,  Geor- 
gia. 1885.  Of.  Eighmie  v.  Taylor,  98  N. 
Y.  288  (1885). 

In  Georgia,  under  §  3,803  of  the  Code, 
where  the  subscription  does  not  purport  to 
contain  the  whole  contract,  parol  evidence 

138 


is  admissible.  Hendrix  v.  Academy  of 
Music,  73  Ga.  437(1884). 

In  -Pennsylvania,  the  case  McCIure  v. 
People's  Freight  Ry.  Co.,  90  Pa.  St.  269 
(1879),  sustains  the  general  rule,  and  ex- 
cluded a  parol  agreement  or  condition 
allowing  payment  in  property.  But 
Rinesmith  v.  People's  Freight  Ry.  Co.,  90 
Pa.  St.  262  (1879) ;  Caley  v.  Phil.  &  Ches- 
ter R.  R.  Co.,  80  Penn.  St.  363  (1876); 
Miller  v.  Hanover  June.  &  Sua.  R.  R.  Co., 
87  Penn.  St.  95  (1878);  and  McCarty  v. 
Selinsgrove  &  N.  B.  R.  R.  Co.,  87  Penn. 
St.  332  (1878),  allow  parol  evidence  to 
contradict  the  subscription  contract  where 
it  is  shown  that  but  for  the  parol  agree- 
ment the  subscription  would  not  have 
been  made,  the  last  two  cases  saying, 
however,  that  the  evidence  is  inadmis- 
sible if  other  stockholders  are  interested 
in  opposition  to  such  parol  agreement. 
This  unusual  rule  probably  has  its  origin 
in  an  old  English  case  (Pulslord  v.  Rich- 
ards, 17  Beav.  87,  1853)  which  holds  that 
a  representai  ion  is  to  be  considered  fraud- 
ulent when,  "  if  the  real  truth  had  been 
stated,  it  is  reasonable  to  believe  the 
plaintiff  would  not  have  entered  into  the 
contract." 

The  subscriber's  remedy  is  against 
the  person  who  made  the  agreement 
whicii  has  not  been  kept.  Felgate's  Case, 
2  De  G.,  J.  &  S.  456  (1865).  "An  action 
for  damages  for  breach  of  contract  lies 
against  the  corporation  if  the  agreement 
amounts  to  a  condition  subsequent. 


CH.  IX.] 


PAROL  AGREEMENTS  AND  FRAUD. 


[§  138. 


ment,  applies  to  a  subscription  contract  for  stock  in  a  corporation. 
2!N"either  party  is  permitted  to  prove  a  different  contract  from  that 
expressed  in  the  written  instrument.  Under  the  rule,  not  even  a 
separate  written  cotemporaneous  contract  is  admissible  to  change 
the  subscription  contract.^ 

§  138.  Thus  an  agreement  that  a  certain  location  will  be 
adopted,^  or  that  payment  may  be  made  in  a  certain  way  or  at  a 
certain  time,^or  that  the  subscription  shall  be  merely  nominal  for 
the  purpose  of  inducing  others  to  subscribe,*  or  that  the  subscrip- 
tion shall  be,  in  fact,  only  a  pledge  of  stock  by  the  corporation  to 
the  subscriber,  or  that  the  stock  may  be  surrendered,^  or  that 
certain  property  would  be  purchased  by  the  corporation,®  or  that 
the  subscriber  might  keep  his  stock,  but  should  not  be  liable  for 
the  full  par  value  thereof,'  or  that  payment  would  not  be  demand- 


1  Brownlee  v.  0.  Ind.  &  111.  R.  R.  Co., 
18  Ind.  68  (1862) ;  White  Mts.  R.  R.  Co. 
V.  Eastman.  34  N.  H.  124  (1856). 

2  North  Car.  R.  R.  Co.  v.  Leach,  4 
Jones'  Law  (N.  C),  340  (1857);  Wisyht 
V.  Shelby  R.  R.  Co.,  16  B.  Monr.  4  (1855); 
Ellison  V.  Mobile  &  0.  R.  R.  Co.,  36  Miss. 
572  (1858);  Miss.,  O.  &  R.  R.  R.  Co.  v. 
Cross,  20  Ark.  443  (1859);  Killer  v.  John- 
son, 11  Ind.  337  (1858):  Evansville,  In- 
dianapolis, &  C.  S.  R.  R.  Co.  V.  Posey,  12 
Ind.  363(1859);  Eakri^ht  v.  Lo^ansport 
<fe  N.  Ind.  R.  R.  Co.,  13  Ind.  404  (1859); 
Carlisle  v.  Evansville,  Ind.,  <fe  C.  S.  R.  R. 
Co..  13  Ind.  477  (1859);  Miller  v.  Wild 
Cat  Gravel  Road  Co.,  52  Ind.  51  (1875); 
8.  c,  57  Id.  241 ;  Miller  v.  Hanover  June. 
<fe  Sus.  R.  R.  Co.,  87  Pa.  St.  95  (1878); 
Gelpcke  v.  Hlake,  15  Iowa.  387  (1863) ; 
Braddoek  v.  Phil.,  M.  &  M.  R.  R.  Co.,  45 
N.  J.  Law  Rep.  363  (1883);  Killer  v. 
Johnson,  11  Ind.  337  (1858),  holdin<;  it 
immaterial  that  fraud  was  actually  in- 
tended. Contra,  Rives  v.  Montgomery 
S.  P.  R.  Co.,  30  Ala  92  (1857). 

•  Noljle  )'.  Collendcr.  2i»  O.  St.  199 
(187"j;  Henry  v.  Vermilion  &  A.  R.  R. 
Co.,  17  0.  187  (1848);  Stewards  of  M.  E. 
Church  V.  Town,  49  Vt.  29  (1876);  Ridjre- 
field  <fe  N.  Y.  R.  R.  Co.  v.  Brush,  43  Conn. 
86  (1875):  Thi<;pen  v.  Miss.  Central  R.  R. 
Co.,  32  Mi«s.  347  (1866). 

♦  Downicw.  Wliite,  12  Wis.  176(1860) 
WetlierWce  v.  Bakfr,  35  N.  J.  Eq.  501 
(1882);  Kishacoquillas  &  Centre  T.  R. 
Co.  V.  McCanaliv,  16  S.  &  R.  (Pa.)  140 
(1827) :  I'hfjenix  W.  Co.  v.  Bad^rtn',  6  Hun, 
293(1875);  afli'd,  67  N.  Y.  294;  Psycliaud 


V.  Hood,  23  La.  Ann.  732  (1871);  Cleve- 
land Iron  Co.  V.  Ennor,  12  Am.  &  Eng. 
Corp.  Cases  88  (111.,  1886);  Robinson  v. 
Pittsburgh  <fe  C.  R.  R.  Co..  32  Pn.  St.  334 
(1858);  Graff  v.  Pittsburgh  <fe  S.  R.  R. 
Co.,  31  Pa.  St.  489  (1858);  Mann  v. 
Cooke,  20  Conn.  178  (1849);  Conn.  & 
Pass.  Rivers  R.  R.  v.  Bailey,  24  Vt.  465 ; 
Davidson's  Case,  3  De  G.  <fe  S.  21  (1849), 
holding  it  to  be  a  fraud  on  other  subscrib- 
ers, without  requiring  proof  that  there 
were  such.  Bridger's  Case,  L.  R.  9  Eq. 
Cas.  74  (1869);  New  Albany  <fe  Salem  R. 
R.  Co.  V.  ^laughter,  10  Ind.  218  (1858); 
Blodgett  ?>.  Morrill,  20  Vt.  509  (1848); 
Minor  V.  Mechanics  Bk.  of  Alexandria,  1 
Peters,  46  (1828);  Bates  v.  Lewis,  3  0. 
St.  459  (1854);  Litchfield  Bk.  v.  Church, 
29  Conn.  137  (1860);  Mangles  v.  Grand 
Collier  Dock  Co.,  10  Simf  519  (1840); 
Pieston  V.  Grand  Collier  Dock  Co.,  2  Rail. 
Cas.  335  (1840);  Chouteau  Co.  v.  Floyd, 
74  Mo.  286  (1881).  These  cases  hold  that 
such  agieements  are  void  as  a  fraud  on 
corporate  creditors  and  on  other  subscrib- 
ers, and  that  the  subscription  is  enforce- 
able absolutely. 

'■'  Melvin  v.  Lamar  Ins.  Co.,  80  111.  446 
(1875);  White  Mts.  R.  R.  Co.  v.  Eastman, 
34  N.  II.  124  (1856).  Or  that  the  sub- 
scriber be  released.  Gill  v.  Balis,  72  Mo. 
424  (1880). 

•^  Kelscy  V.  Northern  Light  Oil  Co.,  45 
N.  Y.  505  (1871). 

'  Custar  V.  Titusville  Gas  &  Water 
Co.,  63  Pa.  St.  381  (1869);  Union  Ins.  Co. 
V.  Frear  S.  Mfg.  Co.,  97  111.  537  (1881); 
Upton  V.  Tribilcock,  91  U.  S.  45  (1875). 

139 


§§  139,  140.]         PAROL   AGREEMENTS   AND   FRAUD.  [oH.  IX. 

ed  until  certain  work  had  been  completed,^  or  that  the  money 
would  be  applied  to  a  particular  part  of  the  road,'^  or  other  similar 
executory  contracts  are  held  to  be  no  defense  to  an  action  to  col- 
lect the  subscription.^  Where,  for  the  purpose  of  obtaining  a 
subscription,  a  promise  was  made  in  behalf  of  the  corporation 
that  a  branch  road  would  be  built,  it  was  held  that  this  promise 
was  but  an  expression  of  an  existing  intention  which  was  liable 
to  be  changed,  and  was  no  defense.*  It  is  also  held  that  a  prom- 
ise which,  if  carried  out,  would  necessitate  an  ultra  vires  act  by 
the  corporation,  is  not  binding,  and  is  no  defense.^ 

§  139.  Corporation  cliargeable  witli  the  fraudulent  repre- 
sentations of  tlieir  agents.— At  an  early  day  in  England  it  was 
held  in  a  number  of  cases  that  corporations  were  not  bound  by 
the  frauds  of  their  agents  in  obtaining  subscriptions  to  stock. ^ 
This  doctrine  rested  on  the  theory  that  the  corporation  gave  the 
agent  no  power  or  authority  to  commit  a  fraud,  and  that,  conse- 
quently, the  fraud  rendered  the  agent  liable  personally,  but  did 
not  release  or  affect  the  subscription. 

§  140.  The  modern  doctrine,  however,  both  in  this  country 
and  in  England,  has  completely  exploded  the  theory  that  corpora- 
tions are  not  chargeable  with  the  frauds  of  their  agents  in  taking 
subscriptions.  The  well  established  rule  now  is  that  a  corporation 
cannot  claim  or  retain  the  benefit  of  a  subscription  which  has  been 


'  La  Grange   &  M.  P.  R.  Co.  v.  Mays,  *  McAllister  v.  Indianapolis  &  Gin.  R. 

29  Mo.  64  (1859);  Clem  v.  Newcastle  &  R.  Co.,  15  Ind.  11  (1860). 
D    R    R  Co     9   Ind.  488(1857),  holding  Johnson  v.  Crawfordsville,  F  i\.  & 

that  sucii  a  promise  is  contradictory  of  Ft.  W.   R.    R.  Co.,    11    Ind.   280  (1858). 

the  legal  effect  of  the  subscription.     Cin-  where    aid    from   another    railroad    was 

cinnati  U    &  Ft.   Wayne  R.   R.   Co.   v.  promised.     Peters  v.  Lincoln  &  N.  W.  R. 

Pearce,  28  Ind.  502  (1867).  Co.,  14  Fed.  Rep.  319  (1882)   where  an 

•^  Smith  V  Tallahassee  Branch  of  C.  P.  ultra  vires  lease  was  promised.     Laile  v. 

R.  Co.,  30  Ala.  660  (1857).  Calvert  C.  E.  Soc.  47  Md.  117  (1877). 

3  Piscataqua  Ferry  Co  v.  Jones,  39  N.  «  Dodgson's  Case,  3  De  G.  &   ^m-  «» 

H   491(1859);  Grossman  w.  Penrose  Fer-  (1849);  Bernard's  Case,  5  DeG.&   bin. 

rv  Brido-e  Co..  26  Pa.  St.  69  (1856);   New  283  (1852) ;  Gibson's  Case,  2   De  G.  &  J 

Albany  &  Salem  R.   R.  Co.  v.  Fields,  10  275   (1858);    Holt's   Case,    22    Beav     48 

Ind   187  (1858);  East  Tenn.  &  Va.  R.  R.  (1856);  Felgate's  Case,  2  De  G.,  J-  &  ^■ 

Co'w    Gammon,   5    Sneed.    (Tenn.)   567  456(1865);  Mixer's  Case,  4  De  G  «fe  J. 

(1858)-  Saffold  v.  Barnes,  39  Miss.  399  575,  where  a  prospectus  was  issued  by  the 

(1860V    Pavson  v.  Withers,  5  Biss.  269  directors;    Ayres'    Case,    25    Beav.    513 

(1873)'  Goff  i;  Hawkeye  Pump  &  W.  M.  (1858),  the  court  holding  that  the  corpo- 

Co    62  Iowa  691  (1884);  Corwith  v.  Ciil-  ration  is  bound  by  the  misrepresentation 

ver' 69  111  502  (1873).     Contra,   Maban  only  where  it  expressly  authorized  the 

V   Vvood,  44  Cal.  4C2  (1872),  where  the  particular  statement  made.     Cf.  Barry  v. 

par  value  of  the  shares  were  not  what  Craskey,  2  Johns.  &  Hem.  1  (1861). 
was  promised. 

140 


CH.  IX.]        PAROL  AGREEMENTS  AND  FRAUD.        [§  141. 

obtained  throu.o^b  the  fraud  of  its  agents.  The  misrepresenta- 
tions are  not  regarded  as  having  actually  been  made  bj  the  cor- 
poration, but  the  corporation  is  not  allowed  to  retain  the  benefit 
of  the  contract  growing  out  of  them,  but  is  liable  to  the  extent  that 
it  has  profited  by  such  misrepresentations.^  The  question  of  the 
authority  of  the  agent  taking  the  subscription  is  immaterial  here- 
in. It  matters  not  whether  he  had  any  authority,  or  exceeded  his 
authority,  or  concealed  its  limitations.^  The  corporation  cannot 
claim  the  benefits  of  his  fraud  without  assuming  also  the  repre- 
sentations which  procured  those  benefits.  Parol  evidence  is  ad- 
missible to  show  the  fraud,  since  it  does  not  vary  or  contradict  the 
contract,  but  shows  that  no  contract  was  properly  formed.^ 

§  141.  The  misrepi'esentations  mnst  he  ly  aiitliorized  agents. 
— False  representations  by  persons  who  do  not  act  as  intermedia- 
ries between  the  corporation  and  the  subscriber  in  forming  the 
contract  cannot  bind  the  corporation  nor  affect  the  subscription. 
They  are  statements  of  outside  parties.*  The  subscriber  may  have 
his  action  for  damages  against  such  persons  for  deceit,  but  he  can- 
not charge  the  corporation  with  their  misrepresentations.  Some- 
times, also,  the  misrepresentations  even  of  persons  connected  with 
the  corporation  do  not  bind  the  corporation,  inasmuch  as  their 
powers  are  purely  statutory  or  have  nothing  to  do  with  the  taking 
of  subscriptions.  Thus,  while  there  has  been  considerable  contro- 
versy in  this  country  over  the  question  of  fraudulent  representa- 

'  "Weatern  Bk.  of  Scotland  v.  Addie,  L.  tion  and  quality  of  tbe  lands  and  the  like. 

R.  1   Sc.  App.  Cas.  145  ;  Natl.  Exchan',re  Sandford  v.  Handy,  23  Wend.  260  (1840). 

Co.  V.  Drew,  32  Eng.  L.  &  Eq.  1  (1853);  See  also  Nelson  'v.   Cowing,  6  Hill,  336 

Henderson  v.  Lacon,  L.  11.  5  Eq.  Cas.  249  (1844). 

(1867);  Ex  parte  Linger,  6  Irish  Ch.  Rep.  ^  ^  Y.  Exchange  Co.  v.  De  Wolf,  31 
N.  S.  174;  Montgomery  S.  Ry.  Co.  v.  N.  Y.  271  (1865);  Jewett  v.  Valley  Ry. 
Matthews,  77  Ala.'357  (1884).  The  prin-  Co.,  34  0.  St.  601  (1878).  In  Pennsyl- 
ciples  governing  tliese  contracts  are  the  vania  the  peculiar  rule  prevails  that  the 
same  as  the  principles  irovcrning  contracts  agent's  misrepresentations  affect  the  sub- 
between  private  individuals.  Directors,  scription  antl  are  a  defense  ordy  when  the 
«fec.,  of  Central  Ry.  v.  Kisch,  L.  R.  2  H.  L.  agent  actually  had  or  reasonably  appeared 
App.  Cas.  99  (1870);  Anderson  v.  New-  to  have  authority  to  make  representa- 
castle  &  Richmond  R.  R.  Co.,  12  Ind.  376  tions.  This  was  the  ancient  English  doc- 
(1859);  Vreeland  I'.  N.  J.  Stone  Co.,  29  N.  trine,  long  since  al)andoned.  Custar  v. 
J.  Eq,  188(1878).  TitusviUe  Gas  &   Water  Co.,  63  Pa.  St. 

■^  Crumbe  v.   U.S.   Min.  Co.,  7  Gratt.  381(1869). 
(Va.),  353   (1851).      Provided,   of  course,  •*  Cunningham  «;.  Edgefield   &   Ky.  R. 

that  the  misrepresentations  were  made  by  R.  Co.,  2  Head,  23  (1858).     The  repre- 

persons  legally  connected  with  the  taking  sentations   made   to  him    by   other   sub- 

of  tlie  8ubhcri|)tion.     An  agent  t<>  obtain  scribers  or  outsiders  nre  iintnateriijl  here 

Bubscriptions  may  use  the  ordinary  means  in.     His  remedy  is  against  them   person- 

of  accomplishing    the   oliject  of    his   ap-  ally.    Duranty's  Case,  26  Beav.  2t;8  (1858); 

pointment,  such  as  representing  the  loca-  Ex  parte  Frowd,  30L.  J.  (Ch.),  322(1860). 

141 


142.] 


PAROL   A-GREEMENTS   AND   FRAUD. 


[CH.  IX. 


tions  by  commissioners  having  statutory  powers  to  take  subscrip- 
tions, it  is  quite  well  settled  that  the  subscriber  is  bound  to  know 
that  the  commissioners  have  no  power  to  make  representations, 
and  that  the  corporation  is  not  bound  thereby.^  So  also  it  has 
been  held  that  the  representations  by  the  president  of  the  corpora- 
tion do  not  bind  it  where  he  had  no  authority  to  take  subscrip- 
tions.^ In  Indiana  it  is  held  that  an  agent  taking  subscriptions 
before  the  incorporation  of  the  company  cannot  bind  it  by  his 
misrepresentations.^  If  there  is  conflicting  testimony  as  to  the 
authority  and  status  of  the  agent,  the  question  is  to  be  submitted 
to  the  jury.* 

§  142.  Corporation  not  hound  hy  misreiyresentations  of  oncers 
at  a  puhlic  meeting. — There  is  a  difference  of  opinion  among  the 
authorities  as  to  whether  fiaudulent  representations  made  by  one 
or  more  of  the  company's  officers,  at  a  public  meeting,  called  to 
promote  the  procuring  of  subscriptions,  are  chargeable  against  the 
corporation  where  such  representations  were  not  expressly  author- 
ized by  the  corporation.  In  New  York,  Iowa,  Alabama  and 
Louisiana,  such  misrepresentations  do  not  bind  the  corporation.^ 
In  Georgia  and  Wisconsin,  on  the  other  hand,  such  fraudulent 
representations  are  held  to  be  admissible  in  evidence.^  The 
former  rule  seems  to  accord  most  with  the  modern  tendency  of  the 
decisions,  which  go  very  far  towards  the  enforcement  of  subscrip- 
tions, after  corporate  creditors  and  other  subscribers  have  become 
interested  in  the  enterprise. 


*  Mppanose  Mfg.  Co.  v.  Stadon,  68  Pa. 
St.  256  (1871) ;  Barington  v.  Pittsburgh  & 
Steubenville  R.  R.  Vo.,  34  Pa.  St.  358 
(1859);  Wight  v.  Shelby  R.  R.  Co.,  16  B. 
Monr.  4  (1855);  Rutz  v.  Esler  &  R.  Mfg. 
Co.,  S  Bradw.  81  (1878);  Syracuse,  P.  A 
O.  R.  R.  Co.  V.  Gere,  4  Hun,  392  (1875); 
North  Car.  R.  R.  Co.  v.  Leacli,  4  Jones' L. 
(N.  C.)  340  (1857). 

"-  Crump  V.  U.  S.  Mining  Co.,  7  Gratt. 
(Va.)  353  (1851);  Rives  «>.  Montgomery 
South  Plank  R.  Co.,  30  Ala.  92  (1 857).  In 
all  such  cases,  however,  if  the  corporation 
accepts  a  subscription  taken  by  an  unau- 
thorized agent,  it  cannot  retain  the  sub- 
scription and  repudiate  the  representa- 
tions.    It  must  assume  both  or  neither. 

3  Miller  v.  Wild  Cat  Gravel  Road  Co., 
57Ind.  241  (1875). 

142 


••  Kelsey  v.  Northern  Light  Oil  Co.,  45 
N.  Y.  505  (1871);  Crump  v.  U.  S.  Mining 
Co.,  7  Gratt.  (Va.)  353  (1851). 

»  Buffalo  &  N.  Y.  City  R.  R.  Co.  v. 
Dudley,  14  N.  Y.  336  (1856);  First  Natl. 
Bk.  V.  Hurford,  29  luwa,  579  (1870); 
Smith  V.  Tallahassee  Branch  of  C.  P.  R.  R. 
Co.,  30  Ala.  650  (1857),  on  the  ground  of 
a  want  of  authority  which  the  subscriber 
is  bound  to  know ;  Yicksburg,  S.  <fc  T.  R. 
R.  V.  McKean,  12  La.  Ann.  638  (1857),  on 
the  ground  that  if  the  rule  were  other- 
wise, "  there  will  be  very  little  securitj  to 
those  who  loan  money  or  render  assist- 
ance to  institutions  of  this  kind." 

«  Atlanta  &  West  Point  R.  R.  Co.  v. 
Hodnett,  36  Ga.  669  (1867);  McClellan 
V.  Scott,  24  Wis.  81  (1869). 


CH.  IX.]        PAROL  AGREEMENTS  AND  FRAUD.    [§§  143, 1-1:4:. 

§143.  Tlie  misrepresentations  may  arise  hy  prospectuses. — 
A  prospectus  issued  by  the  authority  of  the  directors  or  the  stock- 
hohlers  of  a  corporation,  may  be  relied  upon  by  a  person  in  sub- 
scribing for  stock,  and  if  the  prospectus  contains  a  false  represen- 
tation, and  the  subscription  is  made  by  reason  thereof,  such  repre- 
sentation is  binding  upon  the  corporation.^  In  this  class  of  cor- 
porate instruments,  liowever,  it  is  held,  that  some  high  coloring 
and  even  exaggeration  is  allowable.  "  In  an  advertisement  of 
this  description,  some  allowance  must  always  be  made  for  the 
sanguine  expectations  of  the  promoters  of  the  adventure,  and  no 
prudent  man  will  accept  the  prospects  which  are  always  held  out 
by  the  originators  of  every  new  scheme,  without  considerable 
abatement."^  So,  also,  if  the  language  used  in  the  prospectus 
admits  of  two  meanings,  the  subscriber,  relying  on  it,  must  ascer- 
tain which  meaning  is  intended.^  Unless  the  representation  dis- 
tinctly refers  to  what  is  actually  existing  at  the  time,  it  must  be 
taken  to  represent  what  will  result  when  the  enterprise  is  car- 
ried out,  and  will  then  be  merely  an  expression  of  opinion. 

§  144.  Or  l)y  reports. — So,  also,  a  report,  made  by  the  cor- 
porate officers  to  the  stockholders,  may  be  relied  on  by  one  who 
contemplates  subscribing  for  stock.^     The  corporation  cannot  say 

•  Oakes  V.  Turquand,  L.  R.,  2  H.  L.  R.,  20  Eq.  114  (1875);  Davidson  v.  Tul- 
App.  Cas.  325  (1867);  Ross  v.  Estates  Tn-  loch,  1  MacQ.  783;  Arkrifi^lit  v.  New- 
vestment  Co.,  L.  R.,  3  Ch.  App.  682  bold,  L.  R.,  17  Ch.  D.  311  (1880);  Twy- 
(1868);  Reese  River  Silver  Min.  Co.  v.  cross  v.  Grant,  L.  R.,  2  C.  P.  D.  469 
Smith,  L.  R.,  4  H.  L.  64  (1869);  Blake's  (1877);  Emma  Min.  Co.  v.  Lewis,  L.  R., 
Case,  34  Beav.  639  (1865);  Hemlerson  v.  4  C.  P.  D.  396(1879);  Bagnall  ?;.  Carlton, 
Lacon,  L.  R.  6  Eq.  Cas.  249  (1867).  In  L.  R.,  6  Ch.  D.  371  (1877);  Plvmpton 
England,  it  is  enacted  by  sect.  38  of  the  Min.  Co.  ■«.  WiJkins,  1882,  W.  N."p.  66; 
Companies  Act,  1867,  "  Every  prospectus  Sullivan  «.  Metcalfe,  L.  R.,  5  C.  P.  Div. 
of  a  company,  and  every  notice  inviting  455(1880).  For  other  cases  see  Hurrell 
persons  to  sub.scribe  for  shares  in  any  v.  Hyde  on  Joint  Stock  Companies  (1883) 
joint-stock    company,    shall    specify    the  25. 

dates  and  names  of  the  parties  to  any  con-  *  Directors,  &c.  of  Central  Ry.  Co.  v. 

tract  entered  into  by  the  company,  or  the  Kisch,  L.  R.,  2  H.  L.  App.  Cas.  99  (1870). 
promoters,  directors,  or  trustees  thereof,  ^  Smith  v.  Chadwick,  L.   R.,   9    II.   L. 

before  the  issue  of  such  prospectus  or  no-  187;  Hallows  v.    Fermie,    L     R.,    3    Ch. 

tice,  whether  subject  to  adoption    by  the  App.    467  (1868),  where  the  court   say.s, 

directors  or  the    company    or   otherwise ;  "  If  they  may  be  construed  in  a   different 

and  any  prosj)ectus  or  notice  not    specify-  manner  by  different  minds,  it  will  be    im- 

irig  the  same,  shall  lie  deemed  fraudulent  possible  to  test  tlio  truth  of  any  one  man's 

on    thr;  part  of  the  promoters,  directors,  assertion,  that  he  understood  them  in  the 

and  officers  of  the  company  knowingly  is-  sense  in  which  they  involved  a  misrepre- 

suing  tiie  same,  as  regards   any   person  sentnticm."     See  also  Ch.  XX. 
taking  shares  in  the  company  on  the  faith  *  Western  Mk.  of  Scotland  v.  .\ddie,  L. 

of  such  prospectus,  unless  he    shall    have  R.,  1  Sc.  App.  Cas.  145;  New  Brunswick  A 

had  notice   of  such   contract."     For   the  C.  Ry  Co.  w.  Conybeare,  9    II.  L.  Cas.  711 

applicati'>n  Of  this  statute    see    Cornell?;.  (1862). 
Hay,  8  C.  P.  328  (1873) ;  G over's  Case,  L. 


li: 


o 


§145.] 


PAROL  AGREEMENTS  AND  FRAUD. 


[CH.  IX. 


that  such  reports  were  intended  for  the  stockholders  alone.  The 
law  holds  that  the  report  is  known,  and  is  intended  to  be  known 
to  all  persons  who  contemplate  becoming  stockholders,  and  is 
the  same  as  though  published  to  the  world.^ 

§  145.  Misrejiresentations  amounting  to  fraudulent  repre- 
sentations. Any  statement,  by  the  authorized  agents  of  a  corpo- 
ration, in  regard  to  the  past  or  present  status  of  the  corporate 
enterprise  or  material  matters  connected  therewith,  whereby 
subscriptions  are  obtained,  is  a  fraudulent  representation. 

Thus,  a  false  statement  that  a  certain  amount  of  stock  had 
been  subscribed  for;^  or  that  certain  property  had  been  pur- 
chased ;  ^  that  the  corporate  property  is  unincumbered  ;  ^  that 
the  corporation  is  solvent  and  prosperous;^  that  the  directors 
have  subscribed  for  stock  ;^  that  certain  individuals  are  direc- 
tors;''  or  as  to  the  nature  of  the  business  to  be  undertaken ;  ^ 
or  in  En2:land,  where  the  memoranda  or  articles  of  the  associa- 
tion  are  diflPerent  from  the  prospectus  ;  ^  or  that  work  on  the  enter- 
prise had  reached  a  certain  stage  of  completion  ;  ^^  or  that  the 


'  Natl.  Exchange  Co.  v.  Drew,  32  Eng. 
L.  &  Eq.  1  (1855);  Scutt  v.  Dixon.  29  L. 
J.  (Ex.),  62,  n. ;  explained  and  adopted  iu 
L.  R.,  6H.  L.,  377. 

^  Ross  V.  Estates  Investment  Co.,  L. 
R.,  3  Ch.  682  (1868);  Henderson  v.  La- 
con,  L.  R.,  5  Eq.  249  (1867). 

^  A'so  that  the  property  contained 
valuable  mines,  in  full  operation,  and 
witli  large  daily  returns.  Reese  River 
Silver  Min.  Co.  v.  Smith,  L.  R.,  4  H.  L. 
64(1869);  Waldo  v.  Chicago,  St.  P.  & 
F.  D.  L.  R.  R.  Co.,  14  Wis.  575  (1861); 
Ross  V.  Estates  Investment  Co.,  supra. 
Representation  that  a  certain  patent  right 
owned  by  the  company  had  been  tested, 
and  found  to  be  vnliiable,  held  not  a  mis- 
representation, although  it  turns  out  to 
be  worthless.  Denton  v.  Macneil,  L.  R., 
2  Eq.  352  (1866).  Representation  in 
good  faith,  that  title  to  land  was  good 
when  in  fact  it  was  bad,  is  not  a  misrep- 
resentation. New  Brunswick  <fc  C.  Ry. 
Co.  V.  Conybeare,  9  H.  L.  Cas,  711  (1862). 
But  misrepresentation  that  a  government 
guarantee  had  been  obtained  is  material. 
Kisch  V.  Central  Ry.  of  Venezuela,  34  L. 
J.  (Ch.)  545. 

*  McClellan  v.  Scott,  24  Wis.  81  (1869) ; 
Water  Valley  Mfg.  Co.  v.  Seaman,  53 
Miss.  655. 

6  Bell's    Case,    22    Beav.    35    (1856); 

144 


Melendy  v.  Keen,  89  111.  395  (1878); 
Western  Bk.  of  Scotland  v.  Addie,  L.  R., 
1  Sc.  App.  Cas.  146.  Not  so,  however, 
where  tiie  directors  honestly  figured  in 
debts  which  afterwards  turned  out  to  be 
bad.  Jackson  v.  Turquand,  L.  R.,  4 
H.  L.  305  (1869). 

*  Henderson  v.  Lacon,  L.  R.,  5  Eq. 
Cas.  249  (1867). 

'  Blake's  Case,  34  Beav.  639  (1865); 
Munster's  Case,  14  W.  R.  957  (1866). 
Persons  who  have  accepted  are  directors, 
although  without  the  qualification  shares. 
Hallows  V.  Fernie,  L.  R.,  3  Cb.  App.  467 
(1868). 

«  Blackburns'  Case,  3  Drew.  409 
(1856). 

9  Downes  v.  Ship,  L.  R.,  3  H.  L.  343 
(1868);  Briggs,  L.  R.,  1  Eq.  Cas.  483 
(1866). 

'0  Peel's  Case,  L.  R.,  2  Ch.  App.  674 
(1867):  Ogilvie  v.  Currie,  37  L.  J.  (Ch.) 
541  (1868);  Lawrence's  Case,  L.  R.,  2  Ch. 
App.  412  (1867);  Kincaid's  Case,  Id. 
(1867);  Wilkinson's  Case,  L.  R.,  2  Ch. 
App.  536  (1867);  Ashley's  Case,  L.  R.,  9 
Eq.  Cas.  263  (1870);  Stewart's  Case,  L. 
R.,  1  Ch.  App.  574;  Whitehouse's  Case, 
L.  R.,  3  Eq.  790  (1867);  Taite's  Case,  L. 
R.,  3  Eq.  795  (1867);  Upton  v.  Hans- 
braugh,  3  Biss.  417  (1873);  Ec  Cachar 
Co.,36L.  J.  (Ch.)  490  (1867);  Ship  v. 


CH.  IX.]  PAROL   AGREEMENTS    AND   FRAUD.  [§  146. 

objects  of  the  enterprise  set  forth  in  the  subscription  contract 
were  of  a  certain  nature,  the  subscriber  not  reading  or  hearing, 
and  not  being  able  to  read  the  contract,^  have  been  held  to  con- 
stitute a  fraudulent  representation,  entitling  the  subscriber  in- 
duced thereby  to  subscribe,  to  the  remedies  provided  by  law  for 
such  cases.  In  all  these  cases,  however,  the  distinction  between 
statements  relative  to  the  prospects  and  capabilities  of  the  enter- 
prise, and  statements  specifically  specifying  what  does  or  does 
not  exist,  must  be  carefully  borne  in  mind.  The  former  are 
matters  of  opinion ;  tlie  latter  are  material  representations  and. 
are  fraudulent  if  false.^ 

§  146.  Statements  as  to  questions  of  law. — Where  a  sub- 
scription is  obtained  by  a  false  representation  as  to  the  legal 
effect  of  the  subscription  contract,  or  of  corporate  rights  or  lia- 
bilities, the  subscriber  has  no  remedy.  He  is  bound  to  take 
notice  of  the  law.^  Thus  a  misrepresentation  as  to  the  extent 
to  which  the  subscriber  would  be  liable  on  his  stock,*  or  that  he 
may  allow  his  stock  to  be  forfeited,^  or  that  payment  would  not 
be  demanded  until  the  enterprise  was  partly  or  wholly  completed,^ 
is  a  statement  as  to  the  law.  It  states  that  something  can  be 
done,  which  the  law  prohibits  from  being  done. 


Cresskill,  L.   R.,  10  Eq.  Cas.  73  (1870).  cannot,  without  more,  become  a  fraad- 

Cf.  Ex  parte  Briggs,  L.  R.,  1  Eq.  Cas.  ulent  representation.     If,  however,  such 

483  (1866);   Stewart's  Case,  L.  R.,  1  Ch.  opinion  is  falsely  expressed,  witii  intent 

574  (1866).  to  deceive,  and  does  deceive,  this  consti- 

'  West  V.  Crawfordsville  &  A.  T.  Co.,  tutes  such  opinion    or   representation  a 

19  Ind.  244  (1862).  false  statement  of  fact,  and  vitiates  a  con- 

■■'  Whether  the  statement  refers  to  a  tract  thereby  procured,  unless  the  repre- 

"  possibility  or  a  contingencj',  or  an  in-  sentation  relates  to  a  matter  equall}'  open 

tention,"  or  to  an  exi-tinc^  fact,  is  a  ques-  to  both  parties."     Althou2;h  the  misrep- 

tion  sometimes  for  the  jury,  sometimes  reseiitation  was  innocently  made,  yet  it 

for  the  judge,  generally  the  latter.    Edg-  may  suffice  to  avoid  the  subscription, 
ington   V.  Fitzmaurice,'L.  R.,  29  Ch.   D.  ^  Parker  v.  Tliomas,  19  Ind.  213(1862). 

459(1885).     All  the  statements,  together  •'Upton  v.   Tribilcock,  91    U.    S.    45 

with  the  circumstances  and  history  of  the  (1875),  where  the  representation  was  that 

matter,  are  to  be  corjsjdercd  in  deciding  only  a  certain  percentage  could  be  called 

whellier  a  misrepresentation  was  made.  for.     In  Upton  v.  Englehart,  3  Dill.  496 

It  is  sufficient  if  tlie  subscriber  replied  (1874),  this  representation  was  held  to  be 

partly   on    the    misrepresentation.       He  a  defense,  where  it  was  made  in  one  State 

need  not  have  relied  on  it  exclusively,  with  reference    to  the    laws  of  another 

Id.     See  also  Nicol's  Cat-e,  3  De  (i.  &  ,\.  St»te.     See   also   Accidental  Ins.   Co.    v. 

420  (1858).     The  subscriber  may,  by  con-  Davis,  15  L.  T.    182  (1S66),  where  it  was 

tract,  waive  his  right  to  rely  on  a  repre-  represented  that  further  calls  were   nut 

eentution.     Brownlee  v.  Campbell,  L.  R.,  contemplated. 

6    App.    Cas.    925   (,1880).     In  the  case  ^  N.  E.  R.  R.  Co.  «^.  Rodriques.lO  Rich. 

Montgomery  S.   Ry.  Co.  v.  Miitthews,  77  (S.  C.)  278  (1857). 

Ala.  >,57  (1884),  the   court  said:     "An  «  ^Icm  ?;.  Newcastle  A  Danville  R.  R. 

opiuion  expressed,  even  if  not  realized,  Co.,  9  Ind.  488(1867). 

Lioj  145 


§§  147,  148.]    PAROL  AGREEMENTS  AND  FRAUD.        [CH.  IX. 

§  147.  Misrepresentation  may  1)6  hy  suppression  of  tlie  truth. 
— Tlie  misrepresentation,  entitling  the  subscriber  to  his  remedies, 
may  consist  in  the  suppression  of  what  is  true,  as  well  as  in  the 
assertion  of  what  is  false.^  Where  any  statement  is  made  at  all, 
it  must  be  a  fair  and  full  statement  of  all  the  material  facts. 
The  corporate  authorities,  in  issuing  a  jn-ospectus,  are  ''bound  to 
state  everything  with  strict  and  scrupulous  accuracy,  and  not 
only  to  ahstain  from  stating  as  fact,  that  which  is  not  so,  but  to 
omit  no  one  fact  within  their  knowledge,  the  existence  of  which 
might,  in  any  degree,  affect  the  nature,  or  extent,  or  quality  of 
the  privileges  and  advantages  which  the  prospectus  holds  out  as 
inducements  to  take  shares,"  ^  Thus,  an  omission  to  state  that 
a  very  large  sum  had  been  paid  for  property,  the  merits  of  which 
were  fully  set  forth,  has  been  held  to  be  equivalent  to  a  fraudulent 
representation.^  On  the  other  hand,  a  failure  to  state  that  large 
sums  were  paid  to  the  directors  to  induce  them  to  act  as  such, 
was  held  not  to  be  a  fraudulent  omission,^ 

§  148.  Misrepresentation  may  he  dy  statements  made  without 
Tcnowledge  of  their  falsity. — Statements  need  not  be  intentionally 
false,  in  order  to   amount   to   a  fraudulent   representation.^     A 


'  "  No  misstatement  or  concealment  of  ''  Corporate  agents,  making  represen- 

f.ny  material  facts  or  circumstances  ouglit  tations  in  order  to  obtain  subscriptions, 

to  be  permitted.     .     .     The  suppression  are  bound  to  know  the  truth  or  falsity  of 

of  a  fact  will  aften  amount  to  a  misrepre-  such    statements.       Reese   River   Co.    v. 

sentation."   Directors,  &c.,  of  Central  Ry.  Smith,   L.   R.,  4  H.  L.   64  (1869);  affi'g 

V.  Kisch,  L.  R.,  2  H.   L.  Apj).  Cas.  99  L.  R.,  2  Eq.  264;  filamorganshiie  Iron, 

(186'7).     In  Oakes  v.  Turquiind,  L.  R.,  2  Ac,  Co.  v.  Irvine,  4  F.  (fe  F.  947  (1866), 

H.  L.  App.  Cas.  325  (1867),  the  court  says  applying  the  same  rule  at  law.    The  Eng- 

the    prospectus    is    objectionable,    "not  lish  case  of  Kennedy  w.  Panama,  N.  J.  <fe 

that  it  does  not  state  the  truth  as  far  as  A.  R.  M.  Co.  (L.  R.,  2  Q.  B.  580)  (1867), 

it  goes,  but  that  it  conceals  most  material  holds,   however,  that  "  where  there  has 

facts  with  which  the  public  ought  to  have  been   an   innocent  misrepresentation    or 

been  made  acquainted,  the  very  conceal-  misappreliension,  it  does  not  autliorize  a 

ment  of  wliicli  gives  to  the  truth  which  rescissiun,  unless  it  is  such   as  to  show 

is  told  the  character  of  falsehood."  that  there  is  a  complete  difference  in  sub- 

^  New  Brunswick  &  Con.  Ry.  Co.  v.  stance  between  what  was  supposed  to  be 

Muggeridge,  1  Dr.  &  Sm.  363,  381  (1860).  and  what  was  taken,  so  as  to  constitute 

^  Directors,  &c..  of  Central  Ry.  Co.  v.  a  failure  of  consideration,"  and  that  to 

Kisch,  supra.     In  Gover's  Case,  L.  R.,  1  hold  otherwise  would  be  to  make  a  war- 

Ch.  D.  182  (1875),  under  different  circum-  ranty  out  of  the  representation.     In  the 

stances,  the  contrary  was  held.  recent  case,  Edgington  v.  Fitzmaurice,  L. 

*  Heyu;ann  v.  European   Central  Ry.  R..  29  Ch.  D.  459  (1885),  the  court  says 

Co.,  L.  R.,  7  Eq.  Cas.  154  ( 1868).     State-  that  a  statement  of  fact,  which  the  pe7'son 

ment  need  not  be  made  that  sock  had  making  does  not  know  the  truth  of,  is  "  in 

been  given  to  the  directors  and  promoters  the  eye  of  the  law,  a  fi-audulent  statement 

in    payment   for    services.      Pulsfurd   v.  as  much  as  if  the  parties  makino;  it  had 

Ricliards,  17  Beav.  87  (1853).     Nor  as  to,  known  it  to  be  false."     In  this  country, 

the  amount  of  stock  already  subscribed,  the  cases  seem  to  favor  a  different  rule. 

Vane  v.  Cobbald,  1  Ex.  798  (1848).  The   party   making  the    representations 

146 


CH.  IX.]        PAROL  AGREEMENTS  AND  FRAUD.         [§  149. 

false  statement,  made  in  good  faith,  but  in  ignorance,  is,  in  a  legal 
point  of  view,  the  same  as  an  assertion  which  the  party  knew  to 
be  untrue.^  Thus,  a  prospectus  issued  by  the  directors,  represent- 
ing the  coi'porate  property  as  containing  valuable  mines,  all  of 
which  was  in  good  faith,  but  false,  is  the  same  as  though  the 
statements  were  made  with  knowledge  of  their  falsity.  Where, 
however,  the  statement  in  good  faith  was  that  the  corporation 
had  a  government  contract,  which,  upon  litigation,  was  found  to 
be  untrue,  the  representation  was  held  not  to  be  fraudulent.^ 

§  149.  Misrepresentations  that  are  insufficient. — It  is  not 
every  misrepresentation  that  enables  a  subscriber  to  set  up  that 
he  was  induced  to  subscribe  by  fraud.^  Thus  an  honest  mistake 
of  judgment,  on  the  part  of  the  directors,  as  to  the  collectibility  of 
certain  debts,  whereby  a  company  represented  to  be  solvent  turns 
out  to  be  insolvent,  is  not  a  fraudulent  representation.  So,  also, 
of  a  representation  as  to  the  value  of  a  patent  right,  which,  it  was 
stated,  would  be  tested  further.  On  the  other  liand,  a  statement 
made  with  the  intent  to  defraud  the  subscriber,  but  without  that 
effect,  is  immaterial;  mere  intent  without  damage  is  insufficient.* 
A  misstatement  as  to  the  contents  of  the  subscription  contract, 
which  the  subscriber  signs,  is  immaterial,  where  he  can  read,  but 
does  not.^  And  where  false  representations  are  made,  but  before 
the  subscription  is  completed,  the  representations  are  made  good 


must  be  proven  "to  have  had  a  fraudu-  know  that  these  are  all  matters  of  mere 

lent  purpose  in  contemplation,  or  at  least  conjecture.     Brownlee  v.  0.,  Ind.   <fe  111. 

to  have  known  that  the  statements  were  R.  R.  Co.,  18  Ind.  68  (1862);  Pickerincf 

untrue."      Nugent  v.    Cin.,    Harrison   &  v.  Templeton,    2  Mo.   .Xpp.   424  (1876); 

Indiiinapolis  8.  L.  R.  R.  Co.,  2  Disney,  Hughes  v.  Antietam  M%.  Co.,  34  Md.  316 

3i'2;  Selma,  M.  &  M.  H.  R.  Co.  v.  Andt-r-  (18'7());  Hardy  v.  Merriweather.   14  Ind. 

son,  51  Miss.  829  (1876) ;  Cunninojham  v.  208  (18C0);   Au'lrews  v.  O.  &  Miss.  R.  R. 

E.Jgefield  &  Ky.   R.  R.   Co.,  2  Head,  23  Co.,  14  Ind.  169  (1860);  Bish  v.  Krndf  .rd, 

(1858).      See  also   Chitty  on    Contracts,  17  Ind.  490  (1861 );  Walker  ?;.  Mobile  R. 

682.     The  vigorous  case  of  Henderson  v.  R.  Co.,  34  Miss.  245  (1857);  Coil  v.  Pitts- 

R.  11.  C(5.,  17  Tex.    560  (1856),  however,  burgh  Colle<^e,  40  Petin.  St.  439   (1861). 

effectively   sustains   the    o]>posite   view.  See  also  §  92.     In  the  cases,  however,  of 

See  also  1  Story  P^q.  Juris,  J^  193;  Story  Gerhard  i;.   Bales,  17  Jur.  1097  il85:i), 

on  Agency,  i:^  127,  13."),  137,  452.            '  and  Taylor  v.  Asliton,   11    M,    &  \V.  401 

'  Reese  River  Co.  v.  Smith,  L.  R.,  4  (1843),  it  was  heUi  that  a  false  guarantee 

11.  L.  64  (1869).  ol  tlie  promoters,  that  a  certain  dividend 

''  Kennedy  v.  Panama,  N.  Z.   <fe  O.  R.  wou'd  re-ult  from  the  enterprise,  consti- 

M.  Co.,  L.  R.,  2  Q.  B.  580  (1867).  tuted  a  false  representaiion. 

^  Mere    matters    of    opinion,    as    to  •*  Killer  i;.  Johnson,  11  Tnd.  337(1858); 

whetlier  the  enter|)riHe  ean  be  completed,  Cunningham  v.  Edgefield  &  Ky.  R.  R.  Co., 

or    when   it   will    be    complet'd,   or   tiie  2  Head,  2;i  (1858). 

prospects  of  profits,  cannot  be  misrepro  '  Thornbuigh  j;.  Newcastle  <fe  Danville 

eentations.     The  subscriber  is  bound  to  R.  R.  Co.,  14  Ind.  499  (1860). 

147 


§150.]  PAROL   AGREEMENTS   AND   FRAUD.  [CH.  IX. 

by  intervening  events,  the  subscribers  cannot  complain.^  Frauds 
of  the  directors  which  are  not  the  subject  of  a  representation,  are 
not  to  be  remedied  by  the  principle  of  law  governing  the  subject 
of  false  representation.^ 

§  150.  Siibscriber  is  not  hound  to  investigate  the  truth  of 
representations. — If  a  subscriber  has  used  reasonable  caution  and 
judgment  in  accepting  the  statements  of  corporate  agents,  it  is  no 
answer  to  his  claim,  that  he  was  induced  to  subscribe  by  fraudu- 
lent representations,  to  say  that  by  proper  inquiry  he  might  have 
learned  the  truth,  or  by  more  vigilance  he  might  have  discovered 
the  deception.^  Where  the  representations  are  by  a  prospectus, 
he  is  not  obliged  to  examine  documents  referred  to,  even  though 
such  examination  would  have  shown  the  falsity  of  the  representa- 
tions.* In  New  York,  the  general  principle  of  law  governing 
cases  of  misrepresentation  is  clearly  stated  to  be  that  "  every  con- 
tracting person  has  an  absolute  right  to  rely  on  the  express  state- 
ment of  an  existing  fact,  the  truth  of  which  is  known  to  the 
opposite  party,  and  unknown  to  him,  as  a  basis  of  a  mutual 
engagement,  and  he  is  under  no  obligation  to  investigate  and 
verify  statements,  to  the  truth  of  which  the  other  party  to  the 
contract,  with  full  means  of  knowledge,  has  deliberately  pledged 
his  faith."  ^  It  is  not  incumbent  upon  him  to  institute  inquiries, 
and  to  suspect  fraud  when  all  seems  fair.  But  where  the  means 
of  information  are  open  equally  to  both  parties,  the  subscriber 
has  no  right  to  rely  upon  the  representations  of  the  corporate 
agent,  unless  the  latter  dissuades  the  subscriber  from  investiga- 
tion.^ So  also  where  the  subscriber  reads  several  documents,  he 
cannot  rely  on  representations  in  one  which  are  corrected  and 
limited  by  statements  in  the  others,  even  though  he  claims  to 
have  overlooked  such  corrections.'^ 


1  Ship  V.  Cresskill,  L.  R.,  10  Eq.  Cas.  the  truth  of  statements  which  the  other 
73  (18'70).  P«irty   with  full  knowledge  of  the  facts 

2  Hornaday  v.  Ind.  &  111.  Central  R.  makes.  McClellan  v.  Scott,  24  Wis.  81 
R      9    Ind.    263    (1857);    Hejmann    v.  (1869). 

European  Central  Ry.  Co.,  L.  R.,  7  Eq.  *  Kisch  v.  Central  Ry.,  34  L.  J.  (Ch.) 

Cas.  154  (1868).  545  ;  s.  c.  supra. 

3  New  Brunswick  &  Can.  Ry.  Co.  v.  ^  Mead  v.  Bunn,  32  N.  Y.  274  (1865). 
Mugeeridge,  1  Dr.  &  Sm.  363  ;  Upton  v.  ^  Jennings  v.  Braughton,  22  L.  J.  (Ch.) 
Enoiehart,  3  Dill.  496  (1874) ;  Directors,  583  (1853);  Walker  v.  Mobile  &  O.  R.  R. 
<fec°  of  Central  Ry.  v.  Kisch,  L.  R.,  2  H.  Co.,  34  Miss.  245  (1857). 

L  App.  Cas,  99  (1870),      Cf.  Hallows  v.  '  Scholey  v.  Central  Ry.  Co.,  L.  R.,  » 

Firmie,  L.  R.,  3  Ch.    App.   467  (1868).  Eq.  Cas.  766,  n.  (1870). 
Tht)  Bubscriber  is  not  bound  to  investigate 

148 


CH.  IX.]        PAROL  AGREEMENTS  AND  FRAUD.    |  §§  151-153. 

§  151.  SuhscrijHions  induced  by  fraudulent  representations 
are  not  void,  but  only  voidable. — The  principle  of  law,  that  fraud 
vitiates  all  contracts,  applies  to  a  contract  of  subscription,  but 
this  principle  means,  not  that  the  contract  is  void  j?e^  se,  from 
the  formation  of  the  contract,  but  that  the  contract  is  voidable 
at  the  option  or  election  of  the  person  defrauded.^  Until  such 
election  is  exercised,  the  contract  is  enforceable  by  both  or  either 
of  the  parties.  Hence  a  subscription  to  stock,  obtained  by  fraud- 
ulent representations,  is  not  void  from  the  time  when  it  was 
made,  nor  is  it  void  until  it  is  ratified  and  confirmed  by  the 
defrauded  subscriber,  but  it  is  valid  until  it  is  expressly  rescinded 
and  repudiated  by  the  subscriber.^  This  principle  is  important 
in  determining  the  method  of  rescission,  and  particularly  the  time 
within  which  a  rescission  must  be  made. 

§  152.  Eemedies  of  a  subscriber  induced  to  subscribe  by 
fraudulent  representations. — There  are,  in  general,  five  different 
remedies  which  are  open  to  a  subscriber  induced  to  subscribe  by 
fraud.  He  may,  upon  discovering  the  fraud,  rescind  the  sub- 
scription by  notification  to  the  corporate  authorities,  without 
taking  legal  proceedings  ;  or  he  may  wait  until  sued  upon  the 
subscription,  and  then  set  up  the  fraud  as  a  defense  to  the  action 
at  law  ;  or  he  may  file  a  bill  in  equity  to  restrain  such  suits  at 
law,  and  to  set  aside  the  subscription  contract,  and  also,  if  he 
wishes,  to  recover  back  payments  already  made  on  the  subscrip- 
tion; or  he  may  bring  an  action  at  law  against  the  parties  fraud- 
ulently inducing  the  subscription,  and  recover  damages  for  the 
deceit;  or  he  may  sue  for  money  had  and  received. 

§  153.  Rescission  ivitlwut  legal  proceedings. — It  is  the  duty 
and  the  right  of  directors,  without  waiting  for  a  bill  in  equity  or 
other  legal  proceedings,  to  revoke  a  subscription  contract,  and 
remove  from  the  stockholders'  list  the  name  of  a  subscriber  wlio 
reasonably  proves  that  he  was  induced  to  subscribe  by  fraudulent 
representations,  chargeable  to  the  corporation,  and  who  requests 
a  rescission  of  the  subscription.^     The  di lectors  are  not  bound  to 


'  Oakes  v.  Turquand,  L.   R.,  2  H.  L.  ^  Tennant  v.  City  of  Glasgow  Bk.,  L. 

App.  Cas.  325  (18«7);    Upton  v.  Eiigle-  R.,  4  App.  Cas.  615. 

hart,   3  Dill.    496   (1874);    Reese   River  '  Wn;rlit'sCa9(;,L.  R.  2  Eq.  331;  s.  o.L. 

Min.  Co.  V.   Smith,   L.    R.,  4   H.   L.  64  R.  7  Ch.  55  (1871);    i '.lake's  Case,  34  Boa  v. 

(1869).  639  (1865);  Reese  River  Co.  v.  Smith,  L. 

149 


§§  154,  155.]    PAROL  AGREEMENTS  AND  FRAUD.        [cH.  IX, 

make  a  hopeless  defease.  It  is  an  ordinary  business  act  within 
the  powers  of  the  directors,  and  their  discretion  is  not  to  be  con- 
trolled unless  unreasonably  exercised.  Where,  however,  upon 
such  a  demand  being  made  by  the  subsci'iber,  the  directors  refuse 
to  dissolve  the  subscription  contract,  the  subscriber  must  resort  ta 
a  bill  in  equity  to  have  the  contract  set  aside  for  fraud.^  A  mere 
notification  to  the  corporation  is  insufficient. 

§  154.  False  representation  as  a  defense  to  an  action  at  law 
for  calls. — The  most  common  remedy  of  a  subscriber  induced  by 
fraud  to  subscribe  is  to  wait  until  the  corporation  brings  suit  to 
collect  the  subscriptions,  and  then  to  set  up  the  fraud  as  a  de- 
fense. Nearly  all  of  the  cases  in  this  country  are  cases  where  this 
remedy  has  been  adopted.^  It  is  subject,  however,  to  the  danger 
that  the  corporation  may  become  insolvent,  and  thereby  bar  the 
defense.  The  decided  tendency  of  the  law  to  preserve  the  rights 
of  third  persons  will  probably  and  properly  tend  to  defeat  this 
defense  in  all  cases  where  the  subscriber  has  not  filed  a  bill  in 
equity  promptly  upon  discovering  the  fraud,  instead  of  waiting 
to  be  sued  by  the  corporation.  The  intervening  rights  of  stock- 
holders and  corporate  creditors  call  for  prompt  action  on  the  part 
of  a  subscriber  who  seeks  to  avoid  his  liability  because  of  fraud. 

§  155.  Remedy  hy  Mil  in  equity. — This  is  the  most  fair,  safe, 
and  complete  remedy  that  the  subscriber  has.  It  is  a  decisive  no- 
tice to  the  corporation  and  all  third  parties  not  to  rely  upon  the 
subscription  in  question.  It  avoids  the  risk  of  future  corporate 
insolvency.  It  enables  the  subscriber  to  set  aside  the  contract,  to 
enjoin  actions  at  law  for  calls,  and  to  recover  back  payments 
made  before  discovery  of  the  frand.^     It  is  the  customary,  and, 


R.   4  H.  L.  64  (1869);  affi'g  L.  R.  2  Eq.  Bwlch-y-plwm  Lead  M.  Co.  v.  Baynes,  36 

264;  Etna  Ins.  Co.  v.  Shields,    Ir.  R.  7  L.  J.(Ex.)  183  (186'7);  Deposit  Life  A.  Co. 

Eq.   264;  Bath's  Case,   8    Ch.   Div.    334  i;.  Ayscough,  6  E.  &  B.  761  (1856);  Sand- 

(1878).     See  also  Fox's  Case,  L.  R.  5  Eq.  ford  v.  Handy,  23  Weud.  260  (1840). 
118  (1868).     Contra,  Steel's  Case,  49  L.  ^  But  the  injunction  to  restrain  the  ac- 

J.  (Ch.)  176  (1879;.  tion  at  law  will  not  be  granted  if  the  sub- 

'  Mere  repudiation,  not  followed  up  by  scriber  delays  until  the  case  is  about  to 
anything  more,  is  insufficient.  Ee  Scot-  be  tried.  Thorpe  v.  Hughes,  3  Myl.  &  Cr. 
tish  Petroleum  Co.,  L.  R.  23  Ch.  Div.  413  742.  And  where  the  stock  has  been  fully 
(1882),  where  the  directors  refused  to  al-  paid,  and  no  injury  can  come  from  the  de- 
low  the  rescission.  See  also  Hare's  Case,  lay,  equity  will  not  sustain  the  subscrib- 
L.  R.  4  Ch.  503  (1869).  er's  bill  to  compel  repayment,  but  will 

-  "  It  is  a  good  answer  at  common  law  send  him  to  a  court  of  law  where  a  jury 

to  an  action  for  calls,  that  the  defendant  may  pass  upon  the  question  of  fraud.  As- 

was  induced  to  become  the  holder  of  the  kew's  Case,  L.  R.  9  Ch.  664  (1874).  Equi- 

ehares   by  the   fraud    of  the    plaintiffs."  ty,  however,  unquestionably  has  concur- 

150 


GH.  IX.]  PAROL   AGREEMENTS   AND   FRAUD.  [§§  156,  157. 

it  seems,  favorite  remedy  in  England,  and  has  been  clearly  upheld 
in  this  country.^ 

§  156.  The  complainant  in  a  bill  in  equity  to  set  aside  a  sub- 
scription obtained  by  fraud  cannot  sue  in  behalf  of  himself  and 
others  who  may  wish  to  come  in.  But  several  subscribers,  de- 
frauded in  the  same  way,  may  join  in  the  bill  as  co-complainants. 
The  corporation  is  to  be  a  defendant,  and  if  merely  a  cancellation 
of  the  subscription  and  an  injunction  against  suits  at  law  are 
souo-ht,  the  corporation,  it  seems,  may  be  the  sole  defendant.  A 
court  of  equity  in  these  actions  will  give  complete  relief  by  de- 
creeing that  the  directors  guilty  of  the  fraud  shall  refund  to  the 
subscriber  payments  mad-e  by  him  before  discovering  the  fraud.' 
This  relief  dispenses  with  an  action  at  law  for  damages  for  deceit, 
and  when  sought  for  in  the  bill  in  equity,  the  guilty  directors 
must  be  made  parties.  The  bill  is  not  multifarious  by  reason  of 
its  blending  prayers  for  these  various  different  kinds  of  relief.'' 

§  157.  Remedy  l)y  an  action  at  law  for  deceit. — An  action  at 
law  for  damages  for  deceit  lies  at  the  instance  of  a  subscriber  for 
stock,  fraudulently  induced  to  subscribe,  against  the  persons 
guilty  of  the  fraud.^  The  fraudulent  representation,  however, 
which  must  be  proved  to  sustain  this  action,  must  be  a  more  in- 
tentional fraud  than  the  one  which  suffices  to  rescind  the  contract. 


rent  jurisdiction  if  it  cares  to  exercise  it.  ■*  Nor  is  it  multifarious  because  it  joins 

Hill  V.  Lane,  L.  R.  11  Eq.  215  (IS'ZO),  crit-  such  a  suit  with  one  by  the  corporation 

icisin^    Otjilvie    v.  Curiie.  87  L.   J.   541  to  compel  th'e  directors  to  account  to  the 

(1867).     And  will  enjoin  the  collection  of  corporationfor  the  same  fraud.    Asbmead 

the  subscription  pending-  the  suit.  Walsh  v.  Colby,  2t)  Conn.  287  (1857). 
V.  Senger,  N.  Y.  Daily  Reg.,  ^:^ept.  3,  1886  ^  Clarke  v.  Dickson,  6  C.  B.  fN.  S.)  453 

(N.Y.  Sup.  Ct.).    And  the  equitable  action  (1859);  Miller  v.  Barber,  06  N.  Y.  558 

will  not  be  enj'iined  merely  because  the  (1876);  Paddock  v.  Fletcher,  42  Vt.  389 

corporation  subsequently  becomes  insolv-  (1869).     In   England  the  liability  of  the 

ent,  and  a  reciiver  is  appointi-d.     Id.,  1  directors  herein  is  enforced  generally  in 

N.  Y.  State  Reji.  189  (June,  1886).  connection  ■with  a  suit  in  equity,  and  as  a 

'  Waldo  I'.  Chicago,  St.  1'.,  tfec,  R.  R.  part  of  the  equitable  decree.     This  is  un- 

Co. ,14  Wis.  575  (1861);  Henderson  f.R.H.  der  a  statute.     Western  Bk.  of  Scotland 

Co.,  17  Tex.  560(1856);  Rawlins  i;.  Wick-  ■j,.  Addie,  L.  R.  1   Sc.  App.  Cas.  145.     A 

ham,  3  De  G.  (fe  J.  304   (1858).      And  see  f.dse  aflirin;ition,  made  by  the  defendant 

the  varitjui  English  cases  in  this  chapter.  with  intctit  to  defraud  the  plaintiff,  vvhere- 

■  .Smith  V.  Reese  River,  Ac.,  Co.,  L.  R.  bj'  the  plaintiff  receives  damage,  is  the 

4  II.  L.  64  (1869);  Hallows  v.  Ferniie,  L.  ground  of  an  action  upon  the  c.ise  in  the 

R.  3  CIi.  App.  467  (1868).     A  tranferee  of  nature  of  deceit.     In  such  an  action  it  is 

the   shares  cannot  brinir  the  suit.     Tlie  not  neccf^sary  that  the  defcTidant  should 

fraud  is  per'^oiial  to  the  original  suhscrih-  be  benefited   by   the   deceit,   or   that  he 

or,     Duranty's  Case.  26  Beav.  268  (1858).  shculd   collude  with  the  persim   wlm   is, 

^  Vreeland  v.  N.  .1.  Stone  Co.,  29  N.  J.  1  Smith's  Leadinjj;  Cases  {8th  Eiig.ed.),  66- 

Eq.  R.1S8(1878);  Keese  River  Silver  Min.  94,  as  applicable  to  misrepresentations  in- 

Co.  V.  Smith,  L.  !{.  4  H.  L.  64  (1869).  ducing  subscrijitions. 

151 


§  158.]        PAROL  AGREEMENTS  AND  FRAUD.        [CH.  IX. 

The  subpcriber  must  prove  that  a  material  false  misrepresentation 
was  made  by  the  defendant,  that  the  defendant  knew  the  repre- 
sentation to  be  false  when  he  made  it,  that  the  plaintiff  subscribed 
bj  reason,  partially  at  least,  of  that  representation,  and  that  he 
was  thereby  injured.^  The  gist  of  the  action  is  fraudulent  intent.^ 
It  cannot  be  maintained  against  the  corporation,  because  the  cor- 
poration, though  liable  to  refund  fraudulently- acquired  property, 
is  not  capable  of  a  fraudulent  intent.^ 

§  158.  The  directors  are  not  liable  to  an  action  for  deceit  by 
reason  of  the  frauds  of  their  agents,^  nor  is  an  innocent  director 
liable  for  the  fraudulent  representations  of  his  co-directors,  not 
even  though  the  evidences  of  their  fraud  were  entered  on  the 
corporate  books,  there  being  no  ground  for  suspicion.^ 

A  director  cannot  be  held  liable  for  false  representations  con- 
tained in  the  articles  of  association,  which  were  made  before  he 
became  a  director.®  But  a  director  who  stands  by  and  allows  a  co- 
director  to  make  the  false  representations,  is  chargeable  equally 
with  the  injury  done  thereby."^  The  false  representations  sup- 
porting an  action  for  deceit  may  have  been  by  corporate  reports  or 
prospectuses,  or  by  personal  statements. 


'  Ship  V.  Cresskill,  L.  K.   10  Eq.  Cas.  ai-e  not  sufficient  to  entitle  the  subscriber 

73  (J8Y0).     To  sustain  the  action  for  de-  to  recover  from  the  directors.     Heymann 

celt,  the  plaintiff  must  show  "that  the  v.  European  Central  Ry.  Co.,  L.  R.  7  Eq. 

defendants  intended  that  people  should  Cas.  154  (1868). 

act  on  the  statements,  that  the  statements  ^  Mixer's  Case,  4  De  G.  <fe  J.  57.5  ;  Du- 

are  untrue  in  fact,  and  that  tjie  defendants  ranty's  Case, 26  Beav.  268  (1858);  Western 

knew  them  to  be  untrue,  or  made  them  Bk.  of  Scotland  v.  Addie,  L.  R.  1  So.  App. 

under  such  circumstances  that  the  court  Cas.  145  ;  Abrath  v.  Northeastern  Ry.  Co. 

must  conclude  that  they  were   careless  55  L.  T.  R.  (N.  S.)  63  (1886).    Cont7-a,Pee- 

whether  they  were  true  or  not ;"  also  that  bles  v.  Patapsco  Guano  Co.,  77  N.  C.  233 

the  statements  were  relied  upon,  acted  on,  (1877);    Barwick  «;.   English  Joint  Stock 

and    damage    sustained.     Edgington    v.  Bk.,  L.  R.   2  Ex.  259  (1867);  Mackav  w. 

Titzmaurice,  L.  R.  29  Ch.  D.  459  (1885).  Com.  Bk.  of  New  Brunswick,  L.  R.  3  P. 

'^  Scienter  is  fixed  on  the  directors,  C.  394,  not  stock  cases,  but  distinctly 
making  them  liable  in  damages  upon  holding  that  a  corporation  is  liable  to  an 
proof  of  incorrect  representations,  known  action  for  damages  for  deceit, 
to  them  to  be  incorrect,  knowingly  stated  *  Weir  v.  B.irnett,  26  Week.  Rep.  147 
lay  them,  and  acted  on  by  the  plaintiff  (1877);  Weir  v.  Bell,  L.  R.  3  Ex.  Div.  238 
subscriber.  Henderson  v.  Lacon,  L.  R.  (1878);  Ea^lesfield  w.  Marquis  of  London- 
's Eq.  Cas.  249  (1867):  Careill  v.  Bower,  derry  (H.  L.),  26  W.  R.  540(1878).  See 
L.  R.  10  Ch.  D.  502(1878).  See  also  Bale  also  Cargill  v.  Bower.  L.  R.  10  Ch.  D.  502 
V.  Cleland,4  F.  &  F.  117(1864),  and  see  p.  (1878);  Watson  v.  Earl  Charlemont,  12 
36,  n.  3,  supra.  Must  allege  knowledge  Q.  B.  856  (1848);  Arthur  t^.  Griswold,  55 
and    intent   to   deceive    on    their   part.  N.  Y.  400  (1874). 

"  Falsely  and  fraudulently  represented"  ^  Jie  Denham  &  Co.,  L.  R.  25  Ch.  Div. 

does    not    properly    plead    the    scienter.  752  (1883), 
Mahey  v.  Adams,  3  Bosw.  346  (1858).  "  Mahey  ii.  Adams,  3  Bosw.  346(1858). 

In  case  the   representntions  are  not  ''  Vreeland  v.  N.  J.  Stone  Co.,  29  N.  J. 

fraudulentasagainst  the  corporation,  they  Eq.  188(1878). 

152 


CH.  IX.]  PAROL   AGREEMENTS   AND   FRAUD.         [§§  159,  160. 

§  159.  Remedy  hj  action  for  money  had  and  received. — Where 
a  subscriber  pays  his  subscription  in  part  or  wholly,  and  afterwards 
discovers  that  the  representations  whereby  he  was  induced  to  sub- 
scribe were  fraudulent,  he  may  bring  an  action  at  law  for  money 
had  and  received,  and  recover  back  from  the  corporation  the 
money  so  received.^  If  the  money  has  not  yet  passed  into  the 
hands  of  the  corporation,  he  may  recover  it  from  the  person  who 
has  it.  If,  however,  he  would  be  barred  from  suing  in  a  court 
of  equity  by  reason  of  his  laches  or  corporate  insolvency,  he 
would  fail,  equally,  in  this  remedy  at  law. 

§  160.  Batijication  as  a  har  to  the  subscriber's  remedies. — A 
subscription  contract  obtained  by  fraudulent  representations  may 
cease  to  be  voidable,  and  may  become  absolutely  binding  by  acts 
of  ratification.  Any  act  of  the  subscriber,  inconsistent  with  an 
intention  to  disafiirm  the  contract,  will  constitute  a  ratification  of 
the  subscription  and  a  waiver  of  the  right  to  avoid  it  by  reason  of 
fraud,  provided  the  subscriber  knew  of  the  fraud  at  the  time  of 
such  ratifying  act.  Thus,  where  the  subscriber,  after  knowledge 
of  the  fraud,  receives  dividends,^  sells  part  of  the  stock,^  instructs 
his  broker  to  sell,^  participates  in  the  meetings,^  pays  calls,^or,  in 
general,  accepts  auy  corporate  benefit  or  continues  to  act  as  a 
stockholder,''  he  will  be  held  to  have  waived  all  objections  to  the 
fraud,  and  to  have  ratified  the  subscription  contract.  But  mere 
attendance  at  a  stockholders'  meeting,^  or  demanding  a  dividend,^ 
or  voting  his  shares  by  proxy,'"  is  insufficient. 


'  Grangers'  In?.  Co.  r.  Turner,  61  Ga.  *  Harrison  v.  Heatliorn,  6  Man.  &  G. 

561  (1878) ;  Hamilton  v.  Granu;ers'  L.  &  H.  84  (1843) ;  Chaflin   v.  Cummings,  37   Me. 

Ins.  Co.,  f;7  Ga.  145  (1881).    But  the  sub-  76  (1853). 

scriber  cannot  retain  the  stock  and  also  •"  Scholey  v.  Central  Ry.  Co  ,  L.  R.  9 

sue.     Houldsvvorth   v.   City  of   Glasgow  Eq.  266  n.  (1870). 

Bk.,  L.   K.  5   App.  Cas.  317  (1880).     See  '  Ogilvie  v.  Knox  Ins.   Co.,  22  Hun, 

.Jarrett   ?;.  Kennedy,  6   C.  B.  319  (1848).  380;     Chubb    v.    Upton,    95    U.    S.    ('.65 

Assumpsit  for   money   had   and   received  (1877) ;  Litchfield  Bk.  ?,'.  Church,  20  Conn, 

brought  against  the  directors  to   compel  )  37  (1800);   Kishacoquillas  Centre  Co.  v. 

them  to  repay  money  paid  on  a  subsciip-  McCanahy,  16  S.  tfe  R.  140  (1827). 

ti'in   obtained   by  fraud,   was  sustained,  "  Stewart's  Case,  L.  K.  1  Ch.  App.  574 

without  involving  the  question  of  a  fraud-  (1866);   Wontner  v.    Shairp,  4   C.  B.  404 

ulent  intent.  (1817). 

'  Scholey  V.  Central   Ry.  Co.,  L.  R.  9  "  I'hil.  R.  R.  Co.  v.  Cowell,  28  Pa.  St. 

Eq.  266  n.  (1870) ;   Ayres'  Case,  25  Beav.  329  (1857). 

513(1868);  Mixer's  Case,  4   l)e  G.  &  J.  '"  McCully   v.   Pittsbuioh,   &c.,  R.    R. 

675.  Co.,  32  Pa.  St.  25  (1858) ;  Greenville,  .fee, 

»  Ayres' Case,  25  Beav.  513  (1858).  R.    R.   Co.    v.   Coleman,    5   Rich.   L.   118 

*  Ex  parte  Briggs,  L.  R.  1  Eq.  Cas.  483  (1851). 
(1866). 

1.53 


§§  161, 162.]         PAROL  AGREEMENTS   AND  FRAUD.  [CH.  IX. 

§  161.  Laches  as  a  T)ar  to  the  suhscriber^s  remedies. — Where 
a  subscriber  for  stock,  who  was  induced  to  subscribe  by  fraud, 
neglects  for  an  unreasonable  time  after  the  discovery  of  the  fraud 
to  have  his  subscription  cancelled,  and,  in  the  meantime,  the  in- 
terests of  third  persons  became  involved,  and  would  be  injured 
by  the  cancellation  of  such  subscription,  the  subscriber's  laches  is 
a  bar  to  relief,  and  a  court  of  equity  will  refuse  to  set  aside  the 
subscription.^  Equity  does  not  allow  the  subscriber  to  say,  "I  will 
abide  by  the  company,  if  successful,  and  I  will  leave  the  company, 
if  it  fails."  ^  Immediately  upon  receiving  information  of  the 
fraud,  it  is  his  duty  to  decide  whether  he  will  rescind  the  contract 
or  waive  the  fraud.^  Nevertheless  delay  is  not  fatal,  unless  cir- 
cumstances and  third  pai-ties'  rights  have  so  changed  or  been  ac- 
quired that  the  rescission  would  be  inequitable.  Consequently  the 
decision  of  each  case  depends  largely  on  the  facts  of  the  case. 
Thus  it  has  been  held  that  a  delay  of  one,*  two,^  three,^  four,^  or 
six  months,^  or  of  two  ^  or  six  ^°  years,  was  fatal  under  the  circum- 
stances of  the  case,  while,  under  different  facts,  a  delay  of  two 
months  ^^  and  seven  years ^'^  was  held  not  to  be  a  bar.  In  the  rem- 
edies by  actions  at  law,  the  Statute  of  Limitations  governs,  and, 
by  analogy,  courts  of  equity  are  inclined  to  follow  the  same  peri- 
od, unless  there  be  an  equitable  reason  to  the  contrary. 

§  162.  The  date  from  which  laches  begin  to  run  is  the  time 
when  the  subscriber  Urst  is  chargeable  with  notice  that  a  fraud  has 
been  perpetrated  upon  him.  Mere  suspicions  or  random  state- 
ments heard  in  public  or  in  stockholders'  meetings  do  not  necessa- 

'  City  Bk.  of  Macon  v.  Bartlett,  71  Ga.  which  course  would  be  most  profitable. 

797  (1883).    As  a  bar  in  an  action  at  law.  Peel's  Case,  L.  R.  2  Ch.  App.  674  (1867); 

Schwanck  v.  Morris,  7  Rob.  (N.  Y.),  658  Kincaid's  Case,  L.  R.  2  Ch.  412  (1867). 

(1868).     But  it  is  no  bar  that  other  sub-  ^  Wilkinson's  Case,  L.  R.  2  Cb.  App. 

scribers  may  have  been  induced  to   sub-  536  (1867). 

scribe   by   reason    of    this   subscription.  "  Heymann  v.  European  Central  Ry. 

Western  Bk.  of  Scotland  v.  Addie,  L.  R.  Co.,  L.  R.  7  Eq.  Cas.  154  (1868). 

1   Scotch   App.  Cas.  145.     Cf.  Parbury's  ''  Ez  parte  Lawrence,  36  L.  J.  (Cb.), 

Case,  3  De  G.  &  Sm.  43  (1849).  490  (1867). 

'  Re  London  &  Staffordshire  Fire  Ins.  *  Whitehouse's  Case,  L,  R.  3  Eq.  Cas. 

Co.,  L.  R.  24  Cb.  Div.  149  (1883);  Ash-  790  (1867). 

ley's  Case,  L.  R.  9  Eq.  Cas.  263  (1870).  «  Farrar  v. Walker,  3  Dill.  506  n. ;  Ash- 

3  Heymann  v.  European   Centi-al  Ry.  ley's  Case,  L.  R.   9   Eq.  Cas.  263  (1870); 

Co  ,  L  R.  7  Eq.  Cas.  154  (1868) ;  Peek  v.  tliree  years,  State  v.  Jefferson   Turnpike 

Gurney,  L.  R.  6  H.  L.   377  (1873).     The  Co.,  3  Humph.  (Tenn.),  3n5  (1842).^ 

last  case  overrules  Bao;.shaw  v.  Seymour,  '"  Dentou   v.  Macneil,  L,  R.  2   Eq.  352 

18  C.  B.  9U3  (1836),  and  Bedford  i).  Bag-  (1866). 

shaw,  4  H.  <fe  N.  538  (1859).  i' Directors,    &c.,   of   Central   Ry.    v. 

*  Taite's  CabC,  L.  R.   3  Eq.  Cas.  795  Kisch,  L.  R.  2  H.  L.  App.  Cas.  99  (1870). 

(1867).  the  delay  evidently  being  to  see  '•  McClellan  v.  Scott,  24  Wis.  81  (1869). 

154 


CH.  IX.] 


PAROL  AGREEMENTS  AND  FRAUD. 


163,  164. 


rily  constitute  notice.^  Ent  after  a  subscriber's  suspicions  are 
reasonably  aroused, it  is  his  duty  to  investigate  at  once.^  The  cor- 
poration has  the  burden  of  proof  in  asserting  that  the  subscriber 
had  notice  and  was  guilty  of  laches.^ 

§  163.  Corporate  insolvency  as  a  Mr  to  the  subscriber's  rem- 
edies.— In  England  the  principle  has  become  well  established  that 
after  the  stututory  proceedings  for  winding  up  a  corporation  by 
reason  of  corporate  insolvency  have  been  commenced,  a  sub- 
scriber cannot  rescind  his  subscription  on  account  of  fraud.*  He 
is  too  late.  It  matters  not  that  he  did  not  discover  the  fraud  un- 
til after  the  winding  up  has  commenced.  The  rights  of  corporate 
creditors  prevail,  then,  over  the  equities  of  the  subscriber.^  If, 
however,  he  commenced  proceedings  to  rescind  the  contract  be- 
fore the  winding  up  was  commenced,  he  may  be  released,  al- 
though the  proceedings  are  not  completed  until  after  such  wind- 
ing up.^  So  also  where  there  are  several  similar  cases,  and  by 
agreement  between  the  corporate  solicitors  all  the  cases  are  to  fol- 
low a  test  case,  this  agreement  prevails,  although  a  winding  up  is 
commenced  before  the  test  case  was  fully  decided.'  The  highest 
court  in  England  in  one  case  goes  farther  and  intimates  that  cor- 
porate insolvency  is  a  bar  to  rescission  of  a  subscription  for  fraud, 
even  though  a  winding  up  has  not  been  commenced.^ 

§  1G4.  In  this  country  the  effect  of  corporate  insolvency  upon 
the  right  of  a  subscriber  to  rescind  his  contract  for  fraud  has  not 


'  Directors,  Ac,  of  Central  Ry.  Co.  v. 
Kiscli,  L.  R.  2  H.  L.  App.  Cas.  99  (1870). 

"^  Ogilvie  V.  Currie,  37  L.  J.  (Ch.)  541 
(lSr,7);  Ashley's  Case,  L.  R.  9  Eq.  Cas. 
263  (1870). 

3  lie  London  <fe  S.  F.  Ins.  Co.,  L.  R.  24 
Ch.  Div.  149  (1883). 

*  Wriijiit's  Case.  L.  R.  12  Eq.  Cas.  331; 
Kent  V.  Freehold,  L.  &  B.  M.  Co.,  L.  R.  3 
Ch.  App.  493(1868);  Henderson  v.  Royal 
Briti-li  15k.,7El.  cfe  HI.  356(1857);  Powis 
V.  Hardiujr,  1  C.  B.  (N.  S.)  533  (1857); 
Daniell  v.  Off.  Managers  of  Bk.,  1  II.  & 
N.  681  (1«57);  Oakes  ».  Turquarid  I..  R. 
2  H.  L.  App.  Cfis.  325  (1HG7);  Mixer's 
Case,  4  De  G.  <fc  J.  575;  Clarke  v.  Dick- 
son, 27  L.  J.  (Q.  B.)  V23  (1868).  So  also 
where  there  is  u  vuluntiiry  "windinfif  up 
by  reason  of  corporate  insolvency.  Stine 
V.  City  &  County  l;k.,  L.  R.  3  C.  P.  Div. 
282  (1877);  Cc-lfins  v.  Same,  Id.    But  not 


if  the  proceedino;s  for  rescission  were 
commenced  in  good  faith  and  in  ignorance 
of  the  winding  up  proceedings.  Hall  v. 
Old.  T.  L.  Min.  Co.,  L.  R.  3  Ch.  D.  749 
(1876). 

^  Turner  v.  Grangers,  L.  &  U.  Ins.  Co., 
65  Ga.  649  (1880). 

«  Reese  River  Co.  v.  Smith,  L.  R.  4  H. 
L.  64  (1869);  affirming  s.  c,  L.  R.  2  Ch. 
604 ;  L.  R.  2  Eq.  264;  reversing  s.  c,  II. 
L.  36  L.  J.  (Ch  )  385. 

'  Pawle's  Case,  L.  R.  4  Ch.  407;  Mc- 
Mill's  Case,  L.  R.  10  Kq.  503  (1870).  But 
mere  attcndiince  at  the  meeting  where 
such  stijiulaiion  ia  made  is  insufficient. 
The  suliscriber  must  plaiidy  indicate  an 
intention  to  abide  by  the  test  case.  Ash- 
ley's Case,  L.  R.  9  Eq.  Cas.  263  (lw70). 

"  Tennent  v.  City  of  Glasi;ow  lik.,  L. 
R.  4  App.  Cas.  615.  See  also  Burgess' 
Cu9.,  L.  R.  15  Ch.  D.  507. 

155 


§  165.] 


PAROL  AGREEMENTS  AND  FRAUD. 


[CH.  IX. 


been  so  clearlv  determined.  The  decided  tendency  of  the  de- 
cisions,  however,  is  that  corporate  insolvency  is  a  bar  to  such  re- 
scission.^ In  the  bankruptcy  courts,  under  the  late  bankruptcy 
law,  such  a  rule  was  upheld.^ 

§  165.  J^ssential  allegations  in  legal  proceedings  to  remedy  a 
fraud  inducing  siibscription. — The  essential  allegations,  especially 
in  a  suit  in  equity,  necessarily  vary  according  lo  the  peculiar  facts 
of  each  case.  Yet  there  are  certain  elements  common  to  all  the 
cases.  It  is  necessary  to  allege  that  a  material  misrepresentation 
of  a  question  of  fact  was  made,  setting  out  fully  the  fact  mis- 
represented ;  that  the  person  making  the  misrepresentation  there- 
by bound  the  corporation ;  that  the  subscriber  was  thereby  in- 
duced to  make  the  subscription  ;  and  that  upon  discovery  of  the 
fraud,  he  immediately  disaffirmed  the  contract.^  That  the  repre- 
sentation was  false  cannot  be  proved  by  statements  made  by  the 
directors  in  stockholders'  meetings.^  The  burden  of  proving  that 
the  representation  was  false,  and  that  the  subscriber  relied  there- 
on, is  upon  the  subscriber.^ 


'  Rugglesw.  Brock,  6  Hun,  164  (18Y5); 
Saffold  V.  Barnes,  39  Miss.  399  (18^.0).  In 
Chubb  V.  Upton,  95  U.  S.665,  667  (187Y), 
the  court  says  it  has  often  been  held 
that  the  defense  of  false  and  fraudulent 
representations  will  not  prevail  against 
a  receiver,  especially  where  there  has 
not  been  a  prompt  discovery  of  the  fraud, 
followed  by  a  repudiation,  citing  Upton  v. 
Tribilcock,  91  U.  S.  45  (1875);  Webster 
V.  Upton,  Id.  65(1875);  Sanger  v.  Upton, 
Id.  56  (1875);  Ogilvie  v.  Knox  Ins.  Co., 
22  Hun,  380.  Cf.  Litchfield  Bk.  v.  Peck, 
29  Conn.  384  (1860). 

'  Farrar  v.  Walker,  13  Natl.  Bankr. 
Reg.  82  (1876);  Michener  v.  Payson,  Id. 
49  (1876). 

^  Bwlch-y-plwm  L.  M.  Co.  v.  Baynes, 
36  L.  J.  (Ex.)  183;  Deposit  Life  A.  Co. 
V.  Ayscough,  6  E.  <fe  B.  761  (1856);  Upton 
V.  Englehart,  3  Dill.  496  (1874);  Halfows 
V.  Fermie,  L.  R.  3  Ch.  App.  467  (1868); 


Selma,  M.  &  M,  R.  R.  Co.  v.  Anderson, 
51  Miss.  829  (1876).  The  last  case  hold- 
ing it  necessary  to  allege  also  that  the 
fact  misrepresented  was  not  a  charter 
matter.  Carey  v.  Cin.  &  Chicago  R.  R. 
Co.,  5  Iowa,  357  (1857),  indicates  that  an 
allegation  that  the  certificates  are  brought 
into  court  for  disposal  is  proper.  See 
also  Oregon  Central  R.  R.  Co.  v.  Scoggin, 
3  Oreg.  161  (1869). 

*  In  re  Devala  Prov.  G.  M.  Co.,  L.  R. 
22  Ch.  Div.  593  (18S3).  Cf.  Phil.  W.  & 
B.  R.  R.  Co.  V.  Quigley,  '21  How.  202 
(1858).  Contra,  Jarrett  v.  Kennedy,  6  C. 
B.  319  (1848). 

*  Jennings  v.  Broughton,  22  L.  J.  (Ch.) 
585  (1853).  In  New  York,  proof  of  other 
similar  cotemporaneous  frauds  is  admis- 
sible. Miller  v.  Barber,  66  N.  Y.  558 
(1876).  In  Alabama  it  is  not  admissible. 
Montgomery  S.  Ry.  Co.  v.  Matthews,  77 
Ala.  357  (1884). 


156 


CHAPTER  X. 

MISCELLANEOUS  DEFENSES   TO    SUBSCRIPTIONS  FOR  CAPITAL 

STOCK. 


§  166.  Defenses  to  subscriptions  not 
favored  by  the  courts. 

167-'70.  Release,  withdrawal,  cancella- 
tion, or  rescission. 

171.  Compromise. 

1Y2-75.  Non-payment  of  percentage 
required  by  statute. 

176-81.  Full  capital  stock  not  sub- 
scribed. 

182.  Capital  stock  not  definitely  re- 
solved upon. 

183-86.   Irregular  incorporation. 

187.    Ultra  vires  acts. 


Fraud     and    mismanagement    of 

directors. 
Delay  and  abandonment  of  enter 

prise. 
Failure  of  corporate  enterprise. 
Other  subscribers  released. 
No  certificates  of  stock  issued. 
94.  Set-ofF  and  counterclaim. 
Statute  of  limitations. 


188. 

189. 

190. 
191. 
192. 
193- 
19.5. 

196.  Ignorance  or  mistake. 

197.  Miscellaneous  defenses. 

198.  Waiver  of  defenses. 


§  166.  Defenses  to  siibscriptions  not  favored  hy  the  courts. — 
It  is  a  common  saying  and  well  recognized  fact  that  the  subscrib- 
ers to  certain  corporate  enterprises,  especially  railroads,  rarely 
realize  a  profit  from  their  investment,  but,  on  the  contrary,  lose 
the  whole  amount  of  the  subscription  which,  they  have  made. 
These  subscriptions  are  generally  not  called  in  until  after  cor- 
porate insolvency  has  occurred.  Then  the  reluctance  of  the  sub- 
scriber to  pay  a  subscription  from  which  there  is  no  hope  of  a 
return,  leads  him  to  seek  out  and  build  up  all  possible  defenses 
to  defeat  any  action  for  the  collection  of  the  amount  due  from 
Some  of  these  defenses  are  just,  and  have  been  sustained. 


mm. 


But  most  of  them  have  not  been  allowed.  On  the  theory  that 
having  taken  the  chances  of  large  gains,  the  subscriber  takes  also 
the  risk  of  total  loss,  and  that  the  hardship  of  the  subscriber  is 
not  equal  to  the  superior  equities  and  rights  of  corporate  cred- 
itors, the  courts  have  uniformly  discountenanced  such  defenses, 
and  have  rigidly  enforced  the  subscriber's  liability. 

§  167.  Release,  withdraival,  surrender,  cancellation,  rescis- 
sion.— These  terms  are  frequently  used  as  synonymous,  although 
technically  they  have  different  meanings.  The  term  release  es- 
pecially has  led  to  considerable  confusion.  It  has  been  apjjlied 
to  cases  where  the  subscriber  withdraws  his  offer  to  subscribe, 

157 


168.] 


MISCELLANEOUS   DEFENSES. 


[CH. 


the  contract  not  yet  havinoj  been  closed  ;  ^  second,  to  cases  where 
the  subscriber  retains  his  stock,  but  is  not  required  to  pay  tbe 
full  par  value  thereof;^  third,  to  cases  where  the  subscription 
contract  is  dissolved  by  mutual  agreement,  the  subject  of  this 
section.  Tlie  term  rescission  is  more  properly  applied  to  the 
defense  of  fraudulent  representations.^  Probably  the  term  can- 
cellation describes  more  accurately  the  dissolution  of  a  subscrip- 
tion contract  by  the  mutual  consent  of  all  parties  concerned.^ 

§  168.  A  subscription  contract,  like  any  other  conti*act,  may 
be  waived,  cancelled,  or  dissolved  by  the  mutual  consent  of  all 
the  parties  interested.  The  interested  parties  are  the  subscriber 
himself,  the  other  stockholders  and  corporate  creditors  existing 
at  the  time  of  the  cancellation.  Frequently  the  directors  of  the 
corporation  attempt  to  usurp  this  right  and  power  of  the  general 
stockholders.  The  well  established  rule,  however,  is  that  cor- 
porate directors  have  no  power  to  agree  with  a  subscriber  that 
his  subscription  shall  be  cancelled,  unless  such  power  is  given  to 
them  by  charter  or  statute,  or  the  by-laws  of  the  corporation.^ 


'  For  this  class  of  cases  see  Ch.  IV. 

^  For  this  class  of  cases  see  Ch.  III. 

3  See  Ch.  IX. 

*  In  Green's  Brice's  Ultra  Vires  (2d  ed.), 
181,  a  surrender  is  defined  to  be  "  the 
transfer  by  a  member  of  his  interest, 
■whole  or  partial,  in  a  company,  to  the 
company  or  to  trustees  for  or  nominees 
of  it."  See  also  Be  Dronfield  Silkstone 
Coal  Co.,  L.  R.,  17  Ch.  D.  76  (1880); 
Colville's  Case,  48  L.  J.  (Ch.)  633  (1879). 
A  cancellation  is  defined,  p.  189,  to  be 
"  the  capacity,  after  shares  are  allotted 
and  accepted,  when  no  dispute  exists  as 
to  the  liability  of  the  shareliolder  to 
cancel  such  shares  and  determine  the 
liability  thereon.  This  must  not  be  con- 
fused with  the  closely  allied  proceedino-s, 
(1)  compromise  of  disputes,  and  (2)  res- 
cission of  what  has  been  wrongly  done 
by  inadvertence."  As  a  matter  of  fact 
this  dissolution  of  the  subscription  con- 
tract diffiTS  vei-y  little  from  an  ordinary 
transfer  of  the  shares  to  the  corporation 
itself,  except  in  the  fact  that  by  the 
former  process  all  liabilities  of  the  sub- 
scriber is  ended  absolutely.  Cancellation 
cannot  be  objected  to  on  tlie  ground  that 
it  reduces  the  capital  stock.  It  no  more 
reduces  the  capital  stock  than  a  forfeiture 
does.  Re  Dronfield  Silkstone  Coal  Co., 
supra. 

158 


^  In  the  case  of  Bedford  R.  R.  Co.  v. 
Bowser,  48  Pa.  St.  29,  where  just  before 
the  expiration  of  their  office,  the  directors 
fraudulently  released  part  of  the  subscrib- 
ers, the  court  said  :  "  It  is  an  abuse  of 
their  trust  wholly  unauthorized,  and  at 
war  with  the  design  of  the  charter  to 
single  out  some  of  the  stock  subscribers 
and  release  them  from  their  liability. 
No  such  authority  in  them  has  ever  been 
recognized."  To  the  same  effect,  Rider 
V.  Morrison,  54  Md.  429  (1880);  Hua:he3 
V.  Antietam  Mfg.  Co.,  34  Md.  316  (1870) ; 
Ryder  v.  Alton,  &c.,  R.  R.  Co.,  13  111. 
516  (1851);  Esparto  Trading  Co.,  L.  R., 
12  Ch.  D.  191  (1879);  Hall's  Case,  L.  R., 
5  Ch.  707;  lie  London  &  ProT.  Consol. 
Coal  Co.,  L.  R..  5  Ch.  D.  525  (1877) ;  Jie 
Argyle  C.  &  C.  Co.,  £x  parte  Watson, 
Law  Times,  April  17,(1886);  Ex  parte 
Fletcher,  37  L.  J.  (Ch.)  49  (1867); 
Addison's  Case,  L.  R.,  5  Ch.  294  ;  Spack- 
man  v.  Evans,  L.  R.,  3  H.  L.  171  (1868); 
Thomas's  Case,  L.  R.,  13  Eq.  437  (1872), 
where  the  directors  had  power  to  "  enter 
into,  alter,  rescind,  or  abandon  contracts." 
Richmond's  Case,  4  K.  &  J.  305  (1858), 
holding  that  power  to  forfeit  does  not 
give  power  to  cancel.  Adam's  Case,  L. 
R.,  13  Eq.  474  (1872),  holding  that 
power  to  compromise  gives  no  power  to 
cancel.     "  It  would  be  putting  into  the 


CB.  X.] 


MISCELLANEOUS  DEFENSES. 


[§  169. 


§  1()9.  A  subscriber  for  stock  in  a  corporation  cannot  obtain 
a  cancellation  of  his  subscription  except  by  the  unanimous  con- 
sent of  the  other  subscribers.^  Even  a  majority  of  the  stock- 
holders cannot  withdraw  and  refuse  to  proceed.^  The  consent  of 
all  the  other  stockholders,  however,  need  not  be  express. 

If  the  means  of  notice  are  sufficient,  so  as  to  raise  a  clear  pre- 
sumption of  knowledge  and  acquiescence,  and  the  arrangement 
is  left  unimpeached  by  any  one  for  many  years,  no  objection  can 
be  made.  The  stockholders  are  bound  by  the  cancellation.' 
Where  a  subscription  has  been  cancelled  and  calls  already  paid 


hands  of  directors  an  almost   unlimited 
power.     ...    It  might  happen  in  cases 
where  it  would  be  impossible  to  fix  fraud 
on   them."     Cf.  Plate  Glass  Ins.  Co.  v. 
Sunley,  8  El.  <fe  Bl.  47  (1857);  Kollman's 
Carriao-e  Co.  v.  Beresford,  2  M.  <fe  G.  197  ; 
Lord  Belhaven's  Case,  34  L.  J.  (Ch.)  503  ; 
Ex  parte   Blake,    32    L.    J.    (Ch.)   278 ; 
Dixon's  Case,   17  W.   R.   1036;  Burt  v. 
Farrar,  24  Barb.  518  (1857);  Gregory  v. 
Lamb,  16  Neb.  205  (1884);    Erskine  v. 
Peck,  83  Mo.  465  (1884).     See  also  §  163. 
The  express  power  of  the  directors  to  do 
all  things  "  conducive  to  the  attainment 
of  the  objects  for  which  it  was  establish- 
ed," does  not  enable  them  to  agree  to  a 
cancellation.        Re    Dronfield    Silkstone 
Coal    Co.,  L.   R.,   17  Ch.  D.   70  (1880). 
Cannot  be  cancelled  by  a  corporate  solic- 
itor,   although  the    work,  in  which  the 
subscription  is   due    can    no    longer   be 
done.     Wheatcroft's  Case,  29  L.  T.  324 
(1873).      Sometimes  the  directors  agree 
in  advance  to  relense  or  cancel  a  part  or 
all   of  the  subscriber's   contract.      Such 
agreements  are  void,    not  only  as  ultra 
vires,  but  as  frauds  on  other  subscribers. 
Melvin    v.   Lamar  Ins.   Co.,   80   111.  446 
<1875);       Robinson      v.     Pittsburgh     <fe 
f'oiinellsvillc   R.  i;.  Co.,  32  Pa.  St.    334; 
Minor  v.  Bk.    of  Alexandria,    1   Pet.  65; 
Jewett  V.  Valley  Ry.  Co.,  34  O.  St.,  601 
(1878);  White  Mts.  R.  R.Co.  v.  Eastman, 
34  N.  H.   124,      See   also    Pickering  v. 
Templeton,  2   Mo.  App.  425  ;  Downie  v. 
^Vhite,  12  Wis.  176  ;  Blodgett  v.  Morrill, 
20  Vt.  509  ;  Davidson's  Case,  3  De  G.  <t 
S.   21  ;  Bridger's  Case,   L.  R.,  9  Eq.  74; 
Litchfield    Bank    v.    Church,    29    Conn. 
137.     Where,   however,   the   issue  itself 
is  ultra   vires,   being    fictitious    piiid    up 
stock,  the  directors  may  agree  to  a  can- 
cellation.    F.arnett's  Case,  L.  R.,  18  Kq. 
507    (1S74).       Or    an    ultra    vires    stock 
dividend,    llollingshead     v.    Woodward, 


35  Hun,  410  (1  885).  They  may  cancel  it 
for  mistake  in  registering  the  wrong  man. 
JEz  parte  Knightley,  W.  M.  (1874)  18  <fe 
47.  See  also"  Hartley's  Case,  L.  R.,  10 
Ch.  157.  In  England,  an  express  power 
given  by  the  articles  of  associations  of  the 
corporation  may  authorize  cancellation 
by  the  directors.  Colville's  Case,  48  L.  J. 
(Ch.)633:  Snell's  Case;  Wright's  Case, 
L.  R.,  12  Eq.  334;  Teasdale's  Case,  L.  R., 
9  Ch.  54. 

'  Kidwelly  Canal  Co.  v.  Raby,  2  Price, 
93  (1816) ;  Lake  Ontario,  <fec.,  R.  R.  Co. 
V.  Mason,  16  N.  Y.  451,  463  (1857); 
Hughes  V.  Antietam  Mfg.  Co.,  34  Md. 
316(1870);  Johnson  v.  Wabash  &  Mt. 
Vernon  P.  R.  Co.,  16  Ind.  389(1861); 
United  Soc.  v.  Eagle  Bk.,  7  Conn.  457 
(1829);  Bishop's  Fund  v.  Eagle  Bk., 
Id.  476;  Selma  &  Tenn.  R.  R. 
V.  Tipton,  5  Ala.  (N.  S.)  787. 
also  Cook  V.  Chittenden,  25  Fed. 
644,  upholding  a  withdrawal, 
plea  in  defense  need  not  allege 
the  other  stockholders  assented  to  the 
cancellation.  Gelpcke  ?).  Blake,  19  Iowa, 
263.  Where,  however,  by  the  articles  of 
association,  acts  of  the  directors  ratified 
at  stockholders'  meetings  were  to  be  valid, 
a  cancellation  so  ratified  is  legal  and  the 
unanimous  consent  is  not  necessary.  JMar- 
shall  V.  Glamorgan  Iron  &  Coal  Co.,  L. 
R.,7  Eq,  129(1868). 

"^  Busey  v.  Hooper,  35  Md.  15. 

'  Evans  v.  Smallcoinbe,  L.  R.,  3  il.  L. 
240.  So  also  where  tlie  corporation  re- 
tains the  benefits  of  a  cancellation,  no  ob- 
jection can  be  made.  Miller  v.  Second 
J.  B.  Assn.  50  Pa.  St.  32.  Proof  of  can- 
cellation need  not  necessarily  be  by  the 
corpoiate  records.  May  be  proved  by 
evidence  that  the  subscriber  was  not  re- 
garded "  by  hiujself  or  by  the  company, 
as  a  stockholder."  Stuart  v.  Valley  K. 
R.  Co.,  32  Graft.  146. 

150 


Co. 

See 

Rep. 

The 

that 


§§  170,  171.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

are  refunded  without  the  consent  of  the  other  stockholders,  any 
stockholder  may,  by  a  bill  in  equity,  have  the  money  refunded 
to  the  corporation,  and  the  subscriber  made  liable  upon  liis  can- 
celled subscription.^  Moreover,  the  directoi's  are  personally 
liable  to  the  corporation  for  loss  occasioned  by  their  improper 
cancellation  of  subscriptions.^  When,  however,  a  subscriber  fails 
to  pay  his  subscription  or  exercise  his  rights,  it  has  been  held  that 
the  corporation  may  treat  his  subscription  as  abandoned,  and 
allow  others  to  fill  it.^ 

§  170.  A  cancellation  of  a  subscription,  to  the  detriment  of 
corporate  creditors,  may  be  impeached  by  the  latter  and  set  aside.* 
Especially  is  this  the  rule,  when  the  cancellation  is  made  after 
the  corporation  has  become  insolvent.^  In  the  United  States 
courts  it  is  established  that  the  governing  officers  of  a  corpora- 
tion cannot,  by  agi'eement  or  other  transaction  with  the  stock- 
holder, release  the  latter  from  his  obligation  to  pay,  to  the  preju- 
dice of  its  creditors,  except  by  fair  and  honest  dealing,  and  for 
a  valuable  consideration.^ 

§  171.  Compromise. — A  compromise  difi'ers  from  a  cancella- 
tion, in  that  the  subscriber  pays  to  the  corporation  a  part  of  the 
subscription  price,  in  order  to  be  released  from  the  balance. 
The  stock  is  delivered  back  to  the  corporation.  The  corporate 
authorities,  generally  the  directors,  have  power  to  compromise 
any  corporate  debt,  and  if,  in  the  collection  of  subscriptions, 
there  is  reasonable  doubt  as  to  the  liability  of  the  subscriber,''  or 

'  Melvin  v.   Lamar  Ins.  Co.,   80  IlL  App.  280.     The  plea  in  defense,  it  has 

446.  been  held,  need  not  allege  that  there  were 

'^  Hodgkinson  v.   Natl.   Co.,  26  Beav.  no  corporate  creditors  at  the  time  of  the 

473;  Bk.   of  St.  Mary's  v.  St.  John,   25  cancellation.     Gelpcke  v.  Blake,  19  Iowa, 

Ala.  566.  263.     In   England   a  different  rule  pre- 

2  Perkins  v.  Union  B.  H.  <fe  E.  M.  Co.,  vails.     "If  the  company  could  not  ques- 

12  Allen,  273.     Cancellation  may  be  by  tion  it,  neither  can  a  creditor,  for  he  caji 

the  subscription  of  another  person  for  the  obtain  nothing  but  what  the  company  can 

subscriber  at  the  latter's  request.     This  get  from  the  shareholders."      i?e  l)ron- 

occurs  where  regular  transfer  is  not  yet  field  Silkstone  Coal  Co.,  L.  R.  lY  Ch.  D. 

possible.     The  signature  of  the  first  sub-  76  (1880). 

scriber  must  be  erased,  and  that  of  his  *  Chouteau  Ins.  Co.  v.  Floyd,  74  Mo. 

substitute  inserted.     Otherwise  the  sub-  286  ;  Gill  v.  Balis,   72  Mo.  424,  holding 

stitution  fails.     Ryder  v.  Alton  <fe  S.  R.  also  that  it  is  immaterial  that   enough 

R.  Co.,  13  111.  516,  and  see  §  75.  subscriptions  remain  to  pay  the  corporate 

■*  One  wiio  is  a  corporate  creditor  be-  debts, 
fore  the  cancellation  is  made  may  object  ^  Burke  v.  Smith,  16  Wall.  390  (1872); 

to  it,  Vick  V.  LaRochelle,  57  Miss.  602.  New  Albany?;.  Burke,  11  Wall.  96  (1870). 

But  not  it  the  debt  was  incurred  after  the  So  also  in  Illinois.     See  Zirkel  i'.  Joliet 

cancellation.      Johnson    v.    Sullivan,    15  Opera  House  Co.,  79  111.  334  (1875). 
Mo.  App.  66;  Erskine  v.  Peck,  13  Mo.  ''Bath's  Case,   L.   R.,   8  Ch.  I).    334 

160 


CH.  X.]  MISCELLANEOUS   DEFENSES.  [§§172,173. 

if  the  subscriber  is  insolvent,  the  corporation  may  compromise 
the  liability,  and  release  a  part  for  the  purpose  of  securing  the 
residue.  All  that  is  required  is  good  faith. ^  A  receiver,  how- 
ever, cannot  compromise  a  subscription,  nor  can  a  court  of  equity 
give  him  power  so  to  do,  at  least,  it  cannot,  unless  all  the  stock- 
holders are  parties  to  the  equitable  suit  in  connection  with  which 
the  receiver  is  appointed.^ 

§  172.  Non-imyment  of  a  percentage  required  hj  statute. — 
The  charter  or  statute  governing  a  corporation  often  prescribes, 
that  each  subscriber  to  the  capital  stock  shall,  at  the  time  of  sub- 
scribing, pay  to  the  corporation  a  fixed  sum  or  a  specified  propor- 
tion of  the  subscription.  These  statutes  vary  somewhat  in  their 
provisions,  some  declaring  the  subscription  to  be  void  unless  the 
percentage  is  paid,  others  merely  prescribing  that  it  shall  be  paid. 

In  the  actual  taking  of  the  subscriptions,  it  frequently  hap- 
pens that  the  subscriber  has  not  the  ready  money  requisite,  and 
is  allowed  to  subscribe  without  paying  the  same.  "When  an  at- 
tempt is  made  to  collect  such  a  subscription,  the  subscriber,  if  the 
enterprise  has  resulted  disastrously,  sets  up  the  defense  that  he 
did  not  pay  the  statutory  percentage,  and  that  the  subscription 
is  void  and  not  enfoi'ceable.  A  long  list  of  cases,  dating  from 
the  early  litigation  over  railroads,  have  turned  upon  this  defense. 
In  some  of  the  States  the  defense  has  been  held  insufficient,  in 
others  a  contrary  rule  prevails,  and  in  still  (tthers,  first  one  rule 
and  then  the  other  has  been  adopted. 

§  173.  The  decided  weight  of  authority  and  the  most  carefully 
considered  cases  hold  that  a  subscriber  for  stock  cannot  escape 
the  responsibilities  of  a  stockholder  by  showing  that  he  never 
paid  the  percentage  or  fixed  amount  required  by  charter  or  stat- 
ute to  be  paid  at  the  time  of  subscribing.^     He  will  not  thus  be 


(1878);  Lord  Belhaven's  Case,  3DeG.,  J.  court  Rays:  "This  indul-^ence  is  a  most 

<B  8.  41  (1H65).^  ungracious  defense,  which  should  not  be 

'  Phil.  «fc  \V.  C.  R.  R.  Co.  V.  Hickman,  allowed  unless  it  is  stiictly  required  by 

28  Pa.  St.   318  (18.17).      Power  may  be  some  inflexible  rule  of  law."     Haywood  <fe 

given  by  statute.     Pearson's  Case,  L.  P.,  l'.n\  R.  Co.  v.  Bryan,  6  Jones'  L.  (N.  C.) 

7Ch.  309,  holding  that  under  the  English  82   (1858),  the  court  saying:   "It  would 

statute,  the  court  may  allow,  but  cannot  be  a  strange  rule  which  would  allow  him 

compel,  a  receiver  to  cotnpromise.  to  take  advantage  of  the  ether  slockhold- 

^  Chandler  (•   P.rown,  77  111.  33.S(  1875).  ers'    forbearance   and    his  own   neglect." 

"  Illinois   River   R    R.  C>.  v.  Ziinmer,  Pittsburgh,  W.  &  K.  R.  R.  Co.  v.  .^pple- 

20  111.  654  (1858),  holding  that  the  com-  gate,    21    W.   Va.    172  (1882).       On    the 

misaioners   may    waive   payment.      The  theory  that  the  statute  is  "  to  insure  gotyi 

[11]  IGl 


^173.] 


MISCELLANEOUS  DEFENSES. 


[CH.  X. 


permitted  to  take  advantage  of  his  own  wrong  and  default  to  the 
prejudice  of  others.  In  some  instances  the  percentage  was  paid 
in  notes ^  or  checks,^  instead  of  cash;  in  others,  payment  in  cash 
was  made  at  some  period  subsequent  to  the  act  of  subscribing^; 
in  still  others,  no  payment  at  all  was  made  on  the  subscription, 
and  suit  was  brought  for  the  whole  amount."     In  England,  a 


faith,  and  to  avoid  shams  in  enterprises 
that  so  vitally  aflfcct  the  public,"  but  not 
to  chang^e  the  liability  of  stockholders  to 
corporations.  Minnesota  &  St.  L.  Ry.  Co. 
V.  Bassett,  20  Minn.  535  (18'74),  where 
the  court  said  of  the  statute:  "  While  it 
confers  upon  j^laintiff  the  right  to  insist 
upon  the  payment,  it  does  not  make  the 
successful  exercise  of  this  right  indispens- 
able to  the  validity  of  the  subscription." 
Water  Valley  Mfg.  Co.  v.  Seaman,  53 
Miss.  656  (1876),  where  the  requirement 
^as  provided  for  in  the  subscription  itself. 
Barring-ton  v.  Miss.  C.  R.  R.  Co.,  32  Miss. 
370  (1856),  where  payment  was  made 
before  the  subscription.  See  also  Vicks- 
burg  S.  &  T.  R.  R.  Co.  ^.  McKean,  12 
La.  Ann.  638  (1857) ;  Wight  v.  Shelby  R. 
R.  Co.,  16  B.  Monr.  (Ky.)4  (1855);  Smith 
V.  PlankToad  Co.,  30  Ala.  650  (1857); 
Mitchell  ri.  Rome  R  R.  Co.,  17  Ga.  574 
(1855);  Henry  v.  Vermillion  &  A.  R.  R. 
Co.,  17  O.  191  (1848);  Chamberlain  v. 
Painesville  &  H.  R.  R.  Co.,  15  O.  St.  225 
(1864);  Napier  v.  Poe,  12  Ga.  170  (1852); 
Fiser  v.  Miss.  &  Tenn.  R.  R.  Co.,  32  Miss. 
359;  Ryder  v.  Alton  <f  S.  R.  R.  Co.,  13 
111.  516,  where  the  subscriber  was  one  of 
the  commissioners.  Klein  v.  Alton  &  S. 
R.  R.  Co.,  13  111.  514,  where  payment  was 
made  before  the  .subscription  books  were 
closed.  Stuart  v.Valley  R.R.Co.,  32  Gratl. 
(Va.)  14G  ;  Southern  L.  Ins.  Co.  v.  Lanier, 
5  Fla.  110  (1853);  Selma  &  Tenn.  R.  R. 
Co.  V.  Roundtree,  7  Ala.  (N.  S.)  670 
(1845);  Spartanburg  &  A.  R.  R.  Co.  v. 
Ezell,  14  S.  C.  281  '(1880).  where  a  few 
subscribers  paid  in  more  than  their  per- 
centage, and  enough  to  make  up  for  those 
not  paying.  Oler  v.  Baltimore  R.  R.  R. 
Co.,  41  Md.  583  (1874),  where  the  per- 
centage was  "  payable,"  the  court  saying 
that  this  merely  made  it  "  due  and  collect- 
ible," like  a  call,  To  same  effect,  Ashta- 
bula &  N.  L.  R.  R.  Co.  V.  Smith,  15  O. 
St.  328  ( 1864).  Payment  by  the  subscrib- 
er's agent  is  sufficient.  Litchfield  Bk  v. 
Church,  29  Conn.  137(1860).  The  follow- 
ing cases  hold  that  non-payment  of  the 
required  percentage  is  a  good  defi^nse. 
Charlotte  &  S.  C.  R.  R.  Co.  v.  Blakely,  3 

162 


Strobh.  Eq.  (S.  C.)  245  (1848);  State  Ins. 
Co.  V.  Redmond,  1  McCrary,  308  (1880). 
The  requirement  herein  was  by  by-law. 
People  V.  Chambers,  42  Cal.  201  (1871), 
holding  a  check  to  be  insufficient.  Farmers' 
&  M.  Bk.  V.  Nelson,  12  Md.  35  (1857); 
Taggart  v.  Western  Md,  R.  R.  Co.,  24  Md. 
588  (1 866) ;  AVood  v.  Coosa  &  C.  R.  R.  Co., 
32  Ga.  273  (1861).  The  statute  prescrib- 
ing that  the  subscription  shall  be  "  void." 

'  Vt.  Central  R.  R.  Co.  v.  Clayes,  21 
Vt.  30  (1848).  A  bond  so  given  is  col- 
lectible, as  it  would  be  if  given  to  carry 
out  a  parol  contract  for  the  sale  of  land 
void  by  Statute  of  Frauds.  McRea  v. 
Russell,  12  Ired.  (N.  C.)  224  (1851),  the 
court  saying  that  the  statute  "was  meant 
to  protect  stockholders  from  men  of  straw. 
It  was,  moreover,  meant  to  protect  men 
from  the  consequences  of  making  such 
subscriptions  under  tlie  influence  of  mo- 
mentary excitement,  which  they  could 
not  fulfil."  The  statute  said  the  subscrip- 
tion should  be  void.  In  the  case.  Home 
Stock  Ins.  Co.  V.  Sherwood,  72  Mo.  461 
(1880),  payment  by  note  and  mortgage 
was  sustained.  Hayne  v.  Peauchamp,  13 
Miss.  515  (1846),  holding  that  the  pay- 
ment by  note  amounted  to  an  informal 
subscription,  the  statutory  subscription 
being  void.  Pine  River  Bk.  v.  Hadsdon, 
46  N.  H.  114  (1865). 

''  People  V.  Stock-ton  &  V.  R.  R.  Co., 
45  Cal.  306  (1873),  there  being  funds  in 
the  bank  to  meet  it. 

*  Payment  of  a  judgment  on  an  action 
for  one  call  estops  tlie  subscriber  from 
setting  up  this  defense.  Hall  v.  Selma  «fe 
Tenn.  R.  R.  Co.,  6  Ala.  (N.  S.)  741 
(1844). 

''  In  the  case  Piscataqua  Ferry  Co.  t). 
Jones,  39  N.H.491  (1859),  the  requirement 
was  by  by-law,  not  by  charter.  Tl  e  sub- 
scripti(m  WiiS  to  be  void  for  non-payment. 
The  court  thought  otherwise.  The  eflfect 
of  nonpayment  is  that  "it  is  due  and 
liable  to  be  called  for  at  any  time — pay- 
able on  demand,  whenever  needed  by  the 
corporation."  Greenville  &  C.  R.  R.  Co. 
V.  Woodsides,  5  Rich.  L.  (S.  C.)  145  (1851), 
where  the  subscriber  also  voted  the  stock. 


CH.  X.] 


MISCELLANEOUS   DEFENSES. 


[§174. 


failure  to  pay  such  a  percentage  is  held  not  to  affect  the  liability 
of  the  snbscriber,  but  to  restrict  his  right  of  transferring  his 
stock. ^ 

S  174.  In  l^ew  York  there  has  been  doubt  and  a  strong'  ten- 
dency  to  change  the  rule  laid  down  at  an  early  day  by  the  court. 
The  case  of  Jenkins  v.  The  Union  Turnpike  Company,  in  1804,^ 
decided  that  a  failure  by  the  subscriber  to  pay  a  required  per- 
centage at  the  time  of  subscribing  was  a  good  defense  to  an 
action  on  the  subscription.  This  decision  has  been  distinguished, 
questioned,  and  doubted  by  the  courts.^  The  latest  authority, 
however,  in  New  York,  undoubtedly  holds  that  if  the  subscriber 
merely  signs  tiie  subscription  contract,  and  does  not  pay  the  per- 


'  East  Gloucestershire  Ry.  Co.  v.  Bar- 
tholomew, L.  R.  3  Ex.  15  (1867);  Purdy's 
Case,  16  W.  R.  660(1868);  McEwen  v. 
West.  L.  W.  <fe  W.  Co.,  L.  R.  6  Ch.  655 
(1871).  The  statute  stating  that  the  stock 
should  not  "issue"  or  "vest"  until  one 
fifth  should  be  paid.  See  also  Morton's 
Case,  L.  R.  16  Eq.  104  (1873). 

'  1  Caine's  Cases  in  Error,  86,  revers- 
ing Union  Turnpike  Co.  v.  Jenkins,  1 
Caine's  Rep.  381. 

^  Highland  Turnpike  Co.  v.  McKean, 
11  Johns.  98  (1814),  the  court  saying: 
"  It  is  a  little  difficult  to  ascertain  the 
point  upon  which  the  Court  of  Errors 
grounded  their  decision."  A  subscriber, 
who  is  also  the  commissioner,  need  not 
pay  the  required  percentage  to  himself. 
In  Crocker  t'.  Crane,  21  Wend.  211  (1839), 
payment  in  checks  was  held  not  to  be 
good,  they  evidently  not  having  been 
given  in  good  faith.  The  court  says  : 
"  Receiving  an  occasional  check  might 
have  been  a  fair  substitute."  Thorp  v. 
Woodhull,  1  Sandf.  Ch.  411  (1844),  sus- 
tains the  validity  of  a  bond  and  mortgage 
in  payment  of  a  subscription  in  which 
the  percentage  had  been  p-iid  by  a  worth- 
less check.  Eastern  Plank  Road  Co.  v. 
Vaughan,  14  N.  Y.  546  (1856),  holds  it 
not  to  be  necessary  "  that  each  subscriber 
should  pay  five  per  cent,  upon  his  sub- 
scription, l)ut  only  that  five  per  cent,  on 
the  amount  of  the  stock  subscribed  should 
be  actually  paid  [by  any  one  J.  The  ob- 
ject of  this  provision  j)hiinl3^  was  to  pre- 
vent the  formation  of  corporations  and 
cumbering  the  records  of  tlie  State,  with- 
out some  evidence  that  the  contemplated 
enterprise  is  to  be  really  prosecuted." 
To  the  same  effect,  Lake  Ontario  A.  &,  N. 
Y.    R.   R.  Co.   V.   Mason,   16  N.   Y.    451 


(1857),  the  court  saying  that  the  object 
was  "  to  insure  the  organization  of  real 
substantial  companies  in  good  faitli,  ani- 
mated by  an  honest  purpose,  and  having 
some  degree  of  ability  at  least  to  under- 
take the  proposed  improvement."  In  the 
case  Rensselaer  &  W.  P.  R.  Co.  v.  Barton, 
16  N.  Y.  457  (n.),  the  court,  in  speaking 
of  the  decision  in  Jenkins  v.  Union  T.  Co., 
says  :  "  It  may  well  be  doubted  whether 
the  reasoning  upon  which  it  was  based  is 
sound,  and  whether,  were  the  question  to 
be  again  directly  presented,  this  court 
would  feel  bound  to  follow  it."  Black 
River  &  Union  R.  R.  Co.  v.  Clarke,  25  N. 
Y.  208  (1862),  holds  that  "the  subscrip- 
tion one  day,  with  payment  the  next, 
would  satisfy  the  statute,  and  sfj  would 
actual  payment  at  any  period  after  sub- 
scription wilh  intent  to  effectuate  and 
complete  the  subscription."  See  also 
Beach  v.  Hazard,  as  stated  in  30  N.  Y. 
118;  Ogdensburgh,  C.  &  R.  R.  R.  Co  v. 
Wooley,  3  Abb.  Ct.  of  App.  398  (1864), 
holds  that  the  requisite  percentage  for  all 
may  be  paid  by  a  few  subscribers,  and 
that  a  promissory  note  is  good  payment. 
Beach  v.  Smith,  30  N.  Y.  116  (1864), 
affirming  s.  c.  28  Barb.  254,  holds  that 
payment  in  si^rvices  performed  under  a 
contract  witli  tlie  company  suffices.  Ex- 
celsior G.  B.  Co.  V.  Stayner,  25  Hun,  91 
(1881),  holds  that  payment  by  check,  on 
which  payment  is  stoppeil,  is  insufficient. 
Syracuse,  P.  &  0.  11.  R.  Co.  v.  Gere,  4  Hun, 
392(1875),  sustains  a  suit  by  the  corpora- 
tion to  collect  such  a  check.  See  also  Og- 
den -burgh  R.  &  C.  R.  R.  Co.  v.  Frost,  21 
Barb.  541  (1856).  Certified  check  isgood 
payment.  Re  Staten  I.  R.  T.  R.  R.  Co., 
37'nun,  422  (1885);  38  Hun,  381. 

163 


§§  175,  176.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

centage,  he  may  thereby  defeat  his  liabihty  on  such   subserip- 
tioiJ.^ 

§  175.  In  Pennsylvania  a  similar  state  of  doubt  has  existed. 
The  case  of  Hibernia  Turnpike  Co.  v.  Henderson,^  in  1822, 
decided  that  a  failure  by  the  commissioners  taking  subscriptions 
to  stock  to  require  payment  of  the  statutory  percentage  made  the 
subscription  void  and  not  enforceable.  Later  decisions  do  not 
overthrow  the  rigid  rule,  but  distinguish  and  practically  destroy 
it  by  holding  that  this  defense  is  barred  by  a  subsequent  statute 
curing  the  defect ;  ^  or  by  a  waiver  in  attending  corporate  meetings 
and  voting;*  or  by  transferring  the  shares;^  or  that  the  pro- 
vision applies  only  to  subscriptions  taken  by  the  commissioners;^ 
or  under  the  act  of  1888,  that  the  percentage  must  be  paid  on 
subscriptions  after,  but  not  to  those  before  incorporation;'^  or 
that  the  requirements  does  not  apply  to  a  conditional  subscrip- 
tion ;^  or  any  acts  indicating  an  intent  to  be  bound  as  a  stock- 
holder.^ 

§  176.  Failure  of  the  corporation  to  oMain  suhscriptions  to 
the  extent  of  the  full  ca])ital  stock. — It  is  an  implied  part  of  a 
contract  of  subscriptions  that  the  contract  is  to  be  binding  and 
enforceable  against  the  subscriber  only  after  the  full  capital  stock 
of  the  corporation  has  been  subscribed.  This  condition  precedent 
to  the  liability  of  the  subscriber  need  not  be  expressed  in  the 
corporate  charter  nor  the  subscription  itself.  It  arises  by.  im- 
plication from  the  just  and  reasonable  understanding  of  a  sub- 

1  New  York  &  0.  M.  K.  R.  Co.  v.  Van  »  Everhart  v.  Westchester  &  Phil.  R. 

Horn,  5*7  N.  Y.  473  (1874),  holding  also  R.  Co.,  28  Pa.  St.  S39  (1867). 
that   a   subsequent   statute   cannot   cure  ^  Phil.  &  W.  C.  R.  R.  Co.  v.  Hickman, 

such  omissidn  to  pay,  and  thereby  render  28  Pa.  St.  318  (1857).      Centra,  ur.dev  the 

the  subscriber  liable.  act  of  1868.     See  Butcher  v.  Dillsburg  & 

■^  8   S.   <fe   R.  219.     See  also  Leighty  M.  R.  R.  Co.,  76  Pa.  St.  306  (1874). 
V.  Pres.  of  S.  &  W.   T.   Co.,  14  S.  &    R.  ''  Garrett  v.  Dillsburg  &  M.  R.  R.  Co., 

434.  78  Pa.  St.  465  (1875). 

^  Clark  V.  Monongahela  Nav.  Co.,   10  ^  Hanover  J.  &  S.  R.  R.  Co.  v.  Halde- 

Watts,  364  (1840).  man,  82  Pa.  St.  36  (1876). 

*  Erie  &  W.  P.  R.  Co.  v.   Brown,   25  »  Boyd  v.   Peach.  B.   Ry.  Co.,  90  Pa. 

Pa.  St.    156(1855).     The  court  saying:  St.  169(1879).     Holdicg,   however,  that 

"  There  is  no  merit  in  such  a  defense.     .  payment  cannot  be  by  promissory  note, 

.     .     The  subscriber  himself  is  under  the  although  a  demand  note.    The  court  said: 

highest  moral    obligations    faithfully  to  "  The  manifest  object  of  the  requirement 

perform    the    promise   he  has   distinctly  was  to  protect  the  public  against  ticti- 

made."      In  the   case   of  Cam    v.  West-  tious    corporations,     with    capital    stock 

Chester  R.  R.   Co.,   3    Grant's  Cas.    200  subscribed  perhnps  by  irresponsible  per- 

(1855),  the  court  held  that  failure  to  pay  sons,  and    not   a  dollar  thereof  paid    or 

the  percentage  did  not  render  the  cliarter  intended  to  be  paid  in." 
forfeitable. 

164 


CH.  X.] 


MISCELLANEOUS  DEFENSES. 


[§  177. 


scriber  that  he  is  to  be  aided  by  other  subscriptions.  This  rule 
is  supported  also  by  public  policy,  in  that  coi'porate  creditors 
have  a  right  to  rely  upon  a  belief  that  the  full  capital  stock  of 
the  corporation  has  been  subscribed.^  The  subscriber,  however, 
is  liable  for  his  proportion  of  the  necessary  expenses,  preliminary 
to  the  incorporation  and  organization  of  the  company.^ 

§  177.  The  act  of  incorporation  may,  of  course,  vary  this 
rule.  Thus,  it  is  well  established,  that  where  the  charter  author- 
izes the  organization  of  the  company,  and  the  commencement  of 


'  The  leading  case  on  this  defense  is 
Salem  Mill  Dam  Corporation  v.  Ropes, 
23  Mass.  23  (1827),  and  26  Mass.  187 
(1829);  Livesey  v.  Omaha  Hi)tel,  5  Neb. 
50  (1876).  where  Judge  Rediield  in  the 
brief  says  :  "  This  rule  has  been  held 
inflexible  in  all  cases  both  for  the  security 
of  the  public  and  also  (^f  the  subscribers." 
Shurtz  V.  Schoolcraft  &  T.  R.  R.  R.  Co., 
9  Mich.  269  (1861) ;  New  York,  H.  &  N. 
R.  R.  Co.  V.  Hunt,  39  Conn.  75  (1872); 
Hale  V.  Sanborn,  16  Neb.  1  (1884) ;  Peoria 
<fe  R.  I.  R.  R.  Co.  V.  Preston,  35  Iowa,  118 
(1872),  the  court  sayin^:  that  this  rule, 
"  unless  a  contrary  intention  appears,  ex- 
pressly or  by  implication,  ei*^her  in  the 
charter  or  the  contract  of  subscriptions." 
Stoneham  Branch  R.  R.  Co.  v.  Gould,  68 
Mass.  277  (1854),  the  court  saying: 
"This  is  no  arbitrary  rule,  it  is  founded 
on  a  plain  dictate  of  justice,  and  th'^  strict 
principles  regulating  the  obl'gition  of 
contracts."  Bray  v.  Farwell,  81  N.  Y. 
600,  608  (1880),  where  the  court  says, 
the  directors  "  had  no  authority  to  go  on 
with  insufficient  meaas  and  thus  wreck 
the  company."  Selma,  M.  &  M.  R.  R. 
Co.  V.  Anderson,  51  Miss.  829  (1876); 
Hugliesv.  AnUetam  Mfg.  Co.,  34  Md.  318, 
332(1870);  Topeka  Bridge  Co.  ?^.  Cum- 
mings,  3  Kan.  55  (1864);  Allinan  v. 
Havana  R.  &  E.  R.  R.  Co.,  88  111.  521 
(1878);  Temple  v.  Lemon,  112  111.  51 
(1884);  Littleton  Mfg.  Co.  ,;.  Parker,  14 
N.  n.  543  (1844);  Hendrix  v.  Academy 
of  Music,  73  Ga.  437  (1884);  Contoocook 
Valley  R.  R.  Co.  v.  Barker,  32  N.  H.  363 
(1855j;  Prop,  of  N.  Bridge  v.  Story,  6 
Pick.  45  (1827);  Belfast  &  M.  L.  R. 
R.  Co.  V.  Cottrell,  66  Me.  185  (1875); 
Memphis  Branch  II.  R.  Co.  v.  Sulli- 
van, 57  Ga.  240;  Fox  v.  Alleiisville  C. 
S.  <k  V.  T.  Co.,  46  Ind.  31  (1874); 
Ilain  V.  North  W.  G.  R.  Co.,  41  Ind.  196 
(1872),    holding    also  that    the  corpora- 


tion in  suing  must  aver  that  the  full 
capital  stock  has  been  subscribed.  Central 
Turnpike  Co.  v.  Valentine,  10  Pick.  142 
(1830),  holding  also  that  the  corpora- 
tion hMS  the  burden  of  proving  subscrip- 
tions for  the  full  capital  stock.  War- 
wick R.  R.  Co.  V.  Cady,  11  R.  1.  131 
(1877),  where  the  charter  said  that  the 
capital  stock  should  not  exceed  a  specified 
sum.  Fry's  Exrs.  v.  Lexington  &  B.  S. 
R.  R.  Co.,  2  Met.  (Ky.)  314(1859).  Hold- 
ing also  that  the  corporation  must  aver 
full  subscription.  Lewey's  Island  R.  R. 
Co.  V.  Bolton,  48  Me.  451  (1860);  Lail  v. 
Mt.  Sterling  C.  R.  Co.,  13  Bush  (Ky.), 
34  (1877),  holding  that  the  corporation 
need  not  aver  full  subscriptions.  Of. 
Monroe  v.  Fort  W.  J.  &  S.  R.  R.  Co.,  28 
Mich.  272  (1873).  Where  also  the  cor- 
poration is  incorporated  with  a  less  capi- 
tal stock  than  was  proposed  when  the 
defendant  subscribed,  he  is  not  bound  by 
the  subscription.  Santa  Cruz  R.  R.  Co. 
V.  Schurtz,  53  Cal.  106  (1878).  A  few 
cases  seem  to  hold  a  contrary  doctrine. 
New  Castle  &  A.  T.  Co.  v.  Bell,  8  Blackf. 
(Ind.)  584  (1847);  Oregon  Central  R.  R. 
Co.  V.  Scoggin,  3  Oreg.  161  (1869);  York 
&  C.  R.  11.  Co.  V  Pratt,  40  Me.  447  (1855); 
Cheraw  &  C.  R.  R.  Co.  v.  White,  10  S.  C. 
155  (1878).  See  also  Chubb  v.  Upton, 
95  U.  S.  665,  668  (1877),  probably  a 
dictum.  In  the  late  case  of  Skowhegan  dt 
A.  R.  R.  Co.  V.  Kinsman,  77  Me.  370 
(1855),  the  court  seems  to  hold  that 
where  there  is  in  the  subscription  an  ex- 
press promise  to  pay,  it  is  enforceable, 
oven  though  the  whole  capital  stock  is 
not  subsci'ibed.  If  such  a  condition  is 
expected-  the  court  says  it  must  be  in- 
serted in  the  sub-criotion.  But  see 
Rockland,  &c.,  B.  Co.  k  Sewall,  12  Am. 
&  Kng.  Corp.  Cas.  80  (Me.  1886). 

■^  8alem   Mill  Dam  Corp.  v.  Ropes,  23 
Mass.  23  (1827). 


§§  178,  179.] 


MISCELLANEOUS   DEFENSES. 


[CH. 


corporate  work  after  a  certain  amount  of  the  capital  stock  has 
been  subscribed,  such  a  charter  provision  is  equivalent  to  an  ex- 
press authority  to  the  corporation  to  call  in  the  subscriptions  as 
soon  as  this  organization  is  affected.^  Subscriptions  to  the  full 
amount  of  the  capital  stock  are  held  not  to  be  necessary.  The 
defense  is  not  good. 

§  178.  Where  the  subscription  itself  specifies  how  much  of 
the  capital  stock  must  be  subscribed  before  payment  may  be  en- 
forced, such  specifications  are  legal  and  effective,  and  until  they 
are  fully  complied  with  the  subscriber  is  not  liable.^  A  subscrip- 
tion of  this  kind  is  a  conditional  subscription.^  A  condition  that 
the  subscription  shall  be  payable  only  when  sufiicient  subscrip- 
tions for  the  corporate  purpose  has  been  secured,  has  been  held  to 
require  funds  sufficient  to  put  the  enterprise  in  full  operation.* 
On  the  other  hand,  a  subscription  to  pay  "  when  required,"  ren- 
ders the  subscribers  liable  before  the  full  capital  stock  is  sub- 
scribed.^ 

§  179.  In  England  statutory  provisions  have  almost  entirely 


'  Schenectady  &  S.  P.  R.  Co.  v. 
Thatcher,  11  N.  Y.  102(1854);  Rensse- 
laer &  W.  P.  R,  Co.  V.  Wetsel,  21  Barb. 
56(1853);  Hamilton  <fe  D.  P.  R.  Co.  t). 
Rice,  7  Barb.  166(1849);  Sedalia,  Warsaw, 
&c.,  Ry.  Co.  V.  Abell,  17  Mo.  App.  645 
(1885);  Hunt  v.  Kansas  &  M.  B.  Co.  11 
Kan.  412  (1873),  the  court  saj'ini^  that 
otherwise  there  would  be  no  propriety  in 
allowinirthe  org-anization  before  the  full 
capital  was  subscribed.  Hoagland  v. 
Ciu.  &  F.  W.  R.  R.  Co.,  18  Ind.  452 
(1862);  Hanover  J.  &  S.  R.  R.  Co.  v. 
Haldeman,  82  Pa.  St.  36  (1876);  Penob- 
BCnt  &  K.  R.  R.  Co.  V.  Bartlett,  12  Gray, 
244  (1858),  holding  so,  even  though  no 
contrnets  for  building  the  road  were  to 
be  made  until  a  larger  subscription  was 
obtained.  Boston,  B.  &  G.  R.  R.  Co.  v. 
Wellington,  113  Mass.  79  (1873);  Minor 
V.  Mechanics  Bk.,  1  Peters,  46 ;  New 
Haven  cfe  D.  R.  R.  Co.  v.  Chapman,  38 
Conn.  65  (1871);  Illinois  River  R.  R.  Co. 
V.  Zimmer,  20  111.  654  (1858);  Lexington 
&  W.  C.  R.  R.  Co.  V.  Chandler,  54.  Mass. 
311  ;  \Villaniette  F.  Co.  v.  Stannus,  4 
Oreg.  261  (1872);  Jewett  v.  Valley  Ry. 
Co.,"  34  O.  St.  601  (1878).  A  vigorous 
case  to  the  contrary  is  Galveston  Hotel 
Co.  t/.  Balton,  46  Tex.  633  (1877).  The 
court  says,  "  There  were  good  reasons  for 

1C6 


organizing  the  company  to  be  found  in 
the  increased  facility  of  thereby  raising 
the  subscriptions  to  the  amount  fixed  for 
the  capital  stock  and  of  other  preliminary 
preparattens  for  the  execution  of  the  work, 
when  the  subscrijition  should  reach  that 
amount."  A  contrary  rule  "  would  ren- 
der nufratory  the  most  important  pro- 
vision of  the  charter,  which  is  the  amount 
of  its  capital  stock."  When  the  capital 
stock  is  to  be  fixed  by  the  corporation, 
between  two  limits,  the  subscription  of 
the  full  amount  as  fixed  is  a  subscriptioa 
of  the  full  capital  stock.  Kennebec  &  P. 
R.  R.  Co.  V.  Jarvis,  34  Me.  360  (1852). 

^  Where  by  its  terms,  it  is  not  to  be 
binding  until  a  certain  amount  is  sub 
scribed,  it  is  enforceable  when  that  amount 
is  secured,  although  less  than  the  full 
capital  stock.  Bucksport  &  B.  R.  R.  Co. 
V.  Buck,  65  Me.  536  (1870).  See  also 
Iowa  cfe  Minn.  R.  R.  Co.  v.  Perkins,  28 
Iowa,  281  (1869). 

3  See  Chap.  V. 

*  People's  Ferry  Co.  i'.  Balch,  74  Mass. 
203  (1857),  the  court  holding  that,  funds 
for  the  land,  structures  and  boats,  must 
be  in  hand  before  the  defendant  becomes 
liable. 

5  Cheraw  &  C.  R.  R.  Co.  v.  Garland 
14  S.  C.  63  (1880). 


CH,  X.] 


MISCELLANEOUS  DEFENSES. 


[§  180. 


displaced  the  common-law  rule.  The  principle  that  a  subscriber 
is  not  liable  until  the  full  capital  stock  has  been  subscribed  is 
recognized  as  having  been  the  original  rule  at  law.  A  few  cases, 
however,  seems  to  favor  an  opposite  rnle.  Yet,  an  eminent  Eng- 
lish authority  says  that  in  all  the  cases  in  which  the  subscribers 
were  held  bound,  they  "  had  entered  into  a  contract  which  pre- 
cluded tliem  from  maintaining  that  the  subscription  of  the  whole 
of  the  originally  proposed  capital  was  an  express  or  implied  con- 
dition to  their  becoming  shareholders."  The  English  courts  seem 
to  have  no  clearly  defined  rule  in  this  matter,  but  allow  each  case 
to  turn  largely  on  its  own  facts,  releasing  the  subscriber  if  the 
discrepancy  in  the  subscriptions  is  very  large,  and  holding  him 
liable  if  it  is  small,  or  if  he  in  any  way  has  aided  the  company  in 
beginning  business.^ 

§  180.  Some  difficulty  has  been  experienced  in  determining 
what  subscriptions  shall  be  counted  in  ascertaining  whether  the 
full  capital  stock  has  been  subscribed.  Conditional  subscriptions, 
the  condition  to  which  has  not  yet  been  performed  by  the  cor- 
poration, are  clearly  not  to  be  counted  among  the  rest,  since  such 


'  Norwich  <fe  L.  Navigation  v.  Tlieo- 
bold,    1    Moody    &  M.    151  (1828),    re- 
quired   full   subscription  in    accordance 
with  a  statute.     Fox  v.  Clifton,  6  Bing. 
776   (1830),   the    earliest    common    law 
English  case  on  this  subject,  holds  that 
the  subscriber  is  not  liable  to  corporate 
creditors  unless  tlie  full  capital  stock  has 
been   subscribed.     Pitchford  v.  Davis,  5 
Mees.  &   W.  2  (18:59),  also  fully  agrees 
with  tlie  rule  that  prevails  in  tliis  country. 
Wontner  v.  Shairp,  4  C.  B.  404  (1847), 
sustained    a  recovery  back    of  amounts 
paid  on  a  subscription,  under  misrepresen- 
tations that  tlie  whole  stock  had  been  sub- 
scribed.    Waterford,  W.  W.  &  B.  Ry.  Co. 
V.  Dalbiac,  4  Eng.  L.  &  Kq.  452  (1850),  re- 
fused to  allow  the  defense  since  the  charter 
allowed  the  corporation  to  purchase  land 
before  the   full   capit;il    stock    was    sub- 
8<ribfd.      Watts  v.  Salter,  10  C.  B.  477 
(1856),    holds    the  same,   the  subscriber 
having    aided  in  the  incorporation,    and 
given   the   directors  power   to    proceed. 
(Jalvanized   Iron  Co.  v.  Westoby,  21  L. 
J.  (Ex.)   3t)2  (1852),  per  B.  Parks,  says, 
that  at  common  law  the  subscriber  is  not 
liable  unless  the  full   capital  stock  is  sul)- 
Bcribed.     Johnston  v.  Goslett,  3  C.  B.  N. 


S.  569  (1857),  makes  the  directors  liable 
to  the  subscriber  for  his  deposit    when 
they  so  proceed.     London  &  C.  Ins.  Co. 
V.  Redgrave,  4  C.  B.  N.  S.    524  (1858), 
holds    the    subscriber  liable,  he   having 
aided  in  the  incorporation.     Ornamental 
P.   W.   Co.  V.  Browne,  2  Hurl.  <fe  C.  68 
(1863),  holds  the  subscriber  liable,  under 
the  statute  of  19  <fe  20  Vic.  c.  47,  similar 
to  the  Arnerican  statutes.     See  also  Mc- 
Dougall  V.  Jersey  I.  H.  Co.,  10  Jur.  N.  S. 
1043   (1864).      Peirce  ii,  Jersey  W.  Co., 
L.  R.,  5  Ex.  209  (1870),  required  a  cer- 
tain amount  to  be  subscribed,  the  charter 
itself  so  pi'esciibing.     Elder  v.  New  Zea- 
land L.  L  Co.,  30  L.  T.  N.  S.  285  (1875), 
the  most  important   case  on  this  subject, 
holds  that  where  the  directors  are  about 
to  proceed  with  only  one   fourteenth  of 
the  cajiital  stock  subscribed,  a  subscriber 
may  apply  to  the  court  and  have  his  name 
removed  from  the  subscribers'  list.     The 
court  says  that  the  case  of  McDougall  v. 
Jersey  I.  H.  Co.,  &uprn,  would  have  been 
decided  otherwise  had  not  two-tliirds  of 
the  stock,  in  that  case,  been  subscribed. 
See  also  IIowbe:ich  Coal  ("o.  v.  Teague,  6 
H.  «fe  N.    151   (18611);  dictum  in  7^e  Jen- 
nings, 1  Irish  (Cli.),  654  (1851). 

167 


§  ISO.] 


MISCELLANEOUS   DEFENSES. 


[CH. 


subscriptions  may  never  become  enforceable.^  This  rule,  if  strictly- 
insisted  upon,  would  probably  occasion  great  inconvenience  to 
the  corporation  in  enforcing  the  subscriptions  for  stock. 

The  subscriptions  of  married  women,  infants,  or  persons  of 
unsound  mind,  are  to  be  excluded  from  the  count.^  So  also  the 
subscriptions  of  insolvents  are  excluded,  unless  at  the  time  of  sub- 
scribing they  were  apparently  able  to  pay  the  subscription.^  Con- 
siderable difference  of  opinion  exists  as  to  whether  subscriptions 
payable  by  their  terms  in  labor,  or  materials,  or  contract  work, 
are  to  be  included  in  the  count.*  Tlie  better  rule  seems  to  be  that 
the  necessity  of  employing  this  method  oi"  carrying  out  many 
modern  corporate  enterprises  requires  that  such  subscriptions 
should  be  counted,  if  the  contract  is  made  in  good  faith,  and  the 
contractors  are  reasonably  responsible  men.^  The  weight  of  au- 
thority, however,  holds  otherwise.  The  records  of  the  corpora- 
tion are  sufficient  and  competent  evidence  that  the  full  capital 
stock  has  been  subscribed.® 


'  Troy  &  G.  R.  R.  Co.  v.  Newton,  74 
Mass.  596  (1857),  the  condition  bein^ 
that  tlie  subscriber  be  allowed  to  pay  in 
construction  work.  Oskaloosa  Agri. 
Works  y.Parkburst,  54  Iowa,  357(1880); 
Ciibot  <fe  W.  S.  B.  V.  Chapin,  60  Mass. 
50  (1850),  where  a  subscription  payable 
in  other  stock  at  par,  when  the  market 
Talue  was  less,  was  not  counted.  Ticonic 
Co.  V.  Lang,  63  Me.  480  (1874).  Sub- 
scription on  condition  that  interest  shall 
be  paid  is  counted.  Rutland  <fe  B.  R.  R. 
Co.  V.  Thrall,  85  Vt.  536  (1863).  Cf. 
Oreenville  &  0.  R.  R.  Co.  v.  Coleman,  5 
Rich.  (S.  C.)  118  (1851). 
scriptions  are  not  counted. 
L.  R.  R.  Co.  V.  Cottrell 
(1875).  Cf.  Swartwout 
Line  R.  R.Co.,  24  Mich.  389  (1872). 

^  Phillips  V.  Covington  &  Cin.  Bridge 
Co.,  2  Mete.  (Ky.),  2l9  (1859),  holding 
that  siabscriptions  of  infants,  married 
women,  or  insolvents,  are  not  to  be  count- 
ed, unless  already  paid  in.  Fictitious 
paid  up  stock,  and  stock  convertible  into 
corporate  bonds,  counted.  CJf.  Litchfield 
Bk.  V.  Chiirch,  supra. 

3  Lewey's  Island  R.  R.  Co.  v.  Bolton, 
48  Me.  45"]  (1860);  Belfast,  &c.,  Rv.  Co. 
V.  Inhab.  of  Brooks,  60  Me.  568  (1872). 
The  subsequent  failure  of  some  of  the  sub- 
scribers is  immaterial.  Salem  M.  D  Cor- 
poration V.  Ropes,  20  Mass.  187  (1829). 

■*  Not  counted  where   the   contractor 

1(38 


Invalid  sub- 
Belfast  &  M. 
66    Me.    185 
V.  Mich.   Air 


failed  to  complete  the  work.  New  York, 
H.  &  N.  R.  R.  Co.  V.  Hunt,  39  Conn.  75 
(1872);  Troy  &  G.  R.  R.  Co.  v.  Newton, 
74  Mass.  596  (1857),  the  court  saying: 
"The  receipt  of  the  stock  by  them  de- 
pended entirely  upon  a  contingency,  as 
the  contractors  might  fail  to  do  the  work, 
and  so  no  stock  be  earned;"  01dtown,»Js 
Lincoln  R.  R.  Co.  v.  Veazie,  39  Me.  571 
(1855),  where  the  contract  work  was  not 
completed.  In  the  case  of  Ridgei  eld  <fe 
N.  Y,  R.  R.  Co.  V.  Brush,  43  Conn.  86 
(1876),  such  subscriptions  were  connted, 
the  contract  for  payment  in  work  being 
parol,  and  not  allowed  to  vary  the  appar- 
ently absolute  subscription. 

■''  Phillips  V.  Covington  <fe  Cin.  Bridge 
Co.,  2  Mete.  (Ky.),  219  (1859). 

*  Penoliscot  R.  R.  Co.  v.  Dummer,  40 
Me.  172  (1855);  Id.  v.  White,  41  Me.  512 
(1856),  unless  proof  be  introduced  to  de- 
stroy their  effect.  A  call  is  notice  that 
the  full  amount  has  been  subscribed.  Har- 
lem Canal  Co.  v.  Seixas,  2  Hall  (N.  Y.),  504 
(1829);  Id.  V.  Spear,  2  Hall,  510;  Litch- 
field Bk.  V.  Church,  29  Conn.  137  (1860), 
holding  that  the  certificate  of  the  com- 
missioners that  the  full  stock  had  been 
subscribed  would  not  be  questioned,  even 
thou2,"h  they  had  counted  married  w^omen's 
subscriptions.  To  same  effect  see  Lane  v. 
Brainerd,  30  Conn.  565  (1862);  Marlbor- 
ough Branch  R.  R.  Co.  v.  Arnold,  9  Gray, 
159  (1857).     If  the  corporate  records  are 


CH.  X.]  MISCELLANEOUS   DEFENSES.  [§§  181,  182. 

§  181.  A  subscriber  may  waive  the  defense  that  the  full  capi- 
tal stock  of  the  corporation  has  not  been  subscribed.  This  waiver 
may  be  either  express  or  implied  from  the  acts  or  declarations  of 
the  subscriber.^  Many  different  facts  have  been  passed  upon  by 
the  courts  and  held  either  to  constitute  or  not  to  constitute  a 
waiver  of  this  defense.  Thus  it  has  been  held  to  amount  to  a 
waiver  for  the  subscriber  to  act  as  a  director,  attend  meetings, 
and  contract  corporate  debts  ;  ^  or  to  pay  assessments  for  several 
years,  with  full  knowledge  of  all  the  facts  ;  ^  or  to  write  to  the 
directors,  requiring  them  to  call  a  meeting  ; "  or  to  participate  as 
a  stockholder  and  committeeman  for  several  months  ;  ^  or  to  act 
as  president  of  the  corporation.^  But  a  subscriber  does  not  waive 
this  defense  by  paying  a  deposit ;  ^  or  by  attending  a  meeting  ;  ^  or 
by  participating  in  preliminary  work  and  paying  a  statutory  per- 
centage required  to  be  paid  at  the  time  of  subscribing;^  or  by 
paying  assessments  for  surveys.^** 

§  182.  Failure  to  fix  definltehj  the  capital  stock,  where  the 
amount  is  left  in  the  discretion  of  the  corporation.— Sometunes 
corporate  charters,  especially  in  the  Xew  England  States,  are 
granted  without  specifying  the  exact  amount  of  the  capital 
stock,  but  either  fixing  the  outside  limit  or  allowing  the  corporate 
authorities  to  fix  it  between  certain  specified  limits.  Where  the 
cliarter  leaves  the  amount  of  tlie  capital  stock  indefinite,  it  is  the 
duty  of  the  proper  corporate  authorities  to  determine  what  it  shall 
be,  and  no  subscriber  can  be  held  liable  on  his  subscription  until 
such  determination  is   made.^^     After  the  capital   stock  is  once 

destroyed  or  lost,  there  should  be  other  '  Livesey  v.  Omaha  Hotel,  5  Neb.  50 

clear  evidence.     Central  Turnpike  Co.  v.  (18Y6) ;  Oldtown   &   L.  R.  R.  Co.  v.  Vea- 

Valentine,  ]0  Pick.  142  (18:^0).  zie,  39  Mp.  571  (1855),  where  as  an  officer 

I  Emmitt  v.  Springfield   J.  &  P.  R.  R.  the  subsci-iber  aided  in  preliminary  work. 

Co.,  31    Ohio   St.    23   (1876);  Eager   v.  This  case  goes  fartlier  and  holds  that  there 

Cleveland,  36  Md.  476  (1872).  can  be  no  waiver  under  any  state  of  facts. 

'  Hagcr  V.  Cleveland,  supra.  '"  Memphis  Branch   R.  R.  Co.  v.  Sulli- 

3  Morrison    v.    Dorsey,   48    Md.    461  van,  57  Ga.  240  (1876) ;  Atlantic  Cotton 

(1877).  Mills  V.  Abbott.  63  Mass.  423  (185-'),  holds 

*  Tredwen  v.  Bourne,  6  Mees.  <fc  W.  that  paying  assessments  and  attempting 
461  (1840),  holding  it  to  be  evidence  of  to  transfer  is  not  a  waiver.  May  t».  Mem- 
waiver.  phi.s  B.   R.   R.   Co.,  48  Ga.    109  (1873), 

s  Sharpley  v.  Louth  &  E.  C.  Ry.  Co.,  holds  that  paying  an  apst'ssmcnt  with  no- 

L.  R.  2  CI).  Div.  663  (1876).  tice  of  this  defense  is  no  waiver  of  it. 

«  Corwith  V.  Culver,  69  III.  502  (1873).  "  Worcester  &   N.  R.  R.  Co.  v.  Hinds, 

'  Pitchford  v.  Davis,  5   Mees.  <fe  W.  2  62  Mass.  110  (1851);  Troy  &  G.  R.  R.  Co. 

(1839).  V.  Newton,  74   Mass.  596  (1857);  Pike  v. 

»  Wontner   v.    Shairp,   4    C.    B.    404  Shore  Line,  68  Me.  445  1 1878);  Somerset 

(1847);  New  H.  Central  R.  R.  Co.  y.  John-  R.  \l.  Co.   v.  Clarke,  61    Me.  384  (1871). 

son,  30  N.  H.  390  (1865).  Cotiira,  Warwick  R.  R.  Co.  v.  Cady,  1 1  R. 

169 


§  183.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

fixed,  there  seems  to  be  no  rule  preventing  its  being  varied  subse- 
quently, provided  the  specified  charter  limits  are  observed.^  It 
has  been  held  that  even  subscriptions  to  the  amount  of  the  lowest 
limit  allowed  by  the  charter  are  insufficient,  unless  that  limit  has 
been  designated  by  the  corporate  authorities  as  the  amount  of  the 
capital  stock.^  After  the  capital  stock  is  so  determined,  the  full 
amount  thereof  must  be  subscribed  before  any  subscriber  is  lia- 
ble.^ It  is  not  necessary  that  the  amount  of  the  capital  stock  be 
fixed  by  formal  declaration  of  the  corporate  authorities.  It  may 
be  done  by  acts  equivalent  thereto.  Thus  a  resolution  to  close  the 
books  on  a  given  day  ;  *  or  limiting  the  time  of  subscription  and 
then  closing  the  subscription  books  ;^  or  voting  that  a  certain 
amount  of  stock  in  addition  to  existing  subscriptions  shall  be  is- 
sued,^ are  the  same  as,  and  are  equivalent  to,  an  express  resolution 
that  the  capital  stock  shall  be  the  amount  of  subscriptions  thus 
taken . 

§  183.  Irregular  incorporation  of  the  compayiy. — Under  the 
laws  of  most  of  the  States,  charters  of  incorporation  are  obtained 
by  complying  with  the  provisions  of  what  are  called  general  in- 
corporating acts.  Usually  these  acts  provide  that  a  specified  num- 
ber of  persons,  by  filing  at  a  public  registry  a  certificate  setting 
out  certain  facts,  may  thereby  form  a  corporation  for  the  purposes 
named  in  such  certificate.  The  various  steps  to  be  taken,  and  the 
contents  of  each  certificate,  are  prescribed  by  the  statute,  and  yet, 
frequently,  in  the  formation  of  a  corporation,  under  the  statute, 
some  part  of  the  proceeding,  through  inadvertence  or  mistake,  is 
not  strictly  complied  with.  The  same  thing  happens,  also,  under 
acts  incorporating  a  certain  company,  and  requiring  it  to  perform 

I.  131  (1875);  City  Hotel  V.Dickinson,  72  lower    limit    of    tlie    capital   stock   was 

Mass.  5S6  (1862).    In  the  case  of  Kirksey  reached. 

V.   Florida   &   G.   P.    R.   Co.,   7   Fla.   23  i  Somerset  cfe  K.  R.  R.  Co.  v.  Gushing, 

(1857),  it   was  held  that  the  corporate  45  Me.  524  (1858);  Troy  &  G.  R.  \l.  Co. 

charter   need    not    mention   any    capital  v.   Newton,   74    Mass.   596  (1857),   dicta, 

stock  or  shares  of  stock,  and  yet  subscrip-  however,  in  both  of  these  cases. 

tions  may  be  taken  and  enforced.     In  the  -  Pike    v.    Shore   Line,    68    Me.    445 

case  of  Ward  v.  Griswoldville  Mfg.  Co.,  16  (1878). 

Conn.  593   (1844),  where  the  charter  al-  ^  Somerset  &  K.  R.  R.  Co.  v.  Gushing, 

lowed   the    capital   stock   to   vary   from  45  Me.  524  (1858). 

$5,000  to  $50,000,  it  was  assumed  that  the  ''Lexington    &    W.  C.   R.    R.   Co.    v. 

subscriptions  were  enforceable,  although  Chandler,  54  Mass.  311  (1847). 

no  fixed  capital  stock  had  been  settled  ^  Bucksport  &  B.  R.  R.  Co.  v.  Buck,  65 

upon.     In  the  case  of  White  Mts.  R.  R.  Me.  536  (1876). 

Co.  V.  Eastman,  34  N.  H.  124  (1856),  the  «  Penobscot  &  K.  R.  R.  Co.  v.  Bartlett, 

charter   allowed    assessments   when    the  78  Mass.  244  (1858). 

170 


en.  X.]  MISCELLANEOUS  DEFENSES.  [§§  184,  185. 

specified  things,  in  order  to  render  the  incorporation  complete. 
These  defects  undoubtedly  render  the  corporate  charter  forfeita- 
ble at  the  instance  of  the'state.  Such  defects  in  the  process  of 
becoming  incorporated  have  also  been  the  subject  of  some  contro- 
versy as  a  defense  to  an  action  by  the  corporation  to  collect  sub- 
scriptions to  its  stock. 

§  184.  When  an  action  is  brought  to  collect  a  subscription, 
either  directly  or  indirectly  for  the  benefit  of  corporate  creditors, 
it  is  well  established  that  the  subscribers  cannot  defeat  such  ac- 
tion by  the  defense  that  the  corporation  was  not  an  incorporation 
by  reason  of  its  not  having  fully  complied  with  the  terms  of  the 
statute  providing  for  such  an  incorporation.^  Not  only  is  the 
subscriber  estopped,  by  the  act  of  subscribing,  from  setting  up 
this  defense,  but  he  is  bound  also  by  the  rule  that  the  existence  of 
a  corporation  cannot  be  inquired  into,  except  by  a  direct  proceed- 
ing in  behalf  of  the  State.  It  is  sufficient  that  the  corporation 
exists  de  facto.  If  there  is  no  authority  of  law  for  such  a  cor- 
poration, the  members  are  liable  as  partners. 

§  185.  As  between  tlie  corporation  itself  and  the  subscribers 
there  is  difficulty  and  doubt  in  determining  the  rule.  The 
great  weight  of  authority  lays  down  the  broad  rule  that  "  where 
there  is  a  corporation  de  facto,  with  no  want  of  legislative  power 
to  its  due  and  legal  existence  ;  where  it  is  proceeding  in  the  per- 
formance of  corporate  functions  and  the  public  are  dealing  with  it 
on  the  supposition  that  it  is  what  it  professes  to  be  ;  and  the 
questions  suggested  are  only  whether  there  h;is  been  exact 
regularity  and  strict  compliance  with  the  provisions  of  the  law 
relating  to  incorporations  ;  it  is  plainly  a  dictate  alike  of  justice 

Mlicklino-    v     Wilson,    104    111.    54  Voorliees  v.  Receiver  of  Bk.  <fcc.,  19  Ohio, 

(188'2);  Wli?elock   v.    Kost,    77    111.   296  463   (1850);  Ossipee  Co.    v.   Canney,  54 

(1875  ;    Upt..n    v.    liansbrough,  ?    Biss.  N.    li.    295(1874);    Thompson    v.    Reno 

317(1873),  the  court  saying:  "  I  under-  Sav.  Bk.,  7    Pac.    Rep.  68   (Nev.,  1885); 

Btand   the   rule   to   be   well    settled  that  says,    "The   certificate   is  made    forlhe 

wher<-  p.'ipers  having  color  of  conipliiince  benefit  of  the  public,  not  for  the  corpora- 

wilh  th<-    statutes,   have   been   filed  with  tioii  or  iis  stockholders.     Those  who  par- 

the  proper  State  officers  and  ni.'ct  their  ap-  ticipated    in    the    incorporation    of    this 

proval   but  are  in  fact  i-.o  defective  as  to  be  biink,  and,  by  a    certificate  made  in    pur- 

incapablc  of  supporting  the  corporation  as  sunnce    of   ti.e     statute,    announced    the 

against  the  State,  tliey   arc,  as  against  a  amount   of   its    capital    stock,    cannot    ns 

subscriber  to  its  capital,  held  sufficient  to  against  the  creditors  of  the   corporation, 

constitute  a  corporation  r/c  A'c<o,  if  sup-  contradict   their   own    certificate.       .  eo 

ported    by    pn^of     of   user."        Clark   i'.  also  Chapter  >^  ill. 
Thomas,  Rec.  (fee,  34    0.   St.  46  (1874); 

171 


§  185.] 


MISCELLANEOUS   DEFENSES. 


[CH. 


and  of  public  polic}^  tliat  in  controversy  between  the  de  facto 
corporation  and  those  who  have  entered  into  contract  relations 
with  it,  as  corporators  or  otherwise,  that  suchf  questions  should 
not  be  suflfered  to  bo  raised."  ^    This,  doubtless,  is  the  law  of  the 


1  Cooley,  J.,  in  Swartwoufc  v.  Mich. 
Air  Line  R.  R.  Co.,  24  Mich.  B89  (1872). 
The  leading  case  on  this  subject  is  Tar 
River  Nav.  Co.  v.  Neal,  3  Hawks  (N.  C), 
620  (1825),  where  the  court  says,  that 
"even  where  it  is  shown  that  such 
charter  has  been  granted  upon  a  con- 
dition precedent  and  persons  are  found  in 
the  quitt  possession  and  exercise  of  those 
corporate  rights,  as  against  all  but  the 
sovereign,  the  precedent  condition  shall 
be  taken  as  performed."  In  this  case  the 
subscriber  had  participated  in  corporate 
meetings.  Wilmington  C.  &  R.  R.  R.  Co. 
V.  Thompson,  7  Jones'  L.  (N.  C.)  387 
(1860);  Brookville  &  G.  T.  Co.  v.  McCarty, 
8  Ind.  392  (1856),  holding  also  that  the 
subscriber  cannot  set  up  that  the  corpora- 
tion had  forfeited  its  charter  for  misuser 
and  non-user.  Central  A.  <fe  M.  Ass.  v. 
Alabama  G.  L.  Ins.  Co.,70  Ala.  120  (1881), 
where  the  court  says:  that  "whoever 
contracts  with  a  corporation,  having  a  de 
facto  existence,  the  reputation  of  a  legal 
corporation,  in  the  actual  exercise  of  cor- 
porate powers,  and  franchises,  is  estopped 
from  denying  the  legality  of  the  existence 
of  the  corporation,  or  inquiring  into 
irregularities  attending  its  formiition,  to 
defeat  the  contract,  or  to  avoid  the 
liability  he  has  voluntarily  and  deliber- 
ately incurred."  It  also  holds  that  a  sub- 
sequent statute  curing  the  defect  is  con- 
stitutional and  effective.  Appleton  Mut. 
Fire  Ins.  Co.  v.  Jesser,  87  Mass.  446 
(1862),  the  court  saying  that  where 
"  persons  were  found  with  the  consent 
and  under  the  authority  of  the  designated 
corporators,  and  without  objection  on  the 
part  of  the  sovereign  DOwer,  actually 
exerci.sing  the  corporate  powers,  and 
claiming  and  using  the  franchise,  they 
constituted  a  corporation  de  facto  ;  and 
the  lawlessness  of  their  organization  can- 
not be  impeached  collaterally  in  an  action 
to  recover  an  assessment."  McCarthy  v. 
Lavasche,  89  111.  270  (1878),  holding  that 
the  defense  is  not  allowable,  even  though 
the  statute  creating  the  corporation  be 
unconstitutional.  See  St.  Louis  Ass.  v. 
Hennessey,  11  Mo.  App.  555;  Slocum  v. 
Prov.  S.  ifeG.  P.  Co.,  lOR.L  112(1871); 
McHose  V.  Wheeler,  45  Pa.  St.  32  (1863); 
Tarbell  v.  Page,  24  111.  48  (1860),  where 
no   certificate    was   filed;    Wallworth    v. 

172 


Brackett,  98  Mass.  98  (1867);  Hanover  J. 
&  S.  R.  R.  Co.  V.  Haldeman,  82  Pa.  St.  36 
(1876),  holding  that  non-user  rendering 
the  charter  forfeitable  is  no  defense. 
Rowland  v.  Meader  Furniture  Co.  38  0. 
St.  269  (1882),  holding  that  actud  judg- 
ment of  forfeiture  is  no  defense  ;  Meadow 
V.  Gray,  30  Me.,  547  (1849);  Danbury  & 
N.  R.  R.  Co.  V.  Wilson,  22  Conn.  435 
(1853),  where  the  subscriber  acted  as  a 
director ;  Central  P.  R.  Co.  v.  Clements, 
16  Mo.  359  (1852);  Maltby  v.  North- 
western Va.  R.  R.  Co.  16  Md.  422  (1860). 
where  the  subscriber  had  already  paid 
calls  ;  Crawford  R.  R.  Co.  v.  Lacey,  3  Y. 
A  J.  80  (1829),  where  incorporation  was 
obtained  by  a  false  representation  to  Par- 
liament ;  Rockville  &  W.  T.  Co.  v.  Van 
Ness,  2  Cranch  C.  C.  449  (1824),  where 
the  subscriber  had  taken  part  in  an  elec- 
tion; Monroe  v.  Fort  W.  J.  tfe  S.  R.  R. 
Co.,  28  Mich.  272  (1873),  where  only 
three  instead  of  five  signed  the  certificate. 
Rice  V.  RockL  &  A.  R.  R.  Co.,  21  111.  93 
(1859);  Hunt  v.  Kansas  &  M.  Bridge  Co., 
11  Kan.  412  (1873),  where  the  subscriber 
acted  as  director.  Ossipee  H.  &  W.  Mfg. 
Co.  V.  Canney,  54  N.  H.  295  (1874); 
Home  Stock  Ins.  Co.  ?■.  Sherwood,  72  Mo. 
460  (1880);  Gill  v.  Ky.  &  C.  G.  AS. 
Mm.  Co.,  7  Bush,  635  (1870);  Wood  v. 
Coosa  &  C.  R.  R.  Co.,  32  Ga.  273  (1861); 
Hager  v.  Bassett,  36  Md.  476  (1872); 
East  P.  Hotel  Co.  v.  West,  13  La.  Ann. 
545  (1858).  In  New  York  the  first  case 
is  Dutchess  Cotton  Manufactory  v.  Davis, 
14  Johns.  238  (1817);  Schenectady  &  S. 
P.  R.  Co.  V.  Thatcher,  1 1  N.  Y.,  102 
(1854);  Eaton  v.  Aspinwall,  19  N.  Y. 
119  (1859);  Methodist  E.  U.  Ch.  v. 
Pickett,  19  N.  Y.  482  (1859),  the  court 
saj'ing  it  is  sufficient  for  the  corporation 
to  be  de  fade.  "  Two  things  are  necessary 
to  be  shown  in  order  to  establish  the  ex- 
istence of  a  corporation  de  facto,  viz.  :  (1) 
The  existence  ot'  a  charter,  or  some  law 
under  which  a  corporation  with  the 
powers  assumed  might  lawfully  be 
created ;  and  (2)  a  user  by  the  party  to 
the  suit,  of  the  rights  claimed  to  be  con- 
ferred by  such  charter  or  law.  The  rule 
established  by  law  as  well  as  by  reason  is, 
that  parties  recognizing  the  existence  of 
corporations  by  dealing  with  th^m  have 
no  right  to  object  to  any  irregularity  in 


CH.  X.] 


MISCELLANEOUS  DEFENSES. 


[§186. 


land,  although  a  carefully,  considered  case  in  Missouri  allowed  a 
subscriber,  who  had  not  done  more  than  merely  subscribe  to  set 
up  this  defense  against  the  corporation,  no  creditor's  rights  being 
involved,  and  the  court  declared  that  all  the  cases  denying  the 
defense  were  cases  where  the  subscriber  had  acquiesced  "  either 
by  the  payment  of  part  of  the  subscription  or  by  becoming  a 
director,  or  by  attending  meetings  of  stockholders,  or  by  any  other 
act  indicating  an  acquiescence  in  the  validity  of  his  subscrip- 
tion." 1 

§  186.  There  is  another  class  of  cases  in  which  a  subscriber 
for  stock  is  allowed  to  make  the  defense  that  the  corporation  has 
not  been  regularly  and  legally  incorporated.  Where  the  sub- 
scriber made  his  contract  of  subscription  previous  to  and  in  antic- 
ipation of  the  incorporation,  and  does  not  act  subsequently, 
whereby  be  acquiesces  in  tlie  mode  of  incorporation,  he  may  set 
up  that  the  corporation  has  not  been  incorporated  and  that  he  is 
not  liable.  The  rule  that  a  person  contracting  with  a  corporation 
recognizes  thereby  its  capacity  to  contract  and  cannot  afterwards 
deny  it  in  that  transaction,  does  not  apply  to  one  who  subscribes 
before  incorporation.  He  may  insist  upon  the  organization  of  a 
regular  and  legal  corporation,^ 


their  organization."  Black  R.  &  U.  R.  R. 
Co.  V.  Clarke,  25  N.  Y.  2U8  (18J2); 
Leonardsville  Bk.  v.  Willard,  25  N.  Y. 
5'74  (1862);  Buflfalo  &  Allegany  R.  R. 
Co.  V.  Cary,  26  N.  Y.  15  (1852); 
Aspinwall  v.  Sacchi,  57  N.  Y.  331  (187-1). 
Not,  however,  where  at  the  time  of  signing 
the  articles,  the  names  of  the  directors, 
required  to  be  inserted,  were  not  inserted. 
Dutchess  &  C.  C.  R.  R.    Co.  v.   Mabbett. 

68  N.  Y.  397  (1874);  Cavuga  Lake  R.  H. 
Co.  V.  Kyle,  64  N.  Y  185  (1876); 
Phoenix  Warehousing  Co.  v.  Badger,  67 
N.  Y.  294  (1876)  ;  De  Witt  v.  Hastings, 

69  N.  Y.  518(1877),  admitting  the  defense 
on  the  ground  that  there  was  no  user  of 
a  corporate  Iranchise.  Huggles  v.  Brock, 
6  Ilun,  164  (1875);  Moad  v.  Keeler,  24 
Barb.  20  (1857)  ;  Abbotts.  Aspinwall,  26 
Barb.  202  (1857);  Child.s  v.  Smith,  55 
Barb.  45  ( 1869).  This  is  also  the  rule  in 
the  Federal  courts.  Webster  v.  Upton 
91  U.  S.,  65  (1875);  Chubb  v.  Upton,  95 
U.  S.  665  (1877).  Contra,  Thompson  v. 
Guion,   5  Jones'  Eq.  (N.  C.)  113  (1859). 


Cf.  Katama  Land  Co.  v.  Holly,  129  Mass. 
640  (1880).  The  lapse  of  the  charter,  by 
limitation  of  time  within  which  work 
must  be  commenced,  is  good  defense. 
McCully  V.  Pittsburgh  &  C.  R.  R.  Co.,  32 
Pa.  St.  25  (1858). 

'  Kansas  City  Hotel  Co.  v.  Hunt,  57 
Mo.  126  (1874). 

'^  Dorris  v.  Sweeney,  60  N.  Y.  463 
(1875);  Rikhoff  v.  Browne,  R.  S.  S. 
M.  Co.,  68  Tnd.,  388  (1879);  Indian- 
apolis    F.    &    Min.     Co.     V.   Herkimer, 

46  Iiid.    142  (1874);  Nelson   v.  Bhikey, 

47  Ind.  38  (1874)  ;  Mclntyre  ?;.  McLane 
D.  Ass.  40  Ind.  104  (1872);  Richmond 
Factory  Ass.  v.  Clarke,  61  Me.  351  (1873); 
Reed  V.  Richmond  Street  R.  R.  Co.,  50 
Ind.  342  (1875);  Taggart  v.  Western  Md. 
R.  R.  Co.,  24  Md.  563  (1866),  the  court 
saying  "  Tho  preponderance  of  autliorit.y 
in  favor  of  a  strict  compliance  with  the 
provisions  of  the  charter,  in  capes  of  sub- 
scriptions, prior  to  the  organizMtion  of  the 
company,  is  such  as  is  not  to  be  disregard- 
ed." 

173 


187.] 


MISCELLANEOUS  DEFENSES. 


[CH.  X. 


§  187.  Ultra  vires  acts  of  the  directors  or  the  corporations. — 

A  subscriber  for  stock  in  a  corporation  cannot  defeat  an  action  to 
collect  such  subscription  by  the  defense  that  the  directors  or  the 
corporation  itself  have  done  corporate  acts  which  are  beyond  the 
corporate  powers.^  There  are  other  remedies  open  to  the  sub- 
scriber. He  may  either  impair  such  ultra  vires  acts,  or  may 
have  them  set  aside  if  already  accomplished.^  This  defense  is 
clearly  distinguishable  from  the  common  defense  of  amend- 
ments to  the  charter,  by  the  fact  that  the  acts  here  complained  of 
have  no  sanction  from  the  legislative  authorities.^  Thus  it  has 
been  held  that  a  subscriber  cannot  defeat  an  action  to  collect  his 
subscription  by  showing  that  the  corporation  has.  without  author- 
ity of  law,  and  in  excess  of  its  powers,  executed  a  lease  or  sale  of 
the  road  ;  *  or  illegally  issued  its  bonds  ;  ^  or  purchased  shares  of  its 
own  stock,^  or  of  another  corporation  ;'  or  changed  the  location  or 
route  of  the  road.^  The  last  instance  especially,  has  been  a  fre- 
quent defense,  but  has  been  uniformly  discountenanced  by  the 
courts  whenever  the  change  is  made,  not  by  an  amendment  to  the 


'  First  Municipality  of  N.  O.  v.  Or- 
leans Theatre  Co.,  2  Rob.  (La.),  209 
(1842);  Hannibal  R.  C.  &  P.  P.  R.  Co. 
V.  Menifee,  25  Mo.  547  (1857);  Viclis- 
burg,  8.  <fe  T.  R.  R.  Co.  v.  McKean,  12 
La.  Ann.  638  (1857);  Smith  v.  Tal- 
lahassee, (fee,  Plank  Road  Co.,  30  Ala. 
660  (1857);  Prop,  of  City  Hotel  v. 
Dickinson,  72  Mass.  586  (1856);  Court- 
right  V.  Deeds,  37  Iowa,  503  (1873);  111. 
Grand  T.  R.  R.  Co.  v.  Cook,  29  111.  237 
(1862) ;  Hammett  v.  Little  Rock  &  N.  R. 
R.  Co.,  20  Ark.  204  (1859).  In  the  case, 
however,  of  Macedim  &  B.  P.  R.  Co.  v. 
Lapham,  18  Barb.  315  (1854),  an  ultra 
vires  extension  of  the  line  was  held  to  be 
a  good  defense. 

^  "  The  stockholder  has  his  remedy  by 
injunction  not  to  enjoin  the  collection 
of  calls  due  upon  his  stock,  but  to  restrain 
the  corporation  from  the  particular  vio- 
lation or  abuse  of  its  charter  complained 
of."  Mi-s.,  0.  &  Red  R.  R.  R.  Co.  v. 
Cross,  20  Ark.  443  (1859).  In  Ex  parte 
Booker,  18  Ark.  338  (1857),  an  ai.plica- 
tion  for  an  injunction  to  restrain  the  cor- 
poration from  enforcing  the  payment  of  a 
subscription,  on  the  ground  th;it  the  cor- 
poration had  committed  ultra  vires  acts, 
was  refused. 


174 


3  Caley  >•.  Phil.  &  C.  C.  R.  R.  Co.  80 
Pa.  St.  363(1876). 

*  Hays  V.  Ottawa,  0.  &  F.  R.  V.  R.  R. 
Co.,  61  ill.  422  (1871):  Ottawa,  O.  &  F. 
R.  V.  R.  R.  Co.  V.  Black,  79  111.  262 
(1875);  Chicago,  B.  <fe  Q.  R.  R.  Co.  v. 
McGinnis,  79  111.  269  (1875);  111.  Mid. 
Ry.  Co.  V.  Supervisors,  ifec,  85  111.  313 
(1877);  South  Ga.  <fe  Fla.  R.  R.  Co.  v. 
Ayres,  56  Ga.  230  (1876);  see  also  Tut- 
tle  V.  Mich.  Air-line  R.  R.  Co..  35 
Mich.  247  ;  Troy  <fe  Rutland  R.  R.  Co.  v. 
Kerr,  17  Barb.  581  (1854).  Or  the 
whole  of  a  business.  Plate  Glass  Ins. 
Co.  V.  Sunley,  8  El.  &  Bl.  47  (1857). 

^  Merrill  v.  Reaver,  50  Iowa,  404 
(1879). 

'^  Re  Republic  Ins.  Co.,  3  Biss.  452 
(187.i.) 

'  Cheltain  v.  Republic  Life  Ins.  Co., 
86  111.  220  (1877). 

>*  Central  P.  R.  Co.  v.  Clemens,  16 
Mo.  359  (1852);  Miss,  0.  &  Ked  R.  R. 
R.  Co.  V.  Cross,  20  Ark.  443  (1859); 
Rives  V.  Montgomery,  South  P.  R.  Co. 
30  Ala.  92  (1857).  Where,  however,  the 
terminus  was  made  2,000  feet  away  from 
the  location  designated  by  charter,  this 
fact  was  held  to  constitute  prima  facie  a 
good  defense.  Chartiers  R.  R.  Co.  v. 
Hodgens,  77  Pa.  St.  187. 


2 


CH.  X.]  MISCELLANEOUS   DEFENSES.  [§§  18S,  189. 

charter,  but  by  the   arbitrary,  unauthorized   act  of  the  coi-porate 
authorities. 

§  188.  Frauds  and  mismanagement  of  directors. — This  de- 
fense is  very  similar  to  the  preceding  one,  and  is  governed  by 
the  same  rules  of  law.  A  stockholder  cannot  defeat  an  action  to 
collect  his  subscription  by  the  defense  that  the  corporate  affairs 
have  been  managed  fraudulently,  or  recklessly,  or  negligently.^ 
The  stockholder's  remedy  for  such  evils  are  of  a  different  nature. 
Eor  fraud,  he  may  bring  the  guilty  parties  to  an  accounting ' 
For  mismanagement,  his  only  remedy  is  the  corporate  elections. 
In  no  case  has  he  been  allowed  to  escape  liability  on  his  subscrip- 
tion by  reason  thereof.  Thus  it  is  no  defense  that  the  corporate 
authorities  fraudulently  placed  an  overvaluation  on  property  pur- 
chased by  them  for  the  corporation  f  nor  tliat  they  have  made  a 
fraudulent  contract  with  a  construction  company.* 

§  189.  Delay  and  abandonment  of  tlie  enterprise. — As  a 
general  rule  it  is  no  defense  to  an  action  on  a  subscription,  to  al- 
lege that  the  enterprise  has  been  unduly  delayed.^  This  defense 
is  frequently  that  there  has  been  a  non-user  of  the  corporate  fran- 
chises.^ It  is,  however,  a  well  established  principle  that  non-user 
of  corporate  franchises  can  be  complained  of  only  by  the  State, 
or  in  the  name  of  the  State.  A  subscriber  has  been  held  not  to 
be  discharged  by  the  fact  that  the  corporation  was  engaged  thir- 
teen years  in  completing  its  enterprise,  a  turnpike.'^     Nor  does  a 

'  People  V.  Barnett,  91  111.  422  (1879) ;  R.  Co.,  40  Pa.  3t.  237  (1861),  where  there 

Clieltain  v.  Republic  Life  Ins,  Co.,  86  111.  was  a   delay  of  two  and  one  half  years, 

220  (1877);  Merrill  v.   Reaver,  50  Iowa,  the  court  saying,  '■  Until  it  can  be  shown 

404  (1879).     Depreciation    of  the  stock  how    railroads     can    be    built    without 

by  reason  of  mismanagement,  no  defense,  money,  no  such  defense  as  is  here  set  up 

People  V.  Barnett,  91  111.  422  (1879).  can  prevail."     First  Nat'l  Bk.  v.  Hurford, 

'•'See  Part  IV.     In  the  case  Hodgkin-  29  Iowa,  579  (1870),  where  there  was  a 

8on  V.  Nat'l  Live  Stock  Ins.  Co.,  26  Beav.  delay  in  the  performance  of  a  condition 

473  (1859),  equity  restrained  the  enforce-  subsequent  to  the  .subscription.     See  also 

ment  of  calls  already  made,  by  reason  of  Union  Hotel  Co.  v.  Ilursee,  79  N.  Y.  464 

the  fraud  of  the  directors,  but  it  was  con-  (1880);  rev'g  15  Hun,  371.    Boyle's  Case, 

ceded  in  this  case  that  the  subscriber  waa  54  L.  J.  (Cii.)  550  (188r)),  holds  that  after 

still  liable  on  his  subscription.  a  winding  up  has  commenced    there  can 

='  Hornaday  v.  Ind.   &  HI.  Central  R.  be  no  withdrawal,  but  the  court  in  a  dic- 

R.  Co.,     9    Ind.    263  (1857);    Dorris   v.  turn  clearly    says  that    an  unreasonable 

French,  4  Hun,  292  (1875),  where  a  pat-  delay  in  organizing  will  authorize  a  with- 

eiit  right  was  purchased  by  the  directors,  drawal  by  the  subscriber, 

from    themselves  for  the  corporation,  at  *  Ouachita    &    Red  R.    R.   R.    Co.  v. 

an  exorbitant  i)ricc.  Cross,  20  Ark.    443    (1855);   Hainmett  «. 

*  I'eople  V.  Logan  County,  63  111.  374,  Little  Rock  &  N.  R   R.  Co.  20  Ark.,  204 

387  (1872).  (1869). 

'"  I'ifkering  v.  Templeton,  2  Mo.  App.  '  Gibson  v.    Columbia  <k  N.  K.,  1.  <fe 

424  (1876);  Miller  v.  Pittsburgh  <k  C.  R.  B.  Co.  18  O.  St.  396  (1868). 

175 


§§  190,  191.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

tGmporary  abandonment  of  the  work  release  the  subscriber.''  But 
when  the  corporate  work  was  not  commenced  for  nine  years, 
and,  in  tlie  meantime,  the  subscriber  had  acted  on  the  supposition 
of  an  abandonment  and  had  sold  property  which  the  road  was 
expected  to  benefit,  he  was  held  not  liable  on  the  subscription.^ 
But  an  abandonment  of  part  of  the  enterprise  is  no  defense.^ 

A  subscriber  cannot  defeat  tbe  subscription  by  the  fact  that 
the  corporation  has  not  completed,  and  has  no  intention  of  com- 
pleting, the  road  in  its  entirety;*  nor  by  the  fact  that  the  road 
has  been  sold  under  foreclosure.^  In  Pennsylvania,  a  failure  on 
the  part  of  the  corporation  to  make  a  call  for  the  subscription 
within  six  years,  the  statutory  time  of  limitations  on  the  collec- 
tion of  parol  debts,  is  held  to  constitute  an  abandonment  of  the 
subscription  and  to  be  a  good  defense.^  If  the  corporation  is 
insolvent,  and  the  subscription  is  needed  to  pay  corporate  creditT 
ors,  abandonment  cannot  be  set  up.'' 

§  190.  Failure  of  the  corporate  enterprise. — The  entire  fail- 
ure of  the  enterprise,  and  the  insolvency  of  the  corporation  is 
not  a  defense  to  an  action  on  calls.^  This  defense  would  seem  on 
the  face  of  it  to  be  frivolous,  and  yet  is  occasionally  set  up. 
Under  the  American  doctrine,  a  subscription  is  enforceable  most 
of  all,  when  it  is  needed  to  pay  corporate  creditors.  This  de- 
fense is  closely  allied  to  those  that  precede,  and  differs  in  little 
from  the  defense  of  abandonment  of  the  enterprise. 

§  191.  Subscriptions  of  other  subscrihers  released,  or  can- 
celled, or  given  on  special  iemis.— It  is  no  defense  for  one  sub- 
scriber, when  sued  upon  his  subscription,  to  allege  that  the  sub- 


*  McMuUen  v.  Maysville  &  Lex.  R.  R.  abandoned."     In  tins  case  an  actual  aban- 
Co.  15  B,  Monr.  (Ky.)  218  (1854).  donment  and  retm-n  of  subscription  money 

^  Fountain  Ferry  T.  R.  Co.  v.  Jewell,  to  other  subscribers  was  held  to  release 

8B.  Monr.  (Ky.)  147  (1848).  all  the  subscribers.  « 

^  Dorman   v.    Jacksonville   <fe    A.    P.  '  I'hoei.ix  Warehousing  Co.  v.  Badger, 

R.  Co.,  1  Fla.  265  (1857).  67  N.  Y.  294  (1876);  Smith  v.  Gower,  2 

*  BufFalo  &  J.  R.  R.  Co.  ».  Gifford,  87  Duv.  (Ky.)   17  (1865);  Hardy  v.  Merri- 
N.  y.  294  (1882);  affi'g  22  Hun,  359.  weather,  14  Ind.  203,  and  see  the  foUow- 

*  Id.  ing  defense. 

«  Pittsburgh  &  C.  R.  M.  Co.  v.  Byers,  '  Bish  v.  Bradford,  17  Ind.  490  (1861); 

32  Pa.  St   22  (1858).     The  same  rule  is  Morgan  County  v.   Thomas,  76  111.   120, 

stated  less  broadly  in  McCully  v.  Pitts-  141  (1875);  Four  Mile  V.   R.  R.  Co.  v. 

burgh,  (fee.  J.   R.  R.  Co.,  32  Pa.    St.    25  Bailey,   18  0.   St.    208   (1868).      Assess- 

(1858),  where  the  court  says,  "if  the  de-  meuts  are  collectible  though  the  work  is 

lay  was  not  satisfactorily  aicounted  for,  not  completed.      Red   W.  Hotel  Co.    v. 

subscribers  would  be  at  liberty  after  that  Friedrich,    26   Minn.    112    (1879).      See 

lapse  of  time  to  consider  the  enterprise  §  189,  n.  5,  supra. 

176 


CH.  X.] 


MISCELLANEOUS   DEFENSES. 


[§  192. 


scriptions  of  other  subscribers  have  been  cancelled,  or  that  secret 
and  more  favorable  terms  were  given  to  them  than  to  him.  If 
there  has  been  a  legal  cancellation  of  other  subscriptions  the  de- 
fendant cannot  complain.^  If  he  has  the  same  right  to  a  cancella- 
tion, he  may  obtain  it  by  a  suit  for  that  purppse.^  A  secret 
agreement  of  the  corporation  with  certain  subscribers  to  stock, 
whereby  they  are  to  be  released  from  payment,  or  to  have  some 
other  advantage  not  common  to  all  the  subscribers,  is  no  defense 
to  a  subscriber  who  was  not  promised  the  same  advantages.^  All 
such  secret  agreements  are  void,  and  the  subscribers  receiving 
them  are  liable  on  their  subscriptions  absolutely  as  though  no 
special  advantages  had  been  promised.  Being  so,  a  subscriber, 
though  he  did  not  participate  therein,  cannot  complain.  The  fact 
that  the  corporation  has  forfeited  the  stock  of  other  subscribers, 
and  has  compromised  with  still  others,  is  no  defense  to  a  sub- 
scriber sued  for  calls.^  So  also  the  failure  of  another  subscriber 
to  pay  the  percentage  required  by  statute  is  not  a  defense.^ 

§  192.  Failure  of  the  corporation  to  tender  a  certificate. — 

It  is  no  defense  to  an  action  on  a  subscription  to  allege  that  the 
corporation  has  not  delivered  nor  tendered  to  the  defendant  the 
certificate  of  stock  to  which  he  is  entitled.^     The  certificate  is 


•  Rensselaer  &  W.  P.  R.  Co.  v.  Wet- 
sel,  21  Barb.  56  (1855).  If,  however,  the 
cancellation  is  on  account  of  aa  abandon- 
ment of  the  enterprise,  any  other  sub- 
scriber, when  sued  subsequently  on  his 
subscription,  may  set  up  such  abandDii- 
mentand  cancellation,  and  tliereby  defeat 
the  action.  McCullv  v.  Pittsburgh  &  C. 
R.  R.  Co.,  32  Pa   St.' 25  (1858). 

'^  County  of  Crawford  v.  Pittsburgh 
<fe  Erie  H.  R.  Co.,  32  Pa.  St.  141  (l858). 

•'  Anderson  ?;.  Newcastle  <fe  R.  R.  R. 
Co.,  12  Ind.  .'i76(1859);  Jewett  «.  Valley 
Ry.  Co.,  34  0.  St.  GOl  ;  Agri.  C.  Ins.  Co. 
V.  Fitzgerald,  15  Jur.  489  (185'));  Mem- 
phis Pranoh  \i.  R.  Co.  v.  Sullivan,  57  Ga. 
240  (187'1);  Hall  «.  Selma  R.  R.  Co.,  6 
Mil.  74;  Conn.,  &(:.,  R.  R.  Co,  v.  Bailey, 
24  Vt.  465  ;  Jewell  v.  Rock  R.  P.  Co.,  101 
111.  57  (1  881).  In  the  Ciise  Cleveland  Iron 
Co.  V.  Ennor,  4  Northeast  Rep.  7t)2  (111. 
188*)),  the  court  snid  :  "  Such  secret  agree- 
ment was  frandulenl  as  to  the  other  sub- 
scribers, :ind  was  vnid  and  oF  no  avail, 
and  the  suijscripiion  is  to  be  regarded  a 
valid  one  tor  the  amount  subscribed." 
See  also  Thompson  v.  Reno  Sav.  Bk.,  7 
Pac.   Rep.  08   (Nev.,    1885).      The   sub- 


scriber has  the  burden  of  proof  that 
other  subscriptions  are  colorable  and  fic- 
titious. Hayden  v.  Atlanta  Cotton  Fac- 
tory, 61  Ga.  233  (1878).  The  case  of 
Rutz  V.  Ester  &  R.  Mfg.  Co.,  3  Bradw. 
(111)83  (1878),  is  contrary  to  the  general 
rule.  The  case  of  New  York  Exchange 
Co.  V.  De  Wolf,  31  N.  Y.  270  (1865),  re- 
versing 5  Bosw.  593,  holds  that  a  sub- 
scriber may  defeat  an  action  on  his  sub- 
scription by  showinfj  that  other  subs(;rip- 
tions  were  unauthorized,  and  not  enforce- 
able. See  also  Beriy  &  Yates,  24  Barb. 
199;  Nickerson  i;.  English,  6  E;ist.  Uep. 
651  (Mass.,  1886). 

■'  Dorinan  v.  Jacksonville  &■  A.  P.  R. 
Co.,  7  Fla.  26,-)  (1857). 

'  Swartwont  v.  Mich.  Air  Line  R.  R. 
Co.,  24  Mich.  389  (1872). 

«  Burr  V.  Wilcox,  22  N.  Y.  651  (1860), 
affi'g  6  Bos.  198;  Chandler  v.  Northern 
Cros.-'  R.  II.  Co.,  18  111.  190  (1856);  Mdler 
V.  Wild  Cat  G.  R.  Co.,  52  hid.  51  (1875); 
New  Albiny  <fe  S.  R.  R.  Co.  v.  McCor- 
tni'k,  10  Ind.  499  (1858);  lleastoii  v. 
Cincinnati  &  Ft.  W.  R.  R.  Co.,  16  Ind. 
275  (18()1);  Kennebec,  &a.,  R.  R.  Co.  v. 
Jarvia,  34  Me.  300;  (Jhaliin  v.  Cuininings, 


[12] 


177 


§193.] 


MISCELLANEOUS   DEFENSES. 


[CH.  X. 


merely  the  stockholder's  evidence  of  title  to  his  stock.  It  is  not 
the  stock  itself,  but  only  a  convenient  representation  of  it.  He 
would  be  a  full  stockholder  with  all  the  rights  of  one,  if  the 
certiiicate  were  never  issued  at  all.^  Consequently,  since  it  is  for 
him  to  demand  the  certificate  when  he  wishes  it,  and  not  for  the 
corporation  to  tender  it,  it  is  no  defense  for  him  to  allege  that  he 
has  never  received  the  paper  representative  of  his  stock.  The 
corporation  must,  however,  be  in  a  position  to  issue  such  certif- 
icate.^ If  certificates  for  the  whole  capital  stock  have  already 
been  issued,  the  defendant  subscriber,  by  this  fact,  may  defeat  the 
action  on  his  subscription.^  It  has  also  been  held  that  the  plaint- 
iff corporation  must  aver  a  readiness  and  willingness  to  deliver 
the  certificate  of  stock.* 

§  193.  Set-off  and  counterclaim, — It  seems  to  be  well  estab- 
lished that,  when  a  corporation  has  become  insolvent,  and  the 
subscriptions  for  stock  are  being  enforced  for  the  benefit  of  cor- 
porate creditors,  a  subscriber  cannot,  in  the  suit  brought  to  collect 
his  subscription,  set  up  a  counterclaim  or  set-off.^     This  rule  is 


3*7  Me.  76  (1853).     The  subscriber  may 
stipulate  otherwise  in    his  subscription. 
Summers  11.  Sleatli,  45   Ind.    5S8  (18'74); 
Schaeffer  v.  Mo.   Home  Ins.  Co.,  46  Mo. 
248  (1870);  South  Ga.  &  Fla.  R.  K.  Co. 
V.  Ayers,  5r.  Ga.  234  (1876);  Vawter  v. 
Ohio  &  Miss.  R.  R.    Co.,   14  Ind.   174 
(1860);  Spear  v.  Crawford,  14  Wend.  20 
(183o);  Chester  Glass  Co.  tJ.  I'ewey,    16 
Mass.  94  (1819);  Fulgam  v.  Macon  &  B. 
R.  R.  Co.,  44  Ga.  597  (1872);  Minnesota 
Harvester  Works  v.  Libby,  24  Minn.  327 
(1877);  Blylh's  Case,  L.  R.,  4  Ch.  Div. 
140  (1876);  Agricultural  Bk.  v.  Burr,  24 
Me.  256  (1844);  Hawley  v.  Upton,  102 
U.  S.  314  (1880);  Wheeler  v.  Millar,  90 
N.  Y.  353  (1882),  affi'g  24  Hun,  541.     The 
case  of  Clark  v.  Ct.niinental  Imp.  Co.,  57 
Ind.  135  (1877),  holds  that  where  the  ac- 
tion is  for  the  whole  subscription  or  the 
last  instalments,   a  tender  of  the  certif- 
icate, on  condition  of  payment,  is  neces- 
sary.    St.  Paul,  ikc,  R.  Ic.  Co.  v.  Robbins, 
23  Minn.  440  (1877),  holds  that  a  tender 
is  necessary  where  the  issue  is  of  pre- 
ferred   stock,    after   the   whole    original 
capital  stock  has  been  issued. 

'  Fulgnm  V.  Macon   &  Brunswick  R. 
R.  Co.,  44  Ga.  597  (1872). 

'  McCord  V.  Ohio  &  Miss.  R.  R.  Co.,  13 
Ind.  220  (1859). 

178 


3  Burrows  v.   Smith,    10   N.    Y.    550 
(1853). 

*  James  v.  Cincinnati,  H.  &  D.  R.  R. 
Co.,  2  Disney,  261  (1858). 

*  Sawyer  v.  Hoag,  17  Wall.  610  (1873); 
Government  S.  Ins.  Co.  v.  Dempsey,  50 
L.  J.  (Q.  B.)  199  (1881).  The  leading 
case  in  England  on  this  subject  is  Gris- 
sell's  Case.  L.  R.,  1  Ch.  528(1866),  where 
the  couit  says,  "  if  a  set-off  were  attained 
against  a  call,  it  would  have  the  eflfect  of 
withdrawing  altogether  from  the  credit- 
or's part  of  the  tunds,  applicable  to  the 
payment  of  debts."  See  also  Black's 
Ca-e,  L.  R.,  8  Ch.  254  (1872);  Mudford's 
Case,  L.  R.,  14  Ch.  D.  634  (1880),  spoken 
of  in  Government  S.  I.  Co.  v.  Dempsey, 
supra,  as  holding  that  no  counterclaim  is 
to  be  allowed.  Gill's  Case,  L.  R.,  12  Ch. 
Div.  755  (1879) :  Calisher's  Case.L.  R.,  5 
Eq.  214  (1868);  Barnett's  Ca-e,  L.  R.  19 
Kq.  449  (1875);  He  VVhitehouse  &  Co., 
L.  R.,  9  Ch.  Div.  595  (1878),  disapprov- 
ing Bri2,hton  Arcade  Co.  v.  Dowling,  L. 
R.,  3  C. 'P.  175.  See  also  Matthews  v. 
Albert,  24  Md.  527  (1866);  Garnett  &  M. 
G.  Min.  Co.  V.  button,  3  B.  <fe  S.  321. 
allowing  set-off  was  based  on  a  statute 
repealed  by  Compaijies  Act,  1862.  See 
Hillier  v.  Allegheny  Mutual  Ins.  Co.,  3 
Pa.  St.  470  (1846);  Long  v.  Penn.  Ins. 
Co.,  6  Pa.  St.  421  (1847).      Cf.  Scammon 


CH.  X.] 


MISCELLANEOUS   DEFENSES. 


[§  19*. 


founded  in  equity  and  wise  public  policy.  The  stockholder  is  not 
deprived  of  his  remedy  for  the  debt  due  him  from  the  corpora- 
tion, but  he  is  obliged  to  proceed  in  the  same  manner,  and  to 
participate  in  the  final  corporate  assets  and  to  the  same  extent, 
and  at  the  same  time,  as  other  creditors.^  Such  is  clearly  the  rule 
in  New  York.^  Where,  however,  payment  of  a  subscription  is 
demanded  or  enforced  for  the  benefit  of  the  corporation  itself, 
and  not  for  corporate  creditors,  it  is  competent  for  the  subscriber 
to  set  up,  in  defense  to  the  action,  a  set-off  or  counterclaim.^ 

§  194.  There  has  been  some  question  where  a  subscriber  has 
voluntarily,  and  without  the  coujpulsion,  request,  or  medium  of 
the  corporation,  paid  corporate  creditors,  whether  he  may  claim 
that  to  the  extent  of  such  payments  he  has  discharged  his  liability 
on  his  stock.  It  seems  to  be  generally  conceded  that  sucli  an 
equitable  set-off  is  allowed,  both  at  law  and  in  equity.*     Such  a 


V.  Kimball,  92  U.  S.  362  (1875).  In  Sco- 
vill  V.  Thayer,  105  U.  S.  143,  152  (1881), 
the  court  says :  "  It  is  a  general  rule  that 
a  holder  of  claims  against  an  insolvent 
corporation,  cannot  set  them  off  against 
his  liability  for  an  assessment  on  his 
stock  in  the  corporation,  in  a  suit  by  an 
assignee  in  bankruptcy."  To  same  ef- 
fect" Thebus  V.  Smiley,  110  III.  316 
(1884);  Williams  v.  Traphagen,  38  N.  J. 
Eq.  57(1884). 

'  Grissell's  Case,  supra.  Cf.  Lang  v. 
Penn.  Ins.  Co.,  supm. 

'  Be  Empire  City  Bank,  18  N.  Y.  199, 
227  (1858),  the  court  sayinir,  "  ttiere  is 
no  reason  why  a  creditor  should  be  in  any 
belter  situation  on  account  of  being  at 
the  siime  time  a  stockholder.  .  .  Asa 
creditor  he  is  entitled  only  to  a  dividend 
in  proportion  to  the  other  cieditors.  In 
case  of  a  deficiency  in  means  to  pay  all 
the  dubt's,  he  must'tuke  his  dividend  pro 
rata.  But  if  he  could  set-off  his  claim  as 
a  creditor  airainst  his  liability  as  a  stock- 
holder, he  might  be  pj-.id  in  full,  while 
the  other  creditors  would  receive  only 
part  of  the  amount  due  them."  See  also 
Osgood  II.  Og<ien,  4  Keyes,  70  (1808); 
Lawrence  v.  Nelson,  21  N.  Y.  157  (18i3(i). 
Contra,  Tallmiidge  v.  Fishkill  Iron  Co.,  4 
Barb.  382  (1848).  In  the  case  Wheeler 
V.  Millar,  90  N.  Y.  353  (1882),  the  stock- 
holder's subscription  and  statutory  lia- 
bility combined  were  sufficient  to  pay 
his  own  and  the  other  debts  involved  in 
the  case. 


3  Barnett's  Case,  L.  R.,  19  Eq.  449' 
(1875).  The  set-off  may  be  allowed  by 
mutual  agreement,  and  if  free  from  fraud, 
it  cannot  be  impeached  upon  the  subse- 
quent insolvency  of  the  corporation. 
Goodwin  v.  McGehee,  15  Ala.  (N.  S.)  232 
(1849).  In  McLaren  v.  Pennington,  1 
Paige  Ch.  102  (1828),  it  was  held,  that 
upon  the  repeal  of  a  chaiter,  the  sub- 
scriber sued  on  his  subscription  might 
set-ofF every  demand  which  he  had  against 
the  corporation  at  the  time  of  the  repeal, 
but  not  demands  which  he  afterwards 
purchased.  See  also  Paine  v.  Central  Vt. 
R.  R.  Co.,  118  U.  S.  152   (1886). 

*  In  New  York  particularly,  this  rule 
has  bean  applied  and  upheld.  See  lirisgs 
V  Penniman,  8  Cowen,  387(1826);  Gar- 
rison W.Howe.  17  N.  Y.  458  (1858),  the 
court  saying :  "  A  stockholder  may  be 
absolutely  discharged  from  all  liability 
under  this  statute  by  payment,  on  legal 
compulsion,  to  any  creditor  or  creditors 
for  whose  debts  he  is  liable,  if  such  pay- 
ment equals  the  amount  of  his  stock. 

.  Probably  the  same  effect  would  re- 
sult from  a  voluntary  pnymenl."  Agate 
V.  Sands,  73  N.  Y.  620  (1878).  See'also 
Sackett's  Harbor  R.  R.  Co.  v.  Blake,  8 
Kich.  Eq.  225(1851);  Grose  v.  Hilt,  36 
Me.  22  (1863);  Whitman  v.  Porter,  107 
Mass.  522  ( 1871),  a  joint-stock  company 
case.  Poole's  Case;  L.  11.  9  Ch.  Div.  322. 
Cf.  Eastman  v.  Crosby,  90  Mass.  206 
(1864). 

1Y9 


§  195.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

set-off  differs  from  the  ordinary  set-off,  in  that  no  advantage  was 
expected  or  received  by  the  stockholder  so  paying,  but  his  loss  or 
payments  on  his  stock  are  as  great  as  though  he  had  paid  directly 
to  the  corporation  itself.  Such  payments  are  frequently  made  in 
discharge  of  a  liability  imposed  by  statute  on  stockholders  in 
addition  to  the  subscription  liability.^ 

§  195.  Statute  of  limitations. — After  a  call  has  been  made, 
and  the  subscription  or  a  part  of  the  subscription  is  thereby  ren- 
dered due  and  payable,  the  Statute  of  Limitations  begins  to  run. 
Difficulty,  however,  arises  in  determining  whether  the  Statute 
begins  to  run  before  the  call  is  made.  In  Pennsylvania  there  is 
an  inclination  to  hold  that  the  call  must  be  made  before  six  years 
have  elapsed  after  the  call  is  possible ;  otherwise  the  right  to  col- 
lection is  barred,^  But  the  better  rule,  and  the  one  supported  by 
the  weight  of  authority,  is  that  the  Statute  of  Limitations  begins 
to  run  on  a  subscription  for  stock  only  after  a  call  has  been  made 
and  is  due.^  Where  the  statute  is  a  bar  against  the  corporation, 
it  is  a  bar  against  corporate  creditors.^  Courts  of  equity  will 
generally  apply  the  same  period  of  limitation,  unless  there  be 
special   and    equitable  reasons  for  doing  otherwise.^     Where  a 

»  See  preceding  rote.  Eq.  (S.  C.)  227  (1854).     The  statute  ap- 

-  McCuU}'  V.   Pittsbiirffh  &  C.   R.  R.  plicable  to  written  contracts  applies,  al- 

Co.,  32  Pa.  St.  25;  Pittsburgh  &  C.  R.  R.  thougli  the  subscription  is  partly  in  writ- 

Cc'v.  Byers,  32   Id.  22;  Id.  v.  Graham,  ing.     Falmouth,  Ac,  Co.  v.   Shawhan,  5 

36  Id.  77  (1859).     Cf.  Id.  v.  Plummer,  37  Nortli  East.  Rep.  408  (lud.,  1886). 

Id.  413  (1860).  *  Bk.  of  U.  S.  v.  Dallam,  4  Dana  (Ky.), 

3  Taggart  V.  Western  Md.   R.  R.  Co.,  574  (1836).     In  the    cases,   however,   of 

24  Md.  563  (1866);  Western  R.  K.  Co.  v.  Payne  v.  Ballard,  23  Miss.  88  (1851),  and 

Avery,   64  N.   C.  489  (1870);  Glenn  v.  Hiuhtower  w.  Thornton,  8  Ga.  486  (1850), 

Williams,  60  Md.  93  (]88>.i);  Baltimore,  it  was  held  that  the  Statute  of  Limita- 

<fec..  Turnpike  Co.  v.  Barnes,  6  H.  &  J.  tions  had  no  application  by  anah)gy  to 

(Md.)    57  (1823);     Salisbury  v.    Black's  the  equitable  actions  to  collect  subscrip- 

Admr.,  Id.  293;  Curry  v.  Woodward,  53  tiou.s.     In  Terry  v.  Bk.  of  Cape  Fear,  20 

Ala.  376  (1875),  where  the  court  says:  Fed.  Rep.  777  (1884),  the  court  said  in  a 

"  We  presume  no  one  of  the  stockholders  similar   case:    "In   adjusting   equitable 

imagined  that  if  the  business  was  pros-  rights,  courts  of  equity  will  never  allow 

perous,  so  that  for  six,  eight,  or  ten  years  the  Statute  of  Limitations  to  have  a  mani- 

instead  of  having  to  pay "l his   money  in,  festly  inequitable  and  unjust  operation." 

they  were  receiving  dividends   from  the  In   Scuvill   v.  Thayer,  105  \J.  S.  143,  155 

income,  and  if  afterwards,  in  consequence  (1881),  a  case  in  equity,  the  court  say: 

of  losses,     ...     it  became  necessary  "  Before  there  is  any  obligation  upon  the 

to  pay     .     .     .     he  could  set  up  the  Stat-  stockholder    to    pay   without    an    assess- 

ute  of  Limitations  in  opposition  to  a  call  ment  and  call  by  the  company,  there  must 

to  pay  in  his  stock."  be  some  order  of  a  court  of  competent 

■*  Stelphen  W.Ware,  45  Cal.  110(187-2);  jurisdiction,  or,  at  the  very  least,  seme 

Davidson  «.  Rankin,  34  Cal.  503  (1868),  autiiorized  demand  upon  him  for  payment. 

in  probate  matters.     Thompson  v  Reno  And  it  is  clear  the  Statute  of  Limitations 

Sav.  Bk,  7  Pac.  Rep.  871  (Nov.,  1885);  does  not  begin  to  run  in  his  favor  until 

South  Car.  Mfg. Co.  ».  Bk.  of  S.  ('.,  6  Rich,  such  order  or  demand,"  citing  cases. 

ISO 


CH.  X.]  MISCELLANEOUS   DEFENSES.  [§§  196,  197. 

subscriber  defeats  even  a  part  of  the  action  on  his  subscription, 
by  setting  up  the  Statute  of  Limitations,  lie  cannot  claim  the 
stock,  at  least  unless  he  pays  the  part  which  was  barred  by  the 
statute.^ 

§  196.  Ignorance  or  mistake. — It  is  no  defense  to  an  action 
for  a  subscription  that  the  subscriber  at  the  time  of  subscribing 
was  ignorant  of  the  actual  condition  of  the  corporation.^  Nor  is 
it  a  defense  that  he  was  ignorant  of  the  legal  effect  of  the  sub- 
scription contract  which  he  signs.^ 

§  197.  Miscellaneous  defenses. — A  subscriber  cannot  defeat 
an  action  for  the  collection  of  his  subscription  by  alleging  that 
the  charter  was  obtained  in  bad  faith ;  ■*  or  that  where  a  corporate 
creditor  is  enforcing  payment,  that  such  creditor  is  also  a  director 
of  the  corporation  ;  ^  or  that  other  subscribers  have  paid  their  sub- 
scriptions in  Confederate  money  ;^  or  that  he  has  paid  the  sub- 
scription by  note  instead  of  by  cash,  as  required  by  the  charter  ;'' 
or  that  an  illegal  by-law  prevents  his  voting  until  calls  are  paid  ;* 
or  that,  by  the  charter,  the  whole  capital  stock  should  have  been 
paid  in  before  the  commencement  of  business,  which  was  not 
done;®  or  that  the  corporation  fias  been  ousted  from  its  fran- 
chises.^'' A  material  alteration,  however,  in  a  subscription  con- 
tract is  a  good  defense,  unless  the  corporation  proves  it  to  have 
been  made  without  its  knowledge  or  procurement.^^  The  defense 
that  the  corporate  charter  has  been  amended  by  the  legislature 
without  the  consent  of  the  defendant  subscriber,  is  considered 
elsewhere.-^^ 


'  Johnson  v.  Albany  &  Susquehanna  *  Chouteau  Ins.  Co.  v.  Floyd,  74  Mo. 

R.  R.  Co.,  54  N.  Y.  410,  426  (1873),  where  286. 

the  court  says :  "The  claim  ot  the  plaintiff  ^  Macon  &  Augusta  R.  R.  Co.  v.  Vason, 

is   not  supported  by  any  principle  that  67  Ga.  314  (1876). 

should  give  it  any  consideraticju  in  either  '  Litt'e  v.  O'Brien,  9  Mass.  423(1812). 

a  court  of  law  or  equity.     Tlie  Statute  of  '^  Chandler   v.   Northern   Cross  R.  R. 

Limitations  never  paid  a  debt,  although  Co.,  18  III.  190  (186*'.). 

it  barred  a  remedy."  9  McDermott  v.  Dongan,   44   Mo.    85 

'■*   Payson   v.    Withers,    5    Biss.    269  (1869). 

(1873).  '0  Gafify.  Flesher,  33  0.  St.  107;  Row- 

'■'  New  Albany  <fe  S.  R.  R.  Co.  t».  Fields,  land  v.  Meader  Furniture  Co.,  38  0.  St. 

10  Irid.  187  (1858);  Clear  v.  Newcastle  A  269  (1882). 

I).  R.  R.  Co.,  9  Ind.  488  (1857).     See  also  "  Bery  v.  Marietta,  drc,  R.  R.  Co.,  26 

cases  in  Ch.  IX,  §  146.  0.  St.  673  (1875).      C/".  Ellison  v.  Mobile 

"  Peychand  v.  Love,  24  La.  Ann.  404  &  0.  R.  R.  Co.,  36  Miss.  572  (1858). 

(1872);  Garrett  w.  Dillsburg  tfe  M.  R.  R.  '^  |^ee    Chapter    on    Amendments    of 

Co.,  78  Pa.  St.  405  (1875);  Sruilh  v.  liein-  Charter, 
decker,  39  Mo.  157  (1866). 

181 


§  198.]  MISCELLANEOUS   DEFENSES.  [CH.  X. 

§  198.  Waiver  of  defenses. — A  subscriber  to  stock  in  a  cor- 
poration may  waive  any  defense  he  may  have  to  the  subscription. 
The  waiver  may  be  express,  or  it  may  arise  by  implication  from 
the  acts  and  declarations  of  the  subscriber.  Thus  a  payment  of 
a  call,  with  full  knowledge  of  the  defense,  is  held  to  be  a  waiver;^ 
and  any  act  indicating  a  clear  intent  to  abide  by,  or  accept,  or 
pass  over  an  objection  which  the  subscriber  might  make,  will 
be  held  to  be  a  waiver.^ 


'  Miss.  &  Tenn.  R.  R.  Co.  v.  Harris,  -  See  May  v.  Memphia  Branch  R.  R. 

36  Miss.  17  (1858) ;  Inter,  Mountain  I'.  Co.  Co.,  48  Ga.  109  (1873);  Middlesex  Turn- 

V.  Jack,  6  Pac.  Rep.  20  (Montnna,  1885);  pike  Co.  v.  Seman,  10  Mass.  385  fl8l3); 

Hamilton  v.  Grangers'  Life  &  H.  Ins.  Co.,  McCully  v.  Pittsburgh  <fe  C.  R.  R.  Co.,  32 

67  Ga.  145  (1881).  Pa.  St.  25  (1858). 


182 


CHAPTER    XL 

THE    STOCKHOLDERS'   LIABILITY    TO    CORPORATE    CREDITORS 
UPON    UNPAID     SUBSCRIPTIONS. 


§  199.  Unpaid  subscriptions  a  trust  fand 
for  the  benefit  of  creditors. 

200.  Can  be  reached  only  after  judg- 

ment against  the  corporation, and 
execution  returned  unsatisfied. 

201.  The  remedj'  by  garnishment  or  at- 

tachment. 

202.  The  remedy  by  mandamus. 

203.  The  remedy  by  action  at  law. 

204.  The  remedy  by  bill  in  equity. 
205-206.   Parties  to  the  bill  in  equity. 
207.  A  court   of  equity   may   make  a 

call. 


§  208.  Receivers  and  assignees  in  bank- 
ruptcy or  for  the  benefit  of  cred- 
itors. Their  duties,  powers,  and 
liabilities  as  to  shares  not  paid 
up. 

209.  The  judgment  against  the  corpora- 

tion impeachable  only  for  fraud, 
or  want  of  jurisdiction. 

210.  Defenses  in  actions  to  compel  pay- 

ment of  balances  of  subscrip- 
tions available  against  corporate 
creditors. 

211.  Contribution. 


§  199.    Unpaid  siihscriptions  a  trust  fund  for  the  benefit  of 
creditors.— The  capital,  or  capital  stock  of  a  corporation,  is  the 
aggregate  of  the  par  value  of  all  the  shares  into  which,  the  capital 
is  divided  upon  the  incorporation  ;  it  is  the  fund,  or  resource  with 
which  the  corporation  is  enabled  to  act  and  transact  its  business, 
and  upon  the  faith  of  which  persons  give  credit  to  the  corporation 
and  become  corporate  creditors.    The  public,  in  dealing  with  a  cor- 
poration, has  the  right  to  assume  that  its  actual  capital,  in  money 
or  money's  worth,  is  equal  to  the  capital  stock  which  it  purports  to 
have,  unless  it  has  been  impaired  by  business  losses.     The  public 
has  a  right  also  to  assume  that  the  capital  stock  has  been  or  will 
be  fully  paid  up,  if  it  be  necessary,  in  order  to  meet  corporate 
liabilities      Accordingly,  the  American  courts  go  very  far  to  pro- 
tect corporate  creditors,  and  in   this  country  it  is  a  well  settled 
doctrine  that  capital  stock,  and  especially  unpaid  subscriptions  to 
the  capital  stock,  constitute  a  trust  fund  for  the  benefit  of  the 
creditors  of  the  corporation.'     There  are  three  methods  by  which 

'Though  it  be  a  doctrine  of  modern     the  benefit  of  the  general  creditors  of  the 


date,"  says  Mr.  Justice  .Miller  in  Sawyer 
V.  Hoag,  17  Wall.  (110,  620  (187H),  "vve 
think  it  now  well  establishel  that  the  cap- 
ital stock  of  a  corporation,  especially  its 
unpaid  subscriptions,  is  a  trust  fund  for 


corporation.  And  when  we  con.'^idcr  the 
rapid  development  of  corporations  as  in- 
strumentalities of  the  coMiinercial  and 
Inisiness  wurld  in  the  last  few  ye;ir.-i,  with 
the  corresponding  necessity  of  adapting 

183 


§  199.]  SUBSCRIPTIONS  AND   CORPORATE   CREDITORS.        [CH.  XI, 


stockholders  seek  to  avoid  their  liability  to  corporate  creditors : 
first,  by  a  cancellation  or  withdrawal  from  tlie  contract  ;^  second, 
by  a  release  from  their  obligation  to  pay  the  full  par  value  of 
the  stock  ;  ^  third,  by  a  transfer  of  the  stock.^  In  each  of  these 
cases,  however,  a  court  of  equity  does  its  utmost  to  protect  the 
corporate  creditors,  and  a  rigid  scrutiny  will  be  made  in  the  inter- 
est of  creditors  into  every  transaction  of  such  a  nature.^ 


legal  principles  to  the  new  and  varying 
exigencies  of  this  liusiness,  it  is  no  solid 
objection  to  such  a  principle  that  it  is 
modern,  for  the  occnsion  for  it  could  not 
sooner  have  arisen."  This  seems  to  be  a 
distinctively  American  doctrine.  It  is 
not  linown  to  the  English  law,  and  was 
first  announced  by  Mr.  Justice  Story  in 
Wood  V.  Dummer,  3  Mason,  308  (1824). 
See  also  the  cases  Hightower  v.  Thorn- 
ton, 8  Ga.  486  (bv  Lumpkin,  J.) ;  Barry  v. 
Merchants'  Exchange  Co.,  1  Sandf.  Chan. 
280;  Germantown,  &c.,  Ry.  Co.  v.  Fitler, 
60  Penn.  St.  124  (1869);  Crawford  v. 
Rohrer,  59  Md.  599  (1882);  Lewis  v. 
Robertson,  21  Miss.  558  (1850) ;  Burke  v. 
Smith,  16  Wall.  390  (1872);  New  Albany 
V.  Buike,  11  Id.  96  (1870);  Bunn's  Ap- 
peal, 105  Penn.  St.  49  (1884);  Curran  v. 
Arkansas,  15  How.  304  (18:>3) ;  Ogilvie  v. 
Knox  Ins,  Co.,  22  Id.  380  (1859);  Mumma 
V.  Potomac  Co.,  8  Peters,  281  (1834);  Pay- 
son  V.  Stoever,  2  Dillon,  427  (1873)  ;  San- 
ger y.  Upton,  91  U.  S.  56(1875) ;  Webster 
V.  Upton,  91  Id.  65  (1875);  Chubb  v.  Up- 
ton, 95  Id.  665  (1877);  County  of  Morgan 
V.  Allen,  103  Id.  498  (1880);  Bassett  v. 
St.  Albans  Hotel  Co.,  47  Vt.  313  (1875); 
Tarbell  v.  Page,  24  111.  46  (1860);  Osgood 
V.  Laytin,  3  Keyes  (N.  Y.),  621  ;  s.  c.  5 
Abb.  N.  S.  1 ;  De  Peyster  v.  American 
File  Ins.  Co.,  6  Paige,  486  (1837);  Mor- 
gan V.  New  York,  &c.,  R.  R.  Co.,  10  Id. 
290(1843) ;  Thompson's  Liability  of  Stock- 
holders, §  10.  Cf.  Vose  V.  Grant,  15 
Mass.  505(1819);  Spear  v.  Grant,  16  Id. 
9(1819);  Baker  «.  Atlas  Bank,  9  Mete. 
182  (1845) ;  Briggs  c  Fenniman,  8  Cowen, 
387  (1826);  ^x}ja)-^e  Jeaffreson,  L.  R.  11 
Eq.  115  (1870);  Spackman  v.  Evans,  L.R. 
8  H.  of  L.  198  (1868);  Osgood  v.  King, 
42  Iowa,  478  (1876);  Chisholm  v.  Forny, 
65  Id.  333;  Jackson  v.  Traer,  64  Id.  469. 
In  New  York,  many  decisions  to  this 
point  have  been  rendered,  especially  in 
actions  under  the  general  Manufaclur'ug 
Act  (§  10,  Chap.  40,  Laws  of  184  8).  They 
are  fully  cited  and  considered  in  the  chap- 
ter, infra,  on  Statutory  Liability,  g.  v. 
See  Gillet  v.  Moody,  5  Barb.  189  (1849); 

184 


Mills  V.  Stewart,  41  N.  Y.  389  (1869); 
Morgan  v.  New  York,  &c.,  R.  R.  Co.,  10 
Paige  Chan.  290  (1 843).  To  the  same  effect, 
see  Dr.  Salmon  v.  The  Hamborough  Com- 
pany, 1  Cases  in  Chan.  204 ;  Temp.  Car.  II. 
C/.l  Foubl.  Eq.  297n.  Proceedings  be- 
tween the  King  and  the  City  of  London,  8 
Howell  St.  Tr.  1087;  Nevitt  v.  Bank  of 
Port  Gibson,  6  Smed.  &  M.  513;  Hume  v^ 
The  VVinyaw  &  Wando  Canal  Co.,  1  Caro- 
lina L.  J.  (by  Desnussure,  Chan.). 

'  See  Chapter  X. 

"  Id.,  also  Chapter  III. 

'  See  Chapter  XV. 

*  Sawyer  v.  Hoa^,  17  Wall.  610  (1873); 
County  oif  Morgan  v.  Allen,  103  U.  S.  498 
(1880);  Chouteau  v.  Dean,  7  Mo.  App. 
211  (1879);  Gill  I'.  Balis,  72  Mo.  424;  Put- 
nam V.  City  of  New  Albany,  4  Biss.  365 
(1809);  lie  South  Mountain,  <fec.,  Mining 
Co.,  7  Sawyer,  30  (1881) ;  Union  Ins.  Co. 
V.  Frear  Stone  Manfg.  Co..  97  III.  537 
(1881);  Singer  v.  Given,  61  Iowa,  93 
(1883);  Jackson  i;.  Traer,  64  Iowa,  469 
(1884).  In  one  case,  it  is  said  that  it  is 
not  within  the  ingenuity  of  man  to  devise 
a  scheme  to  prevent  courts  of  equity  from 
enforcing  the  payment  of  unpaid  subscrip- 
tions to  capital  stock  for  the  benefit  of 
corporate  creditors.  Upton  v.  Hans- 
brough,  3  Biss.  417,  425  (1873).  Cf. 
Chisholm  v.  Forny,  65  Iowa,  333  (1884). 
Unfortunately  this  cannot  be  said  to  be 
always  the  result  of  corporate  creditors' 
suits  to  enforce  such  liabilit}^  Generally, 
however,  the  courts  are  able  to  give  relief. 
Thus  an  arrangement  entered  into  between 
the  corpoiiitiou  and  its  stockholders,  for 
the  purpose  of  defeating  the  claims  of 
creditors,  in  pursuance  of  which  the 
stockholders  are  allowed,  after  it  is  as- 
certained that  the  corporation  is  in- 
solvent, to  buy  in  depreciated  and  repudi- 
ated claims  against  the  company,  and  thus 
to  extinguish  their  indebtedness  for  stock 
subscribed,  is  held  fraudulent  and  void. 
Goodwin  V.  McGehee,  15  Ala.  232  (1849); 
Thompson  v.  Meisser,  108  111.  359  (1884). 
And  a  payment  in  full  for  stock,  followed 
by  an  immediate  loan  of  part  or  all  of  the 


CH.  XI.]       SUBSCRIPTIONS  AND   CORPORATE   CREDITORS.         [§  200. 


§  200.  Can  he  reached  only  after  judgment  against  the  cor- 
poration, and  execution  returned  unsatisfied. — Although  it  may 
be  considered  settled  law,  at  least  in  the  United  States,  that  un- 
paid subscriptions  to  the  capital  stock  of  corporations  constitute 
a  trust  fund  for  the  benefit  of  corporate  creditors,  yet  such  unpaid 
balances  of  subsciiption  are  not  the  primary  or  regular  fund  for 
the  payment  of  corporate  debts.  Persons  transacting  business 
with  the  coi-poration  look  to  the  corporation  itself  for  the  pay- 
ment of  their  debts.  Credit  is  given  to  the  corporation,  not  to  tbe 
stockholders,  and  it  is  the  natural  order  of  business  that  the  credit- 
ors of  the  corporation  are  to  be  paid  by  the  corporation  from  funds 
in  the  corporate  treasury.  Ordinarily  corporate  creditors  have 
no  knowledge  or  concern  about  the  subscription  list,  and  unpaid 
or  partially  paid  subscriptions  are  a  matter  entirely  between  the 
corporation  and  the  subscribers.  As  long  as  the  corporation 
meets  its  obligations  in  the  ordinary  course  of  business,  corporate 
creditors  have  no  need  to  concern  themselves  about  unpaid  sub- 
scriptions to  the  stock.  But  whenever  the  corporation  is  in 
default  and  embarrassed,  or  for  any  reason  fails  to  pay  its  debts, 
then  its  creditors  have  rights  with  reference  to  such  unpaid  sub- 


pnrchase-price  by  the  corporation  back  to 
the  subscriber,  is  a  fraud  as  to  creditors 
and  tiie  public,  and  will  be  set  aside. 
Sawyer  v.  Rons;,  17  Wall.  610  (181d).  See 
Thom]).  on  Liability  of  S*-ockh.  §  394. 
The  stockholders'  liability  in  this  respect 
is  not  confined  in  ^^eneral  to  the  original 
capital  stock,  but  it  attaches,  upon  an  au- 
th()rized  increase  of  the  capital,  to  such 
increase.  Chubb  v.  Upton,  95  U.  S.  665 
(1877).  See  also  Weaver  v.  Mudgett,  95 
K.  Y.  295  (1884);  Pacific  National  Bank 
Cfises  (Supm.  Ct.  U.  S.,  November  1886). 
The  filing  of  the  statutory  certificate 
declaring  tliat  the  whole  amount  of  tlie 
capital  stock  has  been  paid  in,  is  not 
conclusive  of  the  fact,  and  will  not 
prevent  proof  to  the  contrary.  Barre 
National  Bank  v.  Hingliiim  Manfg.  Co., 
127  Mass.  568  (1879);  Wheeler  v.  Millar, 
90  N.  Y.  358  (1882);  Veeder  v.  Mudgett, 
95  Id.  295  (1H84);  Thompson  v.  Reno  Sav- 
ings Bank,  7  Pac.  Rep.  68  (Nev.  1885).  It 
has  be  n  held  to  be  comi)etent  for  any  one 
dealing  with  the  company  to  contract  to 
hold  tlie  shiireholders  respon.sible  to  only 
a  limited  extent,  to  no  extent  at  all,  or  to 
any    gpecified   extent    njutually    agreed. 


Shelford  on  Joint  Stock  Companies  (2d 
London  edition),4 :  1  Lindley  on  Part.  377. 
Cf.  In  re  Athenseum  Life  Assurance  So- 
ciety, 4  K.  4  J.  517  (1858);  s.  c.  3  DeG. 
&  J.  660  ;  27  L.  J.  Chan.  798 ;  In  re  State 
Fire  Insurance  Co.,  1  Hem.  &  M.  457 
(1863);  s.  c.  1  DeG.,  J.  &  S.  634;  35  L. 
J.  Chan.  834 ;  34  Id.  436  ;  Halkett  v. 
Merciiant  Traders'  Association,  13  Q.  B. 
960  (1849);  s.  c.  29  L.  J.  Q.  B.  59  ;  Has- 
sell  V.  Merchant  Traders'  Association,  4 
Exch.  525;  Evans  v.  Coventry,  3  Drew. 
75  (18.54);  8.  c.  5  DeG.,  M.  <fe  G.  911;  8 
Id.  835;  25  L.  .J.  Chan.  834;  Lord  Tal- 
bot's Case,  5  DeG.  &  Sm.  386  (1852);  s.c. 
21  L.  J.  Chan.  846.  See  also  Reid  v.  Allan, 
4  Exch.  326  (1849);  s.  c.  19  L.  J.  Exch. 
39;  Addison  v.  Mayor  of  Preston,  12  C. 
B.  108,  and  compare  In  re  lnde])endent 
Assurance  Co.  ;  Kx  parte  Cope,  1  Sim.  (N. 
S.)  54  ;  Sunderland  Marino  lt)surance  Co. 
V.  Kearney.  16  Q.  B.  925  (1851);  s.  o.  20 
L.  J.  (Q.  B.)  417;  I'edell  v.  Gwynn,  1 
Hull.  &.  N.  590  (1857);  s.  o.  26  L.  J. 
Exch.  199;  Gordon  v.  Sea.  Fire  and  Life 
Assurance  Society,  1  Hurl.  <fc  N.  599 
(1857);  s.  c.  29  L.  J.  Exch.  202,  utid  see 
Hess  V.  Werts,  4  Sarg.  &  R.  361  (1818). 

185 


§  200.] 


SUBSCRIPTIONS   AND  CORPORATE    CREDITORS. 


[CH. 


XI. 


scriptions.  Thej  then  have  tlie  right  to  know  whether  all  the 
subscriptions  for  stock  have  been  fully  paid  in,  and  if  not,  they 
have  the  right  to  compel  such  a  payment. 

It  accordingly  becomes  important  to  know  at  what  point  in 
their  efforts  to  collect  what  is  due  them,  corporate  creditors  may 
cease  to  pursue  the  corporation  and  proceed  directly  against  its 
delinquent  members.  The  well  established  rule  upon  this  point 
is  that  a  corporate  creditor's  suit,  to  enforce  payment  of  unpaid 
subscriptions,  can  be  propsrly  brought  only  after  a  judgment  at 
law  has  been  obtained  against  the  corporation,  and  an  execution 
returned  unsatisfied.^  This  rule  is  of  such  importance  that,  by 
statute,  in  many  of  the  States,  a  creditor's  right  to  proceed 
against  a  stockholder  on  his  unpaid  subscription  is  allowed  only 
after  the  remedy  against  the  corporation  itself  has  been  ex- 
hausted.^ By  this  is  meant  that  judgment  shall  have  been  duly 
recovered  against  the  corporation,  and  execution  issued  and  regu- 
larly returned  unsatisfied.  Nothing  short  of  that  exhausts  the 
remedy  against  the  corporation.^ 


'  Bank  of  the  Uniterl  States  v.  Dallam, 
4  Dana,  674  (1836) ;  Walser  v.  Seli<>'man, 
21  Biatehf.  130  (1882);  Wetherbee  v. 
Baker,  35  N.  J.  Eq.  501  (1882);  Cutright 
V.  Stanford,  81  111.  240  (1876);  Baxter  v. 
Moses.  Me. (1885);  Munger  v.  Jacobson,  99 
ni.  349  (1881);  Terry  v.  Anderson,  95  U. 
S.  636  (1877);  Clevehind  v.  Rurnham,  55 
Wis.  598  (1885 );  Freeland  v.  McCullougli, 

1  Denio,  414  (1845).  The  bill  can  usually 
be  filed  for  this  purpose  only  in  the  courts 
of  the  State  where  the  corporation  exists. 
Barclay  v.  Tallraan,  4  Edw.  Chan.  128 
(1842);  Murray  w.  Vanderbilt,  39  Barb. 
147;  Bulk  of  Virginia  V.  Adams,  1  Pars. 
Eq,  534  (1850);  latteison  v.  Lynde,  112 
111.  196  (1884);  Harris  v.  Pullman,  84  Id. 
25  (1876).  Cf.  Claflin  v.  McDermott,  12 
Fed.  Rep.  375  (1882);   McLunei;.  Benceni, 

2  Ired.  Eq.  513;  Earned  v.  Harris,  19 
Miss.  366  (1848) ;  Bullitt  v.  Taylor,  34  Id. 
708  (1858);  Verpl.inck  v.  In?.  Co.,  6 
Paiire,  503 ;  Boswell's  Lessees  v.  Otis,  9 
How. 348  (1850);  I'omeroy's  Equity  Juris., 
§  1415.  Contra,  Bird  v.  Calveit.  22  S.  C. 
292  (1884). 

2  Thornton  ?;.  Lane.  11  Ga.  459  (1852); 
Lane  v.  Harris,  16  Id.  217  (1854);  Mc- 
Claren  v.  Franciscus,  43  Mo.  4.^^12  (1869); 
New  Eng'and,  <fec.,  Bank  v.  Newport 
Steam  Factory,  6  R.  I.  154  (1859);  Priest 

186 


V.  Essex  Manfg.  Co.,  115  Mass.  380(1874); 
Cambridge  Water  Works  v.  Somerville 
Dyeing,  Ac,  Co.,  4  Allen,  239  (1862); 
Lindsley  v.  Simonds,  2  Abb.  Prac.  (N.  S.) 
69  (1866);  Blake  v.  Hinkle,  10  Yerg.  218 
(1836);  Shellington  v.  Howland,  53  N.  Y. 
371  (1873);  Wehrman  v.  Reakirt,  1  Cin. 
Super.  Ct.  230(1871);  Dauchy  v.  Hrown, 
24  Vt.  197;  Drinkwater  z^.  Portland  Ma- 
rine Ry.,  18  Me.  35  (1841);  Handy  v. 
Draper,  89  N.  Y.  334(1882).  Cf.  Per- 
kins V.  Church,  31  Barb.  84  (1S59). 

3  Rockv  Mountain  National  Bank  v. 
Bliss,  89  N.  Y.  338  (1882).  In  this  case 
it  is  held  that  a  proceeding  in  rem,  afifect- 
ing  only  the  property  of  the  corporation 
attached,  and  execution  against  that  prop- 
erty, is  not  what  the  rule  requires;  and 
jigain  that  the  recovery  of  a  judgment  and 
issue  of  execution  in  another  State  is  not 
a  compliance  with  the  rule,  but  that  a 
judgment  in  and  execution  issued  out  of 
a  court  of  the  State  where  the  statute 
is  in  force  is  necessary.  To  the  same 
effect  see  Brice  v.  Munro,  5  Canadian 
Law  Times,  130,  Ontario  High  Court  of 
Justice,  Queen's  Bench  Division  (1885), 
in  which  case  it  is  held  that  an  execution 
issued  and  returned  in  Quebec  is  not  suf- 
ficient as  against  a  company  incorporated 
and  existing  in  Ontario. 


CH.  XI.]         SUBSCRIPTIONS  AND   CORPORATE   CREDITORS.         [§  200. 


This  rule  is  founded  in  reason  and  a  wise  public  policy  rela- 
tive to  the  transaction  of  business,  since  the  corporate  funds  are 
the  corporate  creditors'  primary  resource,  even  where  the  liability 
of  the  individual  shareholder  is  declared  to  be  primary  like  that 
of  an  original  contractor  or  partner.^  But  where  the  corporation 
has  been  adjudged  a  bankrupt,  and  a  dissolution  has  in  tliis  way 
been  brought  about,  the  remedy  against  the  corporation  need  not 
first  be  exhausted.2  n^qj.  jg  jt  necessary  in  a  case  where  the  cor- 
poration is  notoriously  insolvent,^  or  is  formally  dissolved.*  The 
record  of  tiie  judgment  against  the  corporation  is  competent  evi- 
dence of  the  fact  that  the  plaintifE  is  a  corporate  creditor,  and  of 
the  amount  due  him.^ 


'  stone  V.  Wigsin,  5  Mete.  316(1842); 
Stedman  v.  Eveleth,  6  Id.  114  (1843); 
Leland  v.  Marsh.  16  Mass.  389  (1820); 
Marcy  v.  Clark,  IT  Id.  330  (1821). 

*  State  Savings  Assoeiation  v.  Kellogg, 
.52  Mo.  583  (1873);  Drvden  v.  Kellogg,  2 
Mo.  App.  87  (1876);  S'helliagton  v.  How- 
land,  53  N.  Y.  371  (1873).  Cf.  Ansonia 
Brass  <fe  Copper  Co.  v.  New  Lamp  Chim- 
ney Co.,  53  N.  Y.  123  (1873);  s.  c.  91  U. 
S.  656;  Lovelt  v.  Cornwell,  6  Wend.  369 
(1831);  People  v.  Bartlett,  3  Hill,  570 
(1842);  Loornis  v.  Tifft,  16  Barb.  541 
(1858);  Walser  v.  Seligman,  21  Blatchf. 
130  (1881).  And  see  contra,  Birmingham 
National  Bank  v.  Mosscr,  14  Hun,  605 
(1878). 

^  Hodges  V.  Silver  Hill  Mining  C".,  9 
Oregon,  '/uO  (1881);  Terry  ''•  Tubman, 
92  U.  S.  156  (1875);  Camden  v.  Dore- 
mis,  3  How.  533  (1845);  Reynolds  v. 
Douglas,  12  Peters,  497  (1836);  Kimber 
V.  Bank  of  Fulton,  49  (5a.  419.  The  right 
of  action  accrues  to  the  creditor  when- 
ever it  is  clear  that  the  corporation  has 
no  property  from  which  the  claim  can  be 
paid.  A  judgment  is  not  necessary  for 
the  brrpnning  of  an  action  against  the 
Btockholder,  though  it  may  be  necessary 
as  evidence  in  sucli  action  to  determine  the 
measure  of  damages.  First  Nat.  Bank  of 
Garrettsville  v.  Gidene,  64  Iowa,  445 
(1884).  Cf.  Cleveland  v.  Marine  Bank, 
17  Wis.  545  (1863). 

■»  Kinciiid  v.  Dwinello,  59  N.  Y.  548 
(1875).  Cf.  Ilollingshcad  v.  Woodward, 
35  Hun,  410  (1885).  As  to  what  is  snfli- 
cieiit  to  dissolve  a  corporation  for  this 
purpose,  see  Kincaid  v.  Dwinelle,  xiipm. 
Under  a  statute  requiring  di^ssolution 
of  the  corporatitm  bcfon;  corporate  cred- 
itors   can    reach     unpaid    subscriptions, 


the  corporation  is  deemed  to  be  dissolved 
when  it  has  ceased  to  exercise  its  proper 
functions,  is  without  funds  and  indebted. 
Penniman  v.   Brigijs,  1   Hopk.  Chan.  (N. 
Y.)  343  (1824);  Slee  v.  Bloom,  19  Johns. 
456  (1822);  Bank  of  Pouohkeepsie  v.  Ib- 
botson,  24  Wend.  479  (1840).     Cf.  Terry 
V.  Anderson,  95  U.  S.  628  (1877).     Rem- 
ington V.  Samana  Bay  Co.,  140  Mass.  494 
(1886),  holds  that  the  judgment  herein 
against  the  corporation  is  void  if  the  cor- 
poration has  been  dissolved.    It  has  been 
said   that  corporate    crt-ditors   need   not 
await  the  collection  by  the  corporation 
of  doubtful  claims,  but  may  compel  the 
payment  of  their  claims  by  the  sharehold- 
ers, and  let  them  take  the  risk  and  delay. 
"Creditors,"  says  the  Supreme  Court  of 
Tennessee,  "  will  not  be  required  to  await 
the  collection  of  doubtful  chdms  or  claims 
in  litigation.    The  stockholders  must  pay 
promptly,  and  take  upon  themselves  the 
omis   of   delay  and   risk    as  to  all   such 
cases."     Moses  v.  Oeoee  Bank,  1  Lea,  398 
414  (1878).     See  also  Stark  v.  Burke,  9 
La.    Ann.   341.     General    creditors   may 
also  reach  unpaid  subscriptions,  although 
another   corporate  creditor   has   a  mort- 
ga'jje   lien    on    the    corporate    property, 
rights,  privileges,  and  franchises.      Dean 
V.  Bijrg-,  25  Hun,  122  (1881). 

'Stephen  V.  Fox,  83  N.  Y.  313  (1881). 
The  English  rule  upon  this  point  is  the 
same  as  the  one  prevailinir  in  this  coun- 
try. There,  accordingly,  in  tho?c  cases  in 
winch  a  judgnvnt  against  a  company  can 
be  enforced  against  a  shareholder,  a  .««>•« 
facias  is  a  necessary  preliminary,  unless 
there  is  some  statutory  enactment  to  the 
contrary.  2  Lindley  on  Partnership,  520; 
I'artlett  )'.  I'entlnnd,  1  Barn.  A  Ad.  704 
(1831);  Clowes?'.  Brctteli,  10  Moe.  »t  W. 

187 


201.]         SUBSCRIPTIONS  AND   CORPORATE    CREDITORS.         [CH.  Xf. 


§  201.  The  remedy  hy  garnishment  or  attachment. — There 
are  various  remedies  which  corporate  creditors  may  employ  to 
enforce  the  payment  of  partially  paid  up  subscriptions.  Among 
tl.'ese  is  that  of  garnishment.  Thus  where  a  subscription  has 
been  called  in,  in  part  or  wholly,  and  has  not  been  paid  by  the 
subscriber,  it  is,  at  least  to  the  extent  of  such  calls,  an  asset  of  the 
corporation,  and,  like  other  assets,  is  subject  to  garnishment  at 
the  instance  of  a  corporate  ci'cditoi-.^ 

When,  therefore,  a  stockholder  is  in  default  for  installments  of 
stock,  for  wiiifih  calls  have  been  made,  he  stands  in  the  attitude 
of  any  other  debtor  to  the  corporation,  and  niay  be  garnished  in 
the  usual  way,  upon  the  theory  of  the  authorities  just  cited,  for 
the  purpose  of  collecting  tlie  corporation's  debt.  But  this  rem- 
edy is  not  available  to  reach  that  part  of  the  unpaid  subscription 
for  which  calls  have  not  been  made.^ 


506  (1842);  Winfield  v.  Barton,  2  Dowl. 
(N.  S.)  355  (1872);  s.  c.  7  Jur.  258; 
Wingfield  V.  Peel,  12  L.  J.  (N.  S.)  102,  Q. 
B.  (1842). 

'  Meints  v.  East  St.  Louis,  <fec.,  Co..  89 
111.  48  (1878);  Hannah  v.  The  Moberly 
Bank,  67  Mo.  678  (1878);  Simpson  v. 
Reynolds,  71  Id.  594  (1880);  Faull  v. 
Alaska,  &c..  Mining^  Co.,  8  Sawyer,  420 
(18821;  Curry  v.  Woodward,  53  Ala.  371 
(1875);  Bing-ham  v.  Rushing,  5  Ala.  403; 
Hays  V.  Lycoming,  <fec.,  Co.,  99  Penn.  St. 
621  (1882).  Cf.  Rand  v.  While  Moun- 
tains R.  R.  Co.,  40  N.  H.  79  (1860); 
Brown  v.  Union  Insurance  Co.,  3  La.  Ann. 
177n848);  Angell  and  Ame«  on  Corp., 
§  517;  Thomp.  on  Liab.  of  Stock,  g§265, 
276,  317.  See  Dean  v.  Biggs,  25  Hun, 
122  (1881). 

'^  Bingham  v.  Rushing,  5  Ala.  403 
(1843):  Brown  v.  Union  Insurance  Co., 
3  La.  Ann.  177  (1848);  Bunu's  Appeal, 
105  Penn.  St.  49  (1884).  See  also  Coal 
field  Coal  Co.  v.  Peck,  98  111.  139  (1881). 
In  Nevada  the  right  of  garnishment  in  a 
case  where  calls  had  not  been  made,  was 
expressly  denied.  McKelvey  v.  Ci'ockett, 
18  Nev.  238  (1884).  Cf.  Meints  v.  East  St. 
Louis,  &c.,  Co.,  89  111.  48  (1878);  Hughes 
v.  Oregonian  Ry.  Co.,  11  Oreg.  158  ;  Peter- 
sou  V.  Sinclair,  83  Penn.  St.' 250  (1877); 
Langford  v.  Ottuniwa  Water  Power  Co., 
59  la..  283  (1882);  Chandler  t'.  Siddle,  10 
N.  B.  R.  236  ;  iJeGlen  Iron  Works,  20  Fed. 
Rep.  674  ;  s.c.  17  Fed.  Rep.  324  (Fenn.).  In 
New  Yurk,  there  is  no  process  of  garnish- 
ment, but  instead  thereof,  an  attachment 

188 


is  allowed.  Under  an  attachment  against 
a  foreign  corporation,  not  chartered  by 
the  United  States,  the  sheriff  may  levy 
upon  the  sums  remaining  unpaid  upon  a 
subscription  to  the  capital  stock  of  the 
corporation,  the  subscriber  being  within 
the  county  and  having  property  therein  ; 
"  or  upon  one  or  more  shares  of  stock 
therein  held  by  such  a  person,  or  trans- 
ferred by  him  for  the  purpose  of  avoiding 
payment  thereof."  New  York  Code  of 
Civil  Procedure,  §  646.  This  provision 
of  the  New  York  Code  seems  to  authorize 
seizure  of  the  stock  to  collect  a  corpo- 
rate debt,  whether  calls  have  been  made 
or  not.  iSee  Bartlett  v.  Drew,  57  N.  Y. 
587  (18-74);  Griffith  v.  Mangam,  73  Id. 
611  (1878).  It  has  also  been  held  that 
a  corporate  creditor,  by  an  execution 
against  the  corporation,  may  reach 
an  unpaid  subscription,  though  no  call 
has  been  made.  Jn  re  Glen  Iron  Works, 
17  Fed.  Rep.  324  (1883);  s.  c.  20  Id. 
674(1884);  Cucullu  v.  Union  Insmance 
Co.,  2  Rob.  (La.)  571  (1842).  Cf.  Bunn's 
Appeal,  14  Week.  Notes  Cases,  193;  and 
see  Hannah  v.  The  Moberly  Bank,  67  Mo. 
678  (1878).  But  this  is  a  st  mewliat  ques- 
tionable rule,  and  the  remedy  proposed 
by  it  is  probably  very  seldom  invoked. 

In  Missouri  it  is  held  that  "  a  proceed- 
ing by  motion  forexecution  against  a  stock- 
holder of  an  insolvent^^corpoiation  is  in  no 
sense  the  institution  of  an  independent 
suit,  but  a  mere  supplementary  proceeding 
in  aid  of  the  execution  against  tlie  cor- 
poration."   Kohn  V.  Lucas,  17  Mo.    App. 


CH.  XI.]         SUBSCRIPTI0X3   AXD   CORPORATE   CREDITORS'         [§  20i. 

§  202.  Tlie  remedy  hy  mandamus. — It  is  doubtful  whether 
corporate  creditors  can,  in  this  country,  have  recourse  to  the  writ 
of  mandamifs  to  compel  the  officers  of  the  coiporation  to  make  a 
call  for  the  purpose  of  raising  money  to  meet  corporate  obliga- 
tions.^ 

In  the  English  courts  a  mandamus  is  sometimes  awarded  in 
these  cases.^  But  in  this  country  the  question  of  calls  is  not 
usually  of  much  importance  in  such  cases.  The  corporation  is 
generally  insolvent  ;  a  bill  is  generally  filed  in  a  court  of  equity 
to  collect  and  distribute  all  the  assets,  and  calls  on  the  subscrip- 
tions are  made  by  the  court  itself.^ 

§  203.  The  remedy  ly  action  at  law. — Another  remedy  is 
by  an  action  at  law.  It  has  been  held  that  unpaid  subscriptions, 
after  call,  may  be  enforced  by  an  action  at  law  brought  directly 
against  the  delinquent  subscriber,  and  that  in  such  an  action  each 
subscriber  is  liable,  not  for  his  proportionate  share,  but  to  the  full 
extent  of  his  unpaid  subscription.* 

§  204.  The  remedy  by  hill  in  equity. — The  remedy  most 
usually  adopted  by  corporate  creditors,  to  obtain  the  payment  of 
their  claims  against  the  corporation  irom  the  unpaid  balances  of 
subscriptions  due  the  corporation  by  the  subscribe!  s  to  the  capital 
stock,  is  by  a  bill  in  equity.  This  is  in  the  natuie  of  a  creditor's 
bill,  reaching  the  equitable  assets  of  the  principal  debtor.     It  is 

29  (1885);  Paxton  ri.Talmage,2  VVest.Rep.  4  Dana,  574  (1836) ;   Allen  v.  Montgomery, 

105  (Mo.  1885).     In  the  case  Ogilvie  v.  &c.,  R.  R.  Co.,  11  Ala.  437  (1847);  Faull 

Knox  Ins.  Co.  22  How.   380  (1859),  the  v.   Alaska,  <fec.,  Mining   Co.,    8  Sawyer, 

court  said:   " The  creditors  of  the  corpo-  420(1883);   Wilbur    v.   Stockholders,  18 

ration  are  seeking  satisfaction  out  of  the  Bank.  Reg.  178;   White  v.  Blum,  4  Neb. 

assets  of  the  company  to  which  the  de-  555  (1876);  McCarthy   v.   Lavasche,  89 

fendants  are    debtors.     If  the  debts  at-  111.270(1878);  Bank  of  Poughkeepsie  j;. 

tached    are   sufficient    to    pay  their  de-  Ibbotson,    24    Wend.  479  (1840).       Of. 

mands,  the  creditors   need  look   no  lur-  Holmes  v.    Sherwoud,    3    McCrary,    405 

ther.     They  are   not  bound  to  settle  up  (1881);  s.   c.  16  Fed.  Rep.  725;  Corning 

all  the  affairs  of  this  coi  poration,  and  the  v.  Mohawk  Valley  Ins.  Co.,  1 1  How.  Prac. 

equity  between  its    various  stockholders  191     (1855).      And    see    Van    Buren     v. 

or  partners,  corporators,  or  debtors."  Chenango  Ins.  Co.,  12  Barb.  675  (1852). 

'  Dalton,  <fec.  R.  R.  Co.   v.   McDaniel,  The  Supreme  Court  of  the  United  States, 

56  Ga.  191   (1876);  Hatch  v.  Dana,   101  however,  has  denied  the  existence  of  this 

U.  S.  205(1879).     Cf.  Cucullu  v.   Uni(m  remedy   in   favor  of  a  creditor  of  a  cor- 

Insurance  I'o.,  2  Rob.  (La.)  573  (1842);  poration    organized    under    the   general 

Allen  w.  Montgomery,  <fec.,  R.  R.  Co.,  11  laws   of  Oregon.     Patterson    v.    Lynde, 

Ala.  437(1847).  U)6   U.    S.  519  (1882),   saying  that  "  No 

'■'  Queen  v.  Victoria  Park  Co.,  1  Ad.  &  one  creditor  can  assume  that  ho  alone  ia 

El.   (N.    S.)544;  Queen  v.  Ledyard,  Id.  entitled  to   what  any  stockholder  owea, 

616;  The  King  v.  Katheriue  Dock  Co.,  4  and   sue  at  law,  so   as  to  api)ropriate  it 

Barn.  <k  Ad.  360  (1832).  exclu>ively   to   liimself."      r/.  Terry   v 

■'  See  Ch.  VII.  Little,  101  U.  S.  216  (1870). 

*  Bank  of  the  United  States  v.  Dallam, 

189 


205.]         SUBSCRIPTIOJS^S  AND   CORPORATE   CREDITORS.        [CH.  XI. 


tlie  most  effectual,  simple,  and  just  remedy,  and  is  not  only  the 
favorite  remedy  of  the  courts,  but  is  generally  resorted  to  by  the 
corporate  creditors  theiuselves.^  Some  of  the  courts  have  even 
gone  to  the  extent  of  holding  a  bill  in  equity  to  be  the  exclusive 
remedy  for  the  corporate  creditor  in  these  cases.^  Occasionally, 
also,  statutes  are  enacted  prescribing  that  a  creditor  who  seeks  to 
apply  such  assets  to  the  payment  of  his  claim  can  do  so  only  by 
a  suit  in  equity.^  The  right  to  proceed  by  a  suit  in  equity  herein 
has  been  held  to  exist,  althongh  the  general  equitable  remedy  by 
creditors'  bill  has  been  abolished  by  statute.* 

§  205.  Parties  to  the  hill  in  equity. — {a.)  Parties  plaintiff. — 
A  corporate  creditor  who  seeks  in  this  way  to  obtain  payment  of 


1  Pfohl  V.  Simpson,  74  N.  Y.  137 
(1878);  Griffith  v.  Mangam,  73  Id.  611 
(1878);  Mathez  v.  Neidig,  72  Id.  100 
(1878);  Dayton  v.  Borst,  31  Id.  435 
(1865);  Mann  v.  Pentz,  3  Id.  415  (1850); 
Stephens  v.  Fox,  83  Id.  313  (1881) ;  s.  c. 
17  Hun,  435;  Ward  v.  Griswoldville 
Manfg.  Co.,  16  Conn.  593  (1844);  Dank 
of  the  United  States  v.  Dailam,  4  Dana, 
574(1836);  Crawford  v.  Rohrer,  59  Md. 
599  (1S82);  Hightower  v.  Thornton,  8 
Ga.  486  (1850);  Hightower  v.  Mustian,  8 
Id.  5ii6  (1850);  Daiton,  <fec.,  R.  R.  Co.  v. 
McDaniel,  56  Id.  191  (1876);  German- 
town,  (fee,  Ry.  Co.  v.  Fitler,  60  Penn.  St. 
124  (1889);  Adler  v.  Milwaukee,  &c., 
Co.,  13  Wis.  57  (1860)  ;  Curry  v.  Wood- 
ward, 53  Ala.  371  (1875)  ;  Allen  v. 
Montgomery,  <fec  ,  R.  R.  Co.,  11  Id.  437 
(1847);  Wincock  v.  Turpin,  96  111.  135 
(1880);  Henry  «.  Vermillion,  <fec..  Turn- 
pike Co.,  17  "Ohio,  187  (1848)  ;  Miers  v. 
Zanesville  and  Maysville  Turnpike  Co., 
11  Id.  273  (1842);  Judson  v.  Rossie 
Galena  Co.,  9  Paige,  598  (1842);  Van 
Pelt  V.  U.  S  ,  (fee,  Co.,  13  Abb.  Prac.  (N. 
S.)  331  (1872).  (Compare  with  this  case 
Sherwood  v.  Buffalo,  ite.,  R.  R.  Co.,  12 
How.  Prac.  137  (1855);  Hammond  v. 
Hudson  River,  .fee,  Co.,  11  Id.  33  (1854).) 
Marsh  v.  Burroughs,  1  Woods,  463  ( 1 871) ; 
Louisiana  Paper  Co.  v.  Waples,  3  Id,  34 
(1877)  ;  Faull  v.  Ahiska  Mining,  tfec.,  Co., 
8  lawyer,  4'20  (18S3);  Holmes  v.  t^her- 
wood.  3  McCrarv,  405  (1881);  s.  c.  16 
Fed.  Rep.  725 ;  'Chai:dler  v.  Siddle,  10 
Bank.  Reg.  236;  Myers  v.  Seeley,  10  Id. 
411  ;  Wilbur  v.  Stockholders,  18 Id.  178: 
Harmon  v.  Page,  62  Cal.  448  (18H2); 
Oyilvie  V.  Knox  Insurance  Co.,  22  How. 
380  (1859) ;  Sanger  v.  Upton,  91  U.  S.  56, 

190 


60  (1875) ;  Hatch  v.  Dana,  101  Id  205 
(1879);  Salman  v.  Hamborough  Co.,  1 
Cas.  in  Chan.  (Enjr.)  204. 

-  Jonesv.  Jarnian,  34  Ark.  323(1879); 
Harris  v.  First  Parish  in  Dorcliester,  23 
Pick.  112  (1839);  Knowltou  v.  Ackley,  8 
Cush.  93  (1851);  Erickson  o.  Nesmith,  15 
Gray,  221  (1860) ;  Smiih  v.  Huckabee,  53 
Ala.  191  (1875);  Umsted  v.  Euskirk,  17 
Ohio,  St.  113  ;  Pollard  v.  Bailej-,  2it  Wall. 
520  (1874);  Terry  v.  Little,  101  U.  S. 
216  (1879).  Cf.  Spear  v.  Grant,  16  Mass. 
9(1819);  Hodges  v.  Silver  Hill  Mining 
Co.,  9  Oregon,  200  (1881). 

»Hadley  v.  Russell,  40  N.  Y.  109 
(1860). 

■*  Alder  v.  Milwaukee,  <fec.,  Manfg.  Co., 
13  Wis.  57  (1860).  The  equitable  juris- 
diction herein  seems  to  have  been  based 
on  various  grounds.  Wilbur  v.  The 
Stockholders,  18  Bank.  Reg.  178.  Thus, 
for  example,  the  bill  in  equity  in  these 
cases  has  been  held  to  be  in  the  nature  of 
an  equitable  attachment  in  which  the 
subscribers  are  in  effect,  called  on  to 
answer  as  garnishees  of  the  principal 
debtor.  Ogilvie  v.  Knox  Insurance  Co., 
22  How.  380  (1859).  In  practice  a  re- 
ceiver is  usually  appointed,  the  amount 
ot  the  corporate  debts  and  of  the  amount 
necessary  to  be  contributed  by  the  holders 
of  shares  not  paid  up  is  ascertained  by 
proof,  or  through  a  referee  and  master's 
report,  and  then  there  is  a  final  decree 
affording,  as  far  as  the  assets  admit,  ade- 
quate relief,  and,  in  any  event,  propor- 
tional relief  to  all  parlies.  Daiton,  itc, 
K.R.  Co.  V.  McDauiel,  56Ga.  191  (1876)  ; 
Wilbur  V.  The  Stockholders,  18  Bank. 
Beg.  178;  Ogilvie  v.  Knox  Insurance 
Co.,  22  How.  o80  (1859). 


CH.  XI.]   SUBSCRIPTIONS  AND  CORPORATE  CREDITORS.    [§  205. 


his  claim  from  the  unpaid  subscriptions  to  tlie  capital  stock  of  the 
corporation,  should  file  his  hill  on  behalf  of  himself  and  such 
other  creditors  as  may  wish  to  come  in.^  The  general  rule  is 
that  such  a  suit  is  and  should  be  for  the  benefit  of  any  or  all 
creditors  who  elect  to  come  in  as  parties  complainant,  and  estab- 
lish their  debts  according  to  the  course  and  practice  of  a  court 
of  chancery.^  While  the  bill  must  be  so  framed  as  to  permit 
other  creditors,  if  they  elect,  to  come  in  and  be  made  parties  to 
the  suit,  it  is,  in  no  way,  necessary  to  join  them  as  parties.  The 
other  creditors  are  proper,  but  not  necessary  parties.^  Several 
creditors,  however,  cannot  bring  separate  suits  of  this  nature. 
They  must  all  join  in  one  ])roceeding.*  The  stockholders 
need    not   wait   to   be    made   parties  defendant   to   a   creditors' 


'  Crease  v.  Babcock,  10  Mete.  525 
(1846) ;  Holmes  v.  Sherwood,  3  McCrary, 
405  (1881);  Sawyer  v.  Hoag,  17  WmU. 
610  (1873);  Mills  v.  Scott,  99  U.  S.  25 
(1878);  Patterson  v.  Lynde,  106  Id.  519 
(1882). 

-  Wetherbee  v.  Baker,  35  N.  J.  Eq. 
501  (1882);  Coleman  v.  White,  14  Wis. 
700  (1862);  Carpenter  v.  Marine  Bank, 
14  Id.  705,  n.  (1882);  Morgan  v.  New 
York,  &c.,  R.  R.  Co.,  10  Paige,  290 
(1843);  Masters  v.  Rossie  Lead  Mining 
Co  ,  2  Sandf.  Chan.  301  (1845);  Mann  v. 
Pentz,  3  N.  Y.  415  (1850);  Umsted  v. 
Buskirk,  17  Ohio  St.  113  (1866);  Crease 
V.  Babcock,  10  Mete.  525  (1846);  Pollard 
V.  Bailev,  20  Wall.  520  (1874);  Terry  v. 
Little,  101  U.  S.  216  (1879).  Any  creditor 
has  a  right  to  come  in,  establisli  his  claim 
and  f-hare /;ro  rata  in  tlie  distribution  of 
the  assets,  even  though  the  bill  was  not 
filed  lor  the  benefit  of  such  as  should 
choose  to  come  in  and  share  the  expense. 
Turnbuli  v.  Prentiss  Lumber  Co.,  55  Mich. 
387  (1884).  See  also  'I'allniadge  v.  Fish- 
kill  Iron  Co.,  4  Barb.  393  (184b);  Walker 
V.  Crain,  17  id.  131  (185:i).  In  conse- 
quence thereof  no  one  ci-edilor  cnn,  by 
sujjerior  diligence  in  filing  a  bill,  obtain 
a  preference  over  other  creditors,  in  re- 
spect of  the  unpaid  balances  of  subscrip- 
tions. Kii/c  the  Ciises  in  last  note.  Thrre 
is,  howevc'f,  an  earlier  case  in  the  Ohio 
reports,  which  seems  to  recognize  such  a 
pielerence.  Miers?^  Zanesvilleand  Mays- 
ville  Turnpike  Co.,  13  Ohio,  197  (1844). 
See  Adlei-  v.  Milwaukee,  <fec.,  Co.,  13  Wis. 
67  (1868);  Wright  v.  McCormack,  17 
Ohio  St.  86  (1866). 

'•'■  Marsli  V.  Burroughs,  1  Woods,  463 
(1871);  Crease  v.  Babcock,  10  Mete.  625 


(1816);  Hatch  v.  Dana,  101  U.  S.  205 
(1879).  Of.  Adler  v.  Milwaukee,  <tc.,  Co., 
13  Wis.  67  (1860). 

*  Crease  v.  Babcock,  10  Mete.  525 
(1846).  But  see  Perry  v.  Turner,  55  Mo. 
418  (1874).  And  an  action  to  compel 
the  payment  of  an  unpaid  subscription 
may  be  joined  by  a  creditor  with  an  ac- 
tion to  enforce  a  statutory  liability. 
Warner  v.  Callender,  20  Ohio  St.  190 
(1870).  Accordingly,  where  a  bill  is 
tiled,  on  behalf  of  all  the  creditors  who 
chose  to  come  in,  against  all  the  stock- 
holders in  default,  the  courts  will  enjoin 
a  separate  creditor's  suit.  Pierce  v. 
Milwaukee  Construction  Co.,  38  Wis. 
253  (1875).  Cf.  Coleman  z;.  White,  14 
Id.  700(1862);  Carpenters.  Marine  Bank, 
Id.  705,  n.  (1862);  Ballston  Spa  Bank 
y.  Marine  Bank,  18  Id.  490  (1864).  A 
stockhoMer  himself,  although  he  is  in  de- 
fault, provided  he  is  solvent,  may,  if  he 
is  also  a  creditor  of  the  corporation,  be 
a  party  to  the  bill  to  collect  the  unpaid 
subscriptions,  but  pursuant  to  the  final 
decree  he  must  contribute  ratably  wiih 
the  rest.  Bissit  v.  Kentucky  lliver  Navi- 
gation Co.,  15  Fed.  Rep.  ;i53,  and  the 
valuable  note;  Thompson  v.  Reno  Sav- 
ings Bank,  10  Am.  &  Eng.  Corp.  Cas.  203 
(Nev.,  1885).  Cf.  Hogg's  Appeal,  88 
Penn.  St.  195  (1878);  Calhoun  v.  The 
Steam  Ferry  Boat,  ttc,  27  Int.  Kev.  Rec. 
273  (1881),  in  which  case  it  is  held  he 
cannot  sue  the  corporation.  But  sec  Mil- 
vain  V.  Mather,  5  Exch.  55  (1850),  in 
wluch  it  is  held  that  a  corporation  sued 
by  a  stockholder  may  set  off  any  amount 
due  by  him  on  calls."  Cf.  Hx  parte  Wiu- 
sor,  3  Story's  C.  C.  411  (1844). 

191 


§  206.]         SUBSCRIPTIONS    AND   CORPORATE   CREDITORS.         [CH.  XI. 

bill  before  moving  for  contribution,  but  may,  in  a  proper  case, 
before  a  suit  in  the  nature  of  a  creditors'  bill  is  filed  against  them 
by  creditors  of  the  corporation,  file  a  bill  in  equity  upon  their 
own  account,  making  the  corporation  a  party,  to  enforce  the  pay- 
ment of  unpaid  balances  of  subscription,  for  the  payment  of  cor- 
porate indebtedness,  and  for  contribution,^ 

§  206.  (&.)  Parties  defendant. — The  defendants  to  such  a 
suit  should  be  the  corporation  itself,^  and  all  from  whom  an  un- 
paid subscription  is  due,  except  such  as  are  unknown  or  insolvent, 
or  beyond  the  jurisdiction.^ 


'  Fiery  v.  Emmert,  36  Md.  464  (1872). 

'  The  corporation  is  ordinarily  a  nec- 
essary party.  Mann  v.  Pentz,  3  N.  Y. 
415  (1850);  Walsli  v.  Memphis,  <fec.,  R. 
R.  Co.,  2  McCrary,  156  (1881)  ;  s.  c.  19 
Fed.  Rep.  152;  Wilbur  v.  The  Stock- 
holders, 18  Bank.  Reg.  178;  Wetherbee 
V.  Baker,  35  N.  J.  Eq.  501  (1882).  But 
see  contra,  Walser  v.  Seligman,  21  Blatchf. 
130  (1882),  a  well  considered  case,  and 
Wellraan  v.  Rowland  Coal  &  Iron  Works, 
19  Fed.  Rep.  51.  In  the  case  last  cited 
it  was  held  that  where  a  corporation  is 
without  property  or  officers,  or  place  of 
business,  it  need  not  be  made  a  party  of 
record. 

3  Vick  V.  Lane,  56  Miss.  681  (1879); 
Walsh  V.  Memphis,  &c.,  R.  R.  Co.,  2  Mc- 
Crary, 156  (1881);  Hadley  v.  Russell,  40 
N.  H.  109  (I860);  Erickson  v.  Nesmith, 
46  Id.  371  (1860);  Pierce  v.  Milwaukee, 
<fec.,  Co.,  38  Wis.  253(1875);  Coleman 
W.White,  14  Id.  700  (1862);  Carpenter 
V.  Marine  Bank,  14  Id.  705,  n.  (1862); 
Umsted?).Buskirk,l7  Ohio  St.  113(1866); 
Mann  v.  Pentz,  3  N.  Y.  415  (1850).  Cf. 
Younjy  V.  New  York  <fe  Liverpool  Steam- 
ship Co. ,  10  Abb.  Prac.  299  ( 1 860).  The 
bill  should  contain  an  appropriate  allega- 
tion as  to  the  shareholders  unknown,  in- 
solvent, or  out  of  the  jurisdiction,  and  a 
prayer  that,  upon  discovery,  they  be 
made  parties  when  possible.  Bogardus 
V.  Rosendale  Manufacturing  Co.,  17  N.  Y. 
147(1852).  "Where  the  attempt  is  to 
reach  the  liability  of  the  shareholders  on 
their  subscription  to  capital  stock,  all  the 
solvent  stockholders  within  the  jurisdic- 
tion must  be  joined,  except  where  this 
will  be  excused  upon  an  allegation  that 
the  number  is  too  great."  Chalmers,  J., 
in  Vick  ».  Lane,  56  Miss.  68i,  684  (1879). 
Cf.  Bonewitz  v.  Van  Wert  Co.  Bank,  41 
Oliio  St.  78  (1884).  But  on  the  other 
hand,  with  respect  to  the  matter  of  join- 

192 


ing  all  the  solvent  shareholders  who  are 
in  arrears  as  parties  defendant  to  the  bill, 
provided  they  are  within  the  jurisdiction, 
we  find  a  line  of  authorities  in  support  of 
the  proposition  that  all  such  stockholders 
are  not  always  necessary  parties  to  the 
bill,  that  such  a  suit  may  properly  be 
brought  against  one,  or  any,  of  the  de- 
linquent stockholders  as  well  as  against 
all,  and  that  a  bill  will  not  be  held  defec- 
tive merely  because  it  fails  to  include  all 
the  delinquent  stockholders  as  parties  de- 
fendant. Ogilvie  V.  Knox  Insurance  Co., 
22  How.  380  (1859);  Hatch  v.  Dana,  101 
U.  S.  205  (1879);  Marsh  v.  Burroughs,  1 
W^oods,  463  (1871) ;  Holmes  v.  Sherwood, 
3  Met  rary,405(1881);  Glenn  «^.  Williams, 
60  Md.  93  (1882);  Bartlett  v.  Drew,  57 
N.  Y.  587  (1874)  ;  Griffith  v.  Mangam,  73 
Id.  611  (1878);  Brundage  v.  Monumental, 
&c..  Mining  Co.,  12  Oregon,  322  (1885). 
Of.  Von  Schmidt  v.  Huntington,  1  C:d.  55 
(1850);  Lamar  Insurance  Co.  v.  Gulick, 
102  III.  41  (1882).  Pei-haps  a  distinction 
may  propeily  be  made  with  reference  to 
the  joinder  of  parties  defendnnt  between 
the  case  of  a  bill  filed  for  the  purpose  of 
effecting  a  winding  up  of  an  insolvent 
company,  and  the  reaching  of  all  the 
corporate  assets  on  the  one  hand,  and  a 
bill,  on  the  other  hand,  which  looks  only 
to  the  collection  of  a  debt  out  of  unpaid 
stock  subscriptions.  It  seems  that  a  cor- 
porate creditor  may  sometimes  properly 
elect  to  pursue  his  remedy  against  one  or 
any  of  the  delinquent  shareholders  with- 
out undertaking  to  adjust  and  determine 
all  the  intervening  equities  between  the 
shareholders  and  creditors.  That  is  to 
say,  that  he  may  collect  his  debt  (lut  of 
the  unpaid  balance  due  the  corporation 
by  any  one  or  more  shareholders,  leaving 
the  shareholders  who  pay  him  lo  look  to 
the  other  delinquent  subscribers  for  con- 
tribution, if  there  is  a  case   for  contribu- 


CH.  XI.]         SUBSCRIPTIONS  AND   CORPORATE   CREDITORS.  [§  206. 


The  stockholders  against  whom  the  bill  is  filed  may,  however, 
it  seems,  when  all  are  not  made  parties,  file  a  cross  bill,  obtain  a 
discovery  of  the  remaining  delinquent  stockholders,  bring  them 
in  as  parties,  and  thus  enforce  contribution.^  And,  upon  plain 
principles  of  equity  jurisprudence,  if  all  the  parties  who  are 
liable  have  not  been  brought  before  the  court,  those  who  are 
defendants  of  record  cannot  be  charged  with  liability  which 
should  fall  upon  those  who  are  absent,  unless  it  be  shown  that 
the  absentees  are  insolvent,  or  beyond  the  jurisdiction  of  the 
coTirt."^ 


tion,  the  complainant  becoming  himself 
liable  to  other  coiporate  creditors  in  case 
he  receive  more  than  his  proportion  of 
corporate  assets.  In  such  a  case  it  is  not 
nec(rs-ary  to  join  all  the  stockholders. 
The  bill  may  properly  be  filed  ag;unst 
one  or  any  of  them.  But  if  the  winding 
up  of  the  company  is  involved,  the  bill 
ought  to  make  them  all  parties  defend- 
ant. Brundage  v.  Monumental,  &c.,  Min- 
ing Co.,  12  Oregon,  322  (188.5);  Bartlett 
V.  Drew,  57  N.  Y.  587(1874);  Hatch  z;. 
Dana,  101  U.  S.  205  (1879).  In  Hatch 
V.  Dana,  svpra,  there  was  a  bill  to  compel 
payment  of  a  debt  out  of  the  unpaid  sub- 
scription of  a  single  stockholder.  It  was 
not  sought  to  wind  up  the  company.  It 
beina;  urged  that  a  creditor  of  an  insolv- 
ent corporation  is  not  at  liberty  to  pro- 
ceed against  one  or  more  delinquent  sub- 
scribers to  recover  the  amount  of  his 
debt,  without  an  account  being  taken  of 
other  indebtedness,  and  without  bringing 
in  all  the  stockholders  for  contribution, 
the  court,  by  Mr.  Justice  Strong,  said : 
"  The  liability  of  a  subscriber  for  the 
capital  stock  of  a  company  is  several  and 
not  joint.  By  his  subscription  each  be- 
comes a  several  debtor  to  the  company, 
as  much  so  as  if  he  had  given  his  promis- 
sory note  for  the  amount  of  his  subscrip- 
tion. At  law,  certainly  his  subscription 
may  be  enforced  against  him  without 
joinder  of  other  subscribers,  and  in  equity 
his  liability  docs  not  cease  to  be  several. 
A  creditor's  bill  merely  subrogates  the 
creditor  to  the  place  of  the  debtor,  and  gar- 
nishes the  debt  due  to  the  indebted  corpo- 
ration. It  does  not  change  the  character  of 
the  debt  attached  or  garnished.  It  may  be 
that  if  the  obj'-ct  of  the  bill  is  to  wind  up 
the  affairs  of  this  company,  all  the  share- 
holders, at  le:ist  so  lar  as  they  can  be 
ascertained,  should  be  made  parties,  that 
complete  justice  may  be  done  by  equaliz- 


[13] 


ing  the  burdens,  and  in  order  to  prevent 
a  multiplicity  of  suits.  But  this  is  no  such 
case.  The  most  that  can  be  said,  is  that 
the  presence  of  all  the  stockholders  might 
be  convenient,  not  that  it  is  necessary. 
When  the  only  object  of  a  bill  is  to  ob- 
tain payment  of  a  judgment  against  a 
corporation,  out  of  its  credits  or  intang- 
ible property,  that  is,  out  of  its  unpaid 
stock,  there  is  not  the  same  reason  for 
requiring  all  the  stockholders  to  be 
made  defendants."  See  also  Bonewitz 
V.  Van  Wert  Co.  Bank,  41  Ohio  St.  78; 
Bartlett  v.  Drew,  67  N.  Y.  587,  589, 
691  (1874).  As  to  when  bills  brought 
by  creditors  in  these  cases  are  and  are 
not  multifarious,  see  Allen  v.  Mont- 
gomery, R.  R.  Co.,  11  Ala.  437(1847); 
Brinkerhoff  v.  Brown,  7  Johns.  Chan.  2i7 
(1823);  Cambridge,  <fec.,  Co.  v.  Somer- 
ville,  (fee,  Co.,  4  Allen,  239  (1862);  Barre 
National  Bank  v.  Hingham  Mfg.  Co.,  127 
Mass.  563  (1879);  Pope  v.  Leonard,  115 
Id.  286  (1874);  Deaderick  v.  Wilson,  8 
Baxter,  108  (1874). 

'  Hatch  V.  Dana,  101  U.  S.  205  (1879). 
In  the  original  bill  itself  there  may  pro{)- 
erly  be  a  prayer,  when  some  of  the  de- 
linquent shareiioldei'S  are  unknown,  for  a 
discovery,  in  order  that  such  unknown 
stockholders  may  be  made  parties  by 
amendment.  BogarJus  v.  Rosendale 
Mfg.  Co.,  7  N.  Y.  147  (1852). 

-  Wood  V.  Dummer,  3  Mason,  307 
(1824) ;  Mar^h  v.  Burroughs,  1  Woods, 
463  (1871);  Bonewitz  v.  Van  Wert  Co. 
Bank,  41  Ohio  St.  78  (1884).  Cf.  Ericb- 
son  V.  Nesmith,  46  N.  II.  371  (1800). 
When  there  are  delinquent  stockholders 
beyond  thi;  jurisdiction,  the  stockholders 
who  have  been  sued  and  compelled  to  pay 
more  than  their  due  proportion,  must 
look  to  them  for  contribution  by  an 
appropriate  proceeding.  Ilolmea  v. 
Sherwood,  3  McCrary,  405  (1881). 

193 


§  208.]  SUBSCRIPTIONS   AND   CORPORATE   CREDITORS.        [CH.  XI. 

§  207.  A  court  of  equity  may  make  a  call. — It  is  well  settled,' 
that,  when  stock  is  subscribed  to  be  paid  in  upon  call  by  the  corpo- 
rate authorities,  and  the  company  neglects  or  refuses  to  make  such 
calls  as  are  necessary  to  raise  funds  to  meet  the  just  corporate 
obligations,  a  court  of  equity  will  itself  make  the  necessary  calls, 
if  the  interests  of  the  creditors  require  it ;  that  is  to  say,  the 
court  will,  in  behalf  of  the  creditors,  do  what  it  is  the  duty  of 
the  corporation  to  do  in  respect  of  calls.'^  And  the  court  may 
make  the  call  although  the  statute  says  calls  shall  be  made  by 
the  trustees.^ 

§  208.  Receivers  and  assignees  in  hankruptcy  for  the  henefit 
of  creditors. — Their  duties,  poivers,  and  liabilities  as  to  uni)aid 
subscriptions. — When  a  corporation  becomes  insolvent,  with  cor- 
porate creditors  on  the  one  hand  pressing  their  claims,  and 
subscriptions  to  the  capital  stock  wholly  or  partially  uncollected 
on  the  other  hand,  it  is  usual  to  place  the  assets  of  the  company, 
including  the  claims  against  delinquent  shareowners,  in  the  hands 
of  an  indiiferent  third  person  for  the  benefit  of  all  concerned. 
Such  a  person  may  be  an  assignee  under  State  insolvent  laws,  a 
receiver  of  an  assignee  in  bankruptcy.  A  receiver  in  such  a  case 
may  be  defined  to  be  a  third  person  appointed  by  a  court  of 
equity,  to  act  as  the  representative  alike  of  creditors  and  stock- 
holders for  the  pui-pose  of  collecting  the  corporate  assets  and 
paying  the  corporate  debts.*     It  is  the  right  and  duty  of  such  a 

'   Vide  Chap.  VII,  §  108,  supra.  and   see   Seymour  v.   Sturgess,  26  N.  Y. 

2  Scovill     V.Thayer,   105  U.S.   143,  134(1862);  Wheeler  w.  Millar,  90  Id.  353 

155  (1881);  Hatch  v.  Dana,  101  Id.  205,  (1882.) 

214(1879);  Curry  v.  Woodward,  53  Ala.  ^  Cj-g^foj-d    v.   Rohrer,  59    Md.    599 

371   (1875);   Wilbur  v.   Stockholders,  18  (1882).     Cy.  Glenn  v.   Saxton,  California 

Bank.   Reg.  178  ;   Marsh  v.  Burroughs,    1  (1886).     Where  it  was  provided  by  the 

Woods,  403   (1871);  Myers  y.  Seeley,  10  charter  of  the  corporation  that  all  calls 

Bank.   Reg.   411;    Henry  v.  Vermillion,  are  to  be  made  only  upon  a  three-fourths 

&c.,  R.   R.    Co.,    17    Ohio,    187   (1848);  vote  of  the  stockholders,  it  was  held  that 

Robinson  v.   Bank  of  Davien,   18  Ga.  65;  a    call    by    the     court     was    irregular. 

Ward  «'.  GriswoldsvilleMfg.  Co.,  16  Conn.  Trustees  of  the    Louisiana  Paper  Co.  v. 

593  (1814);  Sanger  v.   Upton,  91  U.  S.  Waples,  3   Woods,  34  (1877).     Cf.  Eur- 

56,    (1875);  Chubb  v.   Upton,  95  Id.  665  lington,  Ac,   R.    R.  Co.  v.  Boestler,    15 

(1877);    Glenn  v.  Semple,    Ala.   (1885);  Iowa,  555  (1864);  Penobscot,  .fee,  R.  R. 

Glenn  v.  Williams,  60  Md.  93.      Cf.  Ger-  Co.  v.  Dunn,  39  Me.  587  (1855);  Philadel- 

mantown,  <fec.  Ry.  Co.  v.  Fitler,  60  Penn.  phia,  tfcc,  R.  R.  Co.  v.  Hickman,  28  Penn. 

St    124  (1869);    Chandler    v.  Keith,  42  St.  318  (1857) ;  Carlisle  i;.  Cahawba,  Ac, 

Iowa,  99  (1875) ;  Mann  v.   Pentz,  3  N.  Y.  R.  R.  Co.,  4  Ala.  70  (1842). 

415  (1850);  Ogilvie  v.   Knox  Insurance  ■*  Johnson  v.  Lafiin,  5  Dili.  65  (1878); 

Co.,  22  How.  380  (1871);   Adler  «;.  Mil-  High  on  Receivers  (2d  edition),  1. 
waukee  Mfg.   Co.,    13    Wis.   62  (1860); 

194 


CH, 


XI.] 


SUBSCRIPTIONS  AND   CORPORATE   CREDITORS. 


[§  208. 


receiver  to  collect  the  unpaid  subscriptions,  so  far  as  it  may 
be  necessary,  for  the  purpose  of  paying  the  corporate  debts  in 
full.i 

As  incidental  to  the  receiver's  power  to  collect  unpaid  balances 
of  subscription,  it  is  held  that  he  may,  as  an  officer  of  the  court, 
make  calls  for  the  amount  due.^ 

As  against  the  delinquent  subscribers  the  receiver  stands  in 
the  position  of  the  corporation.  He  lias  all  the  rights  as  regards 
the  collection  of  the  assets,  including  the  claims  against  the  stock- 
holders, which  the  corporation  possessed  before  its  insolvency, 
and,  in  this  respect,  his  powers  are  neither  more  nor  less  than 
those  of  the  corporate  officers  under  ordinary  circumstances.* 
Accordingly  the  receiver  of  a  foreign  corporation,  duly  era- 
powered  to  sue  at  home,  may  sue  resident  stockholders  for  the 
balances  due  the  company,  provided  the  corporation  itself  could 
have  done  so  had  the  stockholder  been  a  resident  of  the  State  of 
its  domicile.* 


'  Dayton  v.  Borst,  31  N.  Y.  435 
(1865);  Nathan  v.  Whitlock,  9  Paisje,  152 
{1841);  Frank  v.  Morrison,  58  Md.  423 
(1882);  Chandler  w  BroM'n,  11  111.  333 
(1875).  Thia  right  of  the  receiver  was 
denied,  in  some  early  cases,  but  it  is  now 
probably  everywhere  conceded.  See 
Hadley  ?,'.  Russell,  40  N.  H.  109(1860); 
Coleman  r.  White,  14  Wis.  700  (1862); 
Umsted  v.  Buskirk,  17  Ohio  St.  113  (1866). 
The  receiver's  action  to  collect  should,  it  is 
held  in  Mississippi,  be  at  law.  Freeman 
V.  Winchester,  18  Miss.  577  (1848). 
"While  in  New  York,  under  the  older 
practice,  it  was  held  that  it  must  be  in 
cquit}'.  Sagoryt;.  Dubois,  3  Saiidf.  Chan. 
466.  At  present,  bj-  statute,  this  action  in 
New  York  may  be  either  at  law  or  in 
equity.  3  R.  S  Chap.  VIII,  Art.  3, 
§  69.  Cf.  Harmon  v.  Page,  62  Cal.  448 
(1882.) 

-  Dane  v.  Young,  61  Me.  160  (1872); 
Hall  V.  United  States  Insurance  Co.,  5 
Gill  (Md.),  484  (1847);  Higlitower  v. 
Thornton.  8  Ga.  486  (1850);  Rankine  v. 
Elliott,  16  N.  Y.  377  (1857).  But  see  In 
re  Birmingham,  &.(■.  Ry.  Co.,  L.  li.,  18 
Chan.  Div.  155  (1881),  when  a  railway 
receiver  is  held,  it  seems,  not  to  have 
euc'h  a  power.  This  is  a  case,  however, 
under  the  English  Railwaj'  Companies 
Act,  1807.  See  also  Nathan  v.  Whitlock, 
9  Paige,  152  (1841);  i  handler  v.  Keith, 
42  Iowa,  99  (1870).     In  Mann  v.  Pentz, 


3  N.  Y.  415  (1850),  it  is  insisted  that  the 
proper  way  to  collect  unpaid  subscrip- 
tions is  by  a  creditor's  bill  against  the 
corporation  and  the  delinquent  share- 
owners,  to  be  filed  bi)  a  creditor,  even 
when  the  property  is  in  the  hands  of  a 
receiver.  It  is  doubtful,  however, 
whether  this  practice  would  now  be  fol- 
lowed. A  receiver  is  sometimes  given 
expressly  the  same  power  to  make  calls 
that  the  corporate  officers  had  before  the 
sequestration.  Hall  v.  United  States  In- 
surance Co.,  supra. 

3  Cutting  r-.  Damerel,  88  N.  Y.  410 
(1882);  Mean's  Appeal,  85  Penn.  St.  293 
(1877);  Angell  and  Ames  on  Corp.  §  520. 
It  may  be  remarked  here,  that  tlie  re- 
ceiver has  no  power  to  enforce  statutory 
liability,  this  liability  not  being  an  as- 
set of  the  corporation.  See  Farnssvorth 
V.  Wood,  91  N.  Y.  308  (1883),  and  the 
Chapter  on  Statutory  Liability,  infra. 

•»  Dayton  v.  Borst,  31  N.  Y.  435 
(1865),  a  case  where  a  receiver  ap- 
pointed by  the  Court  of  Chancery  in  New 
Jersey,  was  held  competent  to  maintain  a 
suit  of  this  nature  in  New  York  against  a 
citizen  thereof.  Of.  Tinkhim  v.  Borst, 
31  Barb.  407  (IHiiO);  McDoiioiigh  v. 
Phelps,  15  How.  Prac,  372  (1856)-  Sey- 
mour V.  Sturgess,  26  N,  Y.,  131  (1862). 
It  has  been  held  that  a  receiver  may  col- 
lect unjiaid  balances  due  on  sub-criptions, 
although  the  other  corporate  assets  have 

195 


§208.] 


SUBSCRIPTIONS  AND   CORPORATE   CREDITORS. 


[CH.  XI. 


The  receiver,  moreover,  has  no  greater  or  higher  right  than 
the  corporation  to  collect  unpaid  subscriptions,  and  where  the 
corporation  could  not  have  maintained  an  action  upon  such  a 
subscription,  the  receiver  cannot.^ 

As  long  as  the  authority  of  the  receiver  subsists,  a  creditor 
cannot  directly  bring  suit  against  delinquent  shareowners,  but 
the  receiver  may  be  compelled  to  act  in  the  matter  at  the  instance 
of  creditors.^ 

As  assignee  for  the  benefit  of  the  creditors  of  a  corporation, 
like  a  receiver,  represents  both  the  corporation  and  the  creditors, 
and  should  collect  unpaid  subscriptions ;  "*  and,  in  like  manner,  an 
assignee  in.  bankruptcy  may  sue  to  recover  the  amounts  due  by 
stockholders  on  account  of  their  subscriptions,  and  his  proper 
remedy  is  by  bill  in  equity,  making  all  the  delinquent  shareowners 
parties  to  the  bill.* 


not  been  collected  and  the  amount  of  the 
liabilities  is  undetermined.  Starke  v. 
Burke,  9  La.  Ann.  S41  (18.54),  and  that  if, 
oa  the  final  settlement,  there  is  a  surplus, 
it  is  to  be  returned  pro  rata  to  the  share- 
holders. Pentz  V.  Hrtwley,  1  Barb.  Chan. 
(N.  Y.)  122  (1846).  But  the  more  modern 
and  better  rule  is  that  a  receiver  has  no 
authority  to  call  upon  a  subscriber  for  his 
unpaid  balance  until  the  court  have  de- 
termined the  amount  of  the  corporate  in- 
debtedness and  fixed  definitely  the  lia- 
bility of  each  share  of  the  stock.  Chand- 
ler t'.  Keith,  42  Iowa,  99  (1875).  See 
also  Mills  V.  Scott,  99  U.  S.,  25  (1878); 
Cleveland  v.  Burnham,  55  Wis.  598 
(1885). 

'  Billings  V.  Robinson,  94  N.  Y.  415 
(1884);  affirming  28  Hun,  122.  The 
court  cannot  give  a  receiver  power  to 
compromise  claims  upon  unpaid  subscrip- 
tions. Chandler  v.  Brown,  77  111.  333 
(1875).     See  §  210. 

"^  It  is  the  receiver's  duty,  as  we  have 
seen,  to  act  promptly  and  vigilantly  in 
the  collection  of  the  assets,  and  to  com- 
pel pnyment  of  balances  due  by  subscrib- 
ers on  unpaid  stflck,  if  such  a  coui'se  is 
necessary  to  meet  the  demands  of  cred- 
itors. If  the  receiver  fails  to  do  his 
duty  in  this  respect,  the  creditors  may 
compel  him  to  act,  inasmuch  as  they 
cannot  act  directly  themselves.  Gas 
Light  Co.  V.  Haynes,  7  La.  Ann.  114 
(1862);  New  Orleans  Gas   Light  Co.  v. 

196 


Bennett,  6  Id.  457  (1851);  Starke  v. 
Burke,  9  Id.  341(1854).  C^.  Atwood  v. 
Rhode  Island  Agricultural  Bank,  1  R.  I. 
376  (1850);  Eppricht  J'.Nickerson,  78  Mo. 
482  (1884).  Contra,  llunn  v.  Pentz,  3  N. 
Y.  415  (1850).  This  case,  as  has  been  inti- 
mated in  a  former  note  {q.  v  ),  is  not, 
upon  this  point,  considered  good  law. 
When  the  receiver  stated  in  his  answer 
that  he  did  not  deem  it  his  diity  to  sue 
the  stockholders  on  behalfoF  the  creditors, 
it  was  held  that  the  creditors  themselves 
were  authorized  to  commence  suit  in 
their  own  behalf,  against  the  stockholders, 
without  first  requesting  the  receiver  to 
sue  them.  At  wood  v.  Rhode  Island 
Agric.  Bank,  supra. 

3  Sh(.ckley  v.  Fisher,  75  Mo.  498 
(1882).  Cf.  Germantown,  <fec..  Ry.  Co.  v. 
Fitler,  60  Penn.  St.  124  (1869). 

•*  Sawyer  v.  Hoag,  17  Wall.  610,  621 
(1873);  Upton  v.  Tribilcock,  91  U.  S.  45 
(1875);  Sanger  v.  Upton,  Id.  56;  Web- 
ster V.  Upton,  Id.  65;  Chubb  v.  Upton, 
95  Id.  665  (1877);  Payson  v.  Stoever,  2 
Dill.  427  (1873);  Upton  v.  Hansbrongh, 
3  Biss.  417  (1873).  Cf.  Countv  of  Mor- 
gan V.  Allen,  103  U.  S.  498  (1880).  The 
principles  of  equity  applicable  in  cases  of 
this  nature  to  actions  by  a  receiver  will, 
ip  general,  unless  some  statute  has 
changfiKJ  the  law,  be  found  applicable  to 
these  actions  when  broa.;ht  by  assignees 
at  common  law  or  in  bankruptcy. 


CH.  XI.]         SUBSCRIPTIONS  AND   CORPORATE   CREDITORS.         [§  209. 


§  209.  The  judgment  against  the  corporation  impeachaUe 
only  for  fraud,  or  ivant  of  jurisdiction. — That  a  judgment  con- 
clusively settles  all  matters  of  controversy  involved  in  the  suit,  so 
far  as  parties  or  their  privies  are  concerned,  excepting  where  it 
may  be  impeached  for  fraud  or  want  of  jurisdiction,  is  well  estab- 
lished law.  When,  therefore,  a  corporate  creditor  has  obtained 
judgment  against  the  corporation,  and  execution  is  returned  un- 
satisfied, and  lie  then  proceeds  to  enforce  his  remedy  against  the 
holders  of  stock  not  paid  up,  the  question  arises  whether  the  stock- 
holder may  set  up  in  defense  matters  which  the  corporation  might 
have  set  up  or  did  set  up. 

It  has  been  strenuously  insisted  that  he  might.  This  was 
Chancellor  Kent's  famous  contention  in  the  case  of  Slee  v. 
Bloom, ^  but  the  authorities  have  firmly  established  the  rule  that, 
in  the  absence  of  fraud  and  collusion,  judgments  against  the  cor- 
poration, if  the  court  had  jurisdiction,  are  conclusive  against  the 
stockholders  as  to  the  validity  and  amount  of  the  creditor's 
claim.^  Thus  it  is  held  that  tlie  stockholder  cannot  take  advan- 
tage, in  the  suit  against  him,  of  a  defect  in  the  service  of  process 
upon  the  corporation  in  the  original  suit.  His  remedy  in  such  a 
case  is  by  a  direct  proceeding.^     There  is,  however,  a  line  of 


'  5  Johns.  Chan.  366  (1820);  reversed 
by  19  Johns.  456  ;  8.  c.  Id.  669,  by  Spen- 
cer, C.  J. 

'  Slee  V.  Bloom,  20  Johns.  669  (1822); 
Ylonry  v.  Vermillion,  <fec.,  R.  R.  Co., 
17  Ohio,  187  (1848);  Ilampson  v.  Weare, 
4  Iowa,  13  (1856);  Milliken  v.  White- 
house,  49  Me.  527  (1860);  Merrill  v.  Suf- 
folk Bank,  31  Id.  57  (1849);  Wilson  v. 
Pittsburgh,  (fee  ,  Coal  Co.,  43  Penn.  St. 
424  (1862);  Bank  of  Wooster  v.  Stevens, 
1  Ohio  St.  233  (1853);  Conway  ti.  Dun- 
can, 28  Id.  102  (1875);  Stephens  v.  Fox, 
83  N.  Y.  313  (1881);  Chaffin  v.  City  of 
St.  Louis,  4  Dill.  24  (1876);  Marsh  v.  Bur- 
rounfhs,  1  Woods,  463  (1871);  Glenn  v. 
Springs,  26  Fed.  Hep.  494  (1885);  Grund 
V.  Tucker,  5  Kan.  70  (1809);  Graham  v. 
Boston,  Hartford  &  Erie  R.  R.  Co.,  118 
U.  S.  161  (1886);  Bis.sit  v.  Kentucky 
River  Navigation  Co.,  15  Fed.  Rep.  353 
(1882);  Ilawes  v.  Petroleum  Co.,  101 
Miisp.  385;  Morawe*z  on  Corp.,  t:^  ()]9; 
Batik  of  Australasia  v.  Nias,  16  Q.  B.  717 
(1851);  s.  C.  20  L.  J.  (N.  S.)  Q.  B.  284. 
So  also  in  actions  to  enforce  s'atutory  lia- 
bility of  stockl)r)lders,  a  judgment  against 


the  corporation  is  equally  conclusive. 
Donworth  v.  Coolbaugh,  5  Iowa,  300 
(1857);  Came  v.  Brigham,  39  Me.  35 
(1854);  Gaskill  v.  Dudley,  6  Mete.  546 
(184s);  Hawes  v.  Anglo-Saxon  Petroleum 
(Jo.,  101  Mass.  385  (1869);  Johnson  v. 
Somervillo,  Ac,  Co.,  15  Gray,  216(1860); 
Boyd  V.  Hall,  56  Ga.  563  (1876);  Stephens 
V.  Fox,  83  N.  Y.  313  (1881);  Ilolyoke 
Bank  v.  Goodman  Paper  Manfg.  Co.,  9 
Cush.  576  (1852);  1  Herman  on  Estoppel 
and  Res  Judicata,  165;  Thomp.  Liabil.  of 
Stockh.,  §  329;  Bigelow  on  Estoppel,  89; 
Freeman  on  Judgments,  §  178.  The 
stockholder  may,  of  course,  set  up  that  lie 
is  not  a  stockliolder,  and  other  similar 
defenses,  such  as  are  specified  in  Chap.  X. 
See  infra,  §  210. 

3  Came  v.  Brigham,  39  Me.  35  (1851); 
Wheeler  «;.  Millar,  24  Hun,  541  (1881). 
See  also  Louisville,  cfec,  R.  R.  ('o.  v.  Let- 
son,  2  How. 497  ( 1844).  Nor  can  ho  set  up 
that  the  creditors'  rights  are  based  on  jiur- 
chasos  made  ultra  virex  by  tin;  corpoiate 
officers.  Sumner  v.  Marcy.  3  Woodb. 
A  M.  105  (1847).  In  this  case  it  was  s  lid 
that  the  stockholder's  remedy  was  by  bill 

197 


§  210.] 


SUBSCRIPTIONS  AND   CORPORATE   CREDITORS. 


[CH.  XI. 


cases  holding  that  judgment  against  the  corporation  is  on\ j  j)rim a 
facie  evidence  against  the  shareholder  in  an  action  to  subject  the 
balance  due  on  his  subscription  to  the  payment  of  the  debt.-' 
But  this  is  an  exceptional  doctrine.^  In  New  York  the  conclu- 
siveness of  the  judgment  in  these  cases  has  been  much  ques- 
tioned.^ 

§  210.  Defenses  in  actions  to  comiwl  payment  ofMlances  of 
subscriptions,  available  against  corporate  creditors. — There  are, 
of  course,  certain  defenses  which  subscribers  may  set  up  when 
actions  are  brought  against  them  on  behalf  of  corporate  creditors. 
But  both  in  p]ngland  and  in  this  country  the  courts  do  not  favor 
such  defenses,  especially  after  the  corporation  has  become  insolv- 
ent. There  are  many  defenses  which  might  defeat  the  corpora- 
tion in  its  action,  which  would  not  prevent  the  corporate  creditor 
from  enforcing  the  subscription.* 


in  equity  to  enjoin  further  proceedings  in 
the  suit  at  law. 

In  Chestnut  v.  Pennell,  92  111.  55 
(1879),  it  was  held  that  a  tiecree  against 
the  corporation  is  not  admissible  in  evi- 
dence against  a  stockholder  who  was  not 
a  party  to  the  bill  or  decree,  actually  or 
constructively,  and  that  in  such  a  case 
proof  of  the  liability  of  the  corporation 
to  the  creditor  should  be  given.  Cf. 
Washington  Bank  v.  Palmer,  2  Sandf. 
Super.  Ct.  686  (1850);  New  York,  .tc, 
R.  R.  Co.  V.  Cook,  Id.  732  (1850).  Cleri- 
cal errors  on  the  part  of  officers  of  the 
court  who  levy  assessments,  are  errors 
which  may  be  corrected  in  the  suit  against 
the  shareowner,  and  so  of  certain  erpors 
of  judgment.  Ilurd  v.  Tallman,  60  Barb. 
272  (1871);  Payson  v.  Stoever,  2  Dill. 
427  (1873);  Upton  v.  Hansbrough,  2  Biss. 
417(1873);  Sanger  v.  Upton,  91  U.  S. 
56,  62  (1875). 

'  Grund  v.  Tucker,  5  Kan.  70  (1869); 
Stephens  v.  Fox,  83  N.  Y.  313  (1881); 
Met  chants'  Bank  v.  Chandler,  19  Wis.  435 
(1865);  Berger  v.  Williams,  4  McLean, 
577  (1849)  ;  Belmont  v.  Coleman,  1  Bosw. 
188  (1857).  Cf.  s.  c  21  N.  Y.  96  (I860). 
See  also  Bigelow  on  Estoppel,  89  ;  1  homp. 
on  Liability  of  Stockh.,  §  329,  note.  And 
ef.  McMahon  v.  Macy,  51  N.  Y.  155,  165 
(1872). 

'^  Where  the  stockholders  are  liable 
only  on  a  particular  class  of  corporate 
debts,  or  to  certain  classes  of  creditors 
only,  the  court  will  not,  of  course,  reject 
evidence  tending  to  show  either  that  the 
debt  recovered  belongs  or  does  not  belong 

198 


to  the  class  on  which  the  shareholder 
sued  is  liable.  Wilson  v.  The  Stockiiold- 
ers,  43  Penn.  St.  424  (1862);  Conant  v. 
Van  Bchaick,  24  Barb.  87  (1857);  Larra- 
bee  V.  Baldwin,  35  Cal.  135  (1868).  Cf. 
Hudson  V.  Carman,  41  Me.  84  (1856). 

^  Slee  V.  Bloom,  5  Johns.  Chan.  366 
(1820);  reversed,  Slee  v.  Bloom,  20  Johns. 
669  (1822).  But  the  mischief  was  not 
thereby  wholly  undone,  and  we  find  in 
the  New  York  re])orts  a  long  line  of  sub- 
sequent cases  in  wliich  yarious  grounds 
upon  this  subject  are  taken.  See  Mess  v. 
Oakley,  2  Hill,  265  (1842);  Moss  v.  Mc- 
Cullough,  5  Id.  131  (1843).  See  a  final 
deterudnation  of  this  case  in  7  Barb.  279 
(1849);  Belmont  v.  Coleman,  1  Bosw.  188 
(1857);  s.  c.  21  N.  Y.  96  (1860);  Strong 
V.  Wheaton,  38  Barb.  616  (1861);  Conk- 
lin  V.  Furman,  8  Abb.  Prac.  (N.  S.)  161 
(1865);  Moss  v.  Averell,  10  N.  Y.  450 
(1853);  Miller  v.  White,  50  N.  Y.  137 
(1872);  McMahon  v.  Macy,  51  Id.  156 
(1872);  Wheeler  v.  Millar,  24  Hun,  541 
(1881);  s.  c.  affirmed,  90  N.  Y.  353  (1882); 
Stephens  v.  Fox,  83  Id.  313  (1881). 

In  some  of  these  cases  it  will  be  found 
that  there  is  a  disposition  to  make  the 
judgment  only  prima  Jacie  evidence 
against  the  shareholder.  In  one  or  two 
cases  even  that  is  denied.  Upon  the 
whole,  it  may  be  said  that  the  law  in  New 
York  upon  this  point  is  unsettled,  with 
perhaps  a  tondencj-,  to  be  observed  in  the 
latest  cases,  to  coincide  with  the  other 
courts  of  the  country. 

■*  Keystone  Bridge  Co.  v.  Barstow,  8 
Mo.  App.  494  (18S0).     Many  of  those  de- 


CH.  XI.]         SUBSCRIPTIONS   AND   CORPORATE   CREDITORS.         [§  211. 


§211.  Contribution.-  Covporsite  creditors  compelling  stock- 
holders to  pay  their  subscriptions  are  under  no  obligation  to  see 
that  the  payments  made  by  the  subscribers  are  proportionally 
equal.^  A  court  of  chancery  will  compel  subscribers  to  pay  in 
full  the  amount  of  their  unpaid  subscriptions  if  the  corporate  in- 
debtedness make  it  necessary,  leaving  them  to  seek  contribution 
from  the  other  shareholders.^  The  rule,  moreover,  is  well  settled 
that  a  shareholder  who  has  been  compelled  to  pay  more  than  his 
proportion  of  the  debts  of  the  company  may  maintain  an  action 
against  his  co-stockholders  for  contribution,^ 


feuses  are  specified  and  treated  of  in  full 
in  Chapter  X.  As  will  be  seen  in  Chap- 
ter IX,  the  defense  of  fraud  inducing  the 
subscription  is  no  defense  as  against  cor- 
porate creditors.  So  also  fraud  and  mis- 
management on  the  part  of  the  directors 
and  corporate  officers  is  not  a  valid  de- 
fense herein.  In  re  Republic  Insurance 
Co.,  3  Biss.  452  (1873). 

Neither  can  the  subscriber  set  up  that 
the  corporation,  whan  his  subscription 
was  made,  had  no  stock  to  offer.  He  is 
estopped  by  the  subscription  of  his  name 
in  the  corporation  books.  Lathrop  v. 
Kneeland,  46  Barb.  432  (1866).  Cf. 
Mackley's  Case,  L.  R.  1  Chan.  247  (1875). 
Acts  that  estop  the  subscriber  as  against 
the  corporation  estop  him  as  to  corporate 
creditors.  Griswold  v.  Seligman,  72  Mo. 
110  (1880).  But  mere  entries  in  corpo- 
rate books  are  not  sufficient  to  operate  an 
estoppel.  Neilson  v.  Crawford,  52  Cal. 
248  (1877). 

Where  a  firm  or  partnership  becomes 
a  subscriber  in  tlie  copartnersliip  name, 
corporate  creditors  may  have  execution 
against  any  one  of  the  partners.  The 
partnership  subscription  is  not  a  defense 
of  which  any  single  partner  can  avail 
himself  to  escape  liability.  Bray's  Admr. 
V.  Seligmari's  Admr.,  75  Mo.  31  (1881). 
It  is  no  defence  thiit  judgment  against  the 
deferi'lant  stockholder  for  the  full  amount 
of  his  liability,  has  been  recovered  by 
other  creditors,  and  that  he  settled  the 
same  at  a  discount.  Kunkelinan  v. 
Reutchler,  15  Brad.  (111.)  271  (1884). 
Prominent  among  these  is  the  defense 
tliat  the  corporation  contracted  witli  tlie 
defemlant  that  his  8t(ick  should  be  deemed 
fully  paid  up  stock,  althougli  in  fact  the 
full  par  value  had  never  been  paid.  Vide 
Chapter  III. 

The  unpaid  subscription  may  be  col- 
lected in  payment  of  damages  for  a  tort 


the  same  as  for  a  contract  debt.  In  Maine 
this  rule  is  declared  by  statute.  Grindle 
V.  Stone,  4  East.  Rep.  623  (1886). 

1  Pentz  V.  Hawley,  1  Barb.  Chan.  122 
(1845). 

'^  Pentz  V.  Hawley,  supra;  Evans  v. 
Coventry,  25  L.  J.  Chan.  489  (1856); 
Marsh  v.  Burroughs,  1  Woods,  463  (1871). 
Solvent  stockholders  are  required  to 
make  up,  for  the  benefit  of  creditors,  the 
deficiency  of  defaulting  or  insolvent  sub- 
scribers, to  the  full  amount  of  the  former's 
own  unpaid  subscriptions.  South  Caro- 
lina Manufacturing  Co.  v.  Bank  of  South 
Carolina,  6  Rich.  (Eq.)  227  (1854).  But 
actual  subscribers  are  not  liable  for  that 
part  of  the  capital  stock  which  was  never 
subscribed.  Evans  v.  Coventry,  25  L.  J. 
Chan.  489  (1856).  It  is  no  defense  to 
show  that  notes  were  given  in  payment 
of  subscriptions,  or  that  the  notes  by  in- 
solvent persons  were  procured  to  be  giv- 
en, when  it  appears  that  nothing  was 
ever  realized  from  the  notes.  Natlian  v. 
Wliitlock,  9  Paige  Chan.  152  (1841). 

3  Wincock  v.  Turpin,  96  HI.  135(1880); 
Meisser  v.  Thompson,  9  Bradw.  (111.)  368 
(1881);  s.  c.  sub  num,  Thompson  V.  Meisser, 
108  111.  359;  Millaudon  v.  New  Orleans, 
<fec.,  II.  R.  Co.,  3  Rob.  (La.)  488  (1843); 
Marsh  v.  Burroughs,  I  Woods,  463  (1871); 
Holmes  v.  Sherwood,  3  McCrary,  405 
(1881);  Umsted  v.  Buskirk,  17  Ohio  St. 
113(1866);  Matthews  v.  Albert,  24  Md. 
527  (1866);  Stewart  ?,'.  Lay,  45  Iowa, 
604  (1877);  Iladley  y.  Russell,  40  N.  H. 
109(1860);  Erickson  v.  Nesmith,  46  Id. 
371  {l866);  Masters  v.  Rossie  Le:Kl  Min- 
ing Co.,  2  Sandf.  Chan.  3ol  (lb45);  Slee 
V.  liloom,  19  Johns.  456  (1822^;  Aspin- 
wall  V.  Torrence,  1  Lans.  3Sl  (1870); 
Stover  V.  Flack,  30  N.  Y.  64  (1864):  Far- 
row V.  Bivings,  13  Rich.  (I''q.)  25  (1866); 
Middletown  Hank  »».  Magill,  5  Conn.  28, 
01  (1823);    Brinham  v.  Wellersburg  Coal 

199 


211 


SUBSCRIPTIONS   AND   CORPORATE   CREDITORS. 


[CH. 


XI. 


Contribution  may  properly  be  enforced  in  the  corporate  cred- 
itor's suit.  It  is  largely  for  this  purpose  that  all  the  delinquent 
shareholders  may  be  and  should  be  made  parties  defendant.^ 


Co.,  47  Penn.  St.  43  (1864).  Cf.  Andrews 
«.  Collender,  13  Pick.  484  (1833);  Gray 
V.  Coffin,  9  Cush.  192  (1852);  Sutton's 
Case,  3  De  G.  <fe  Sm.  262  (1850).  In 
Pennsylvania  the  right  to  contribution  is 
said  to  be  purely  statutory.  Briuham  v. 
Wellersburg  Coal  Co..  mpra. 

'  N.  Y.  Code  of  Civil  Procedure, 
§§  1*791-1704;  Masters  v.  Rossie  Lead 
Mining  Co.,  2  Sandf.  Chan.  301  (1845); 
Holmes  v.  Sherwood,  3  McCrary,  405 
(1881);  Hadley  v.  Russell,  40  N.  H.  109 
(1860);  Umsted  v.  Buskirk,  17  Ohio  St. 
113  (1866);  Hodges  v.  Silver  Hill  Mining 
Co.,  9  Oregon,  200  (1881). 


"Where  the  articles  of  incorporation 
provide  that  the  indebtedness  shall  not 
exceed  a  certain  sum,  but  debts  are  con- 
tracted in  excess  of  the  limit,  and,  the 
corporation  being  insolvent,  the  officer 
who  contracted  the  debt  pays  it  off  out  of 
his  own  individual  funds,  he  cannot  claim 
contribution  unless  the  debt  in  excess  of 
the  limit  was  contracted  by  the  nnanimous 
assent  of  tlie  stockholders.  Haldeman  v. 
Ainslie,  Kj.  (1884).  The  proceeding  to 
enforce  contribution  must  be  in  equity ; 
it  cannot  be  at  law.  Thompson  v.  Meisser, 
108  111.  359  (1884). 


200 


CHAPTER   XII. 


STATUTORY   LIABILITY   OF   STOCKHOLDERS    TO   CREDITORS. 


212. 
213. 

214. 

215. 
216. 


Statutory  liability  in  general. 
May  be  imposed  by  State  constitu- 
tion or  by  statute. 
The  statutes  to    be  strictly    con- 
strued. 

Particular  statutes  construed. 
The  statutf)ry  liability  can  be  en- 
forced by  corporate  creditors  only. 

217.  Waiver  by  corporate  creditors  of 
their  statutory  rights  against 
shareholders. 

218-19.  Enforcement  of  this  statutory 
liability  outside  the  State. 
Statutory  liability  not  enforceable 
to  pay  damages  recovered  against 
the  corporation  in  tort. 
Judgments,  executions,  (fee, against 
the  corporation,  a  condition  prece- 


220. 


221. 


dent  to  the  right  to  enforce  the 
statutory  liability. 
§  222.  How  far  the  judgment  against  the 
corporation  is  conclusive    of    the 
creditor's  claims. 

223.  Difficulty  in  determining  whether 
the  creditor's  remedy  is  at  law  or 
in  equity. 

224.  Particular  statutes  considered  as 
re2;ards  the  creditor's  remedy. 

225.  The  remedy  at  law,    how   far 
elusive. 

226.  Illustrations    of    the    remedy 
equity  and  at  law. 

227.  Stockholder's  defenses  against  his 
statutory  liability. 

228.  Priority  among  creditors. 

229.  Contribution  among  shareholders 


ex- 


in 


§  212.  Statutory  liability  in   general. — Probably   the   most 

characteristic  feature  of   a  corporate  existence  is  the  fact  that,  by 

being  a  corporation,  its  stockholders  are  liable  only  for  the  par 

value  of  the  stock  held  by  them.     This  exemption  from  liability 

need  not  be  declared  in  the  charter,  but  flows  from  the  very  fact 

of  incorporation.     For  this  reason,  legislatures  are  very  careful,  in 

giving  joint-stock  companies  certain  special  powers,  to  distinctly 

declare  that  the  company  shall  not  thereby  become  a  corporation. 

The  very  fact  of  incorporation  by  itself  releases  subscribers  for 

stock  from  all  liability  for  corporate  debts,  except  to  the  extent  of 

their  unpaid  subscriptions.     It  has  been   deemed  wise,  however, 

by  the  State  legislature,  in  many  instances,  to  increase  the  liability 

of  stockholders  to  corporate  creditors.     Accordingly  statutes  are 

y)a8sed  expressly  declaring  that  the  stockholders  shall  be  so  liable 

for  a   specified    sum,  in   addition    to    their  unpaid  subscriptions. 

This  is  called    the   statutory  liability  of  stockholders.     It    rarely 

if  ever  exists  as  regards  stockholders  in  railroad  corporations,  but 

nearl}'  always    exists   in    the   case   of  manufacturing  and  vaiMuus 

other  corporations. 

201 


§  213.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.         [cH.  XII. 


§  213.  May  he  imposed  hy  State  constitution  or  hy  statute. — 

Many  of  the  State  constitutions  contain  provisions  imposing  a 
liability  upon  shareholders  in  corporation,  in  addition  to  the 
liability  on  their  unpaid  subscription.^ 

Sometimes  these  constitutional  provisions  are  not  self-enforc- 
ing, but  require  legislation.^  In  the  most  cases,  in  fact,  this 
additional  liability  of  stockholders  is  enforced  by  the  statute  or 
act  of  the  legislature. 

The  constitutionality  of  such  statutes  is  generally  unques- 
tioned. Frequently,  however,  the  statute  is  passed  after  the 
charter  is  granted.  It  then  becomes  a  grave  question  whether 
or   not   the   statute    itself  is  constitutional.      A  full  discussion, 


1  In  Ohio  (Const,  of  1851,  art  13,  §  3), 
and  Kansas  (Const,  of  1859,  art.  12,  g  2), 
each  stockholder  is  made  liable,  over  and 
above  liis  stock,  in  all  cases,  to  a  further 
sum  equal  in  amount  to  such  stock.  In 
Kansas,  railway,  religious,  and  charita- 
ble ar3  excepted.    In  Michigan  (Const,  of 

1850,  art.  15,  §  7),  each  stockholder  is 
individually  liable  for  all  labor  perform- 
ed for  the  corporation.  In  California 
(Const,  of  1873,  art.  12,  §  3),  the 
stockholder  is  individually  and  person- 
ally liable  for  such  proportion  of  all 
debts  and  liabilities  of  the  corpora- 
tion, as  his  shares  bear  to  the  whole 
subsf^ribed  capital  stock.  In  New  York 
(Const,  of  1846,  art.  8,  §  2),  Indiana 
(Const,  of  1851,  art.  11,  §  14),  Korth 
Carolina  (Const,  of  1876,  art.  8,  §  2), 
Texa-i  (Const,  of  1876,  art.  12,  §  2),  Cali- 
fornia (Const,  of  1873,  art.  12,  §  2),  Soiith 
Carolina  (Const,  of  1868,  art.  12,  i^  4),  and 
in  Alabama  (Const,  of  1875,  art.  14), 
Nevada  (Const,  of  1864,  art.  8),  Missouri 
(Const,  of  1875,  art.  12),  and  Ohio  (Const. 
of  1851,  art.  13),  there  are  constitutional 
provisions  that  dues  from  corporations  or 
their  stockholders  are  to  be  secured  in  a 
manner  provided  by  law.  In  South 
Carolina  (Const,  of  1868,  art.  12,  §  5), 
stockholders  are  personally  liable  under 
fixed  limitations.  In  Illinois  (Const,  of 
1870,   art.    11,  §  6),  Indiana    (Const,    of 

1851,  art.  H,  §  6),  Iowa  (Const,  of  1857, 
art.  8.  §  9),  Nebraska  (Const,  of  1875, 
art.  13,  §  7),  New  York  (Const,  of  1846, 
art.  8,  §  7),  and  West  Virginia  (Const,  of 
1872,  art.  11,  §  6),  stockholders  in  banks 
are  individually  liable  for  the  bank's 
debts,  over  and  above  their  stock,  to  the 
amount  of  the  stock  held  by  them.     In 

202 


Minnesota,  to  double  the  amount  of  their 
stock  (Const,  of  1857,  art.  9,  §  13). 
In  Michigan  (Const,  of  1850,  art.  15, 
§  3),  stockholders  in  banks  issuing 
money  are  liable  for  all  the  debts  of 
the  ijank  contracted  while  they  are 
ofHcers  or  such  stockholders,  each  for 
his  proportion,  according  to  the  amount 
of  stock  owned  by  him.  But  in  Mary- 
land (Const,  of  1867,  art.  3,  ?;  39),  and 
South  Carolina  (Const,  of  1868,  art.  12, 
§  6),  they  are  liable  only  to  the  amount 
of  their  stock.  In  Alabama  (Consst.  of 
1875,  art.  14,  §  8),  Missouri  (Const,  of 
1875,  art.  12,  g  9),  Nebraska  (Const,  of 
1975,  art.  13,  §  4),  Oregon  (Const,  of  1857, 
arl.  11,  §  3),  and  West  Virginia  (Const, 
of  1872,  art.  1 1,  §  2),  there  are  constitu- 
tional provisions  that  stockholders  shall 
in  no  case  be  liable  otherwise  than  for 
unpaid  stock  owned  by  them.  In  Minne- 
sota (Const,  of  1857,  art.  10,  §  3),  and 
Mississippi  (Const,  of  1869,  art.  12,  g  17), 
each  stockholder  is  by  the  constitution 
liable  for  the  amount  of  stock  held  or 
owned  by  him.  In  Miimesota  share- 
holders in  mechanical  or  manufacturing 
corporations  are  excepted.  In  Nevada 
(Const,  of  1864,  art.  8,  §  8),  it  is  enacted 
that  stockholders  shall  not  be  individually 
liable  for  the  debts  and  liabilities  of  the 
corporation. 

-  As,  for  example,  the  provision  that 
"  dues  from  corporations  shall  be  secured 
by  individual  liability  of  the  stockholders 
to  an  additional  amount  equal  to  the 
stock  owned  by  each  stockholder,  and 
such  other  means  as  shall  be  provided  by 
law."  Morley  v.  Thayer,  3  Fed.  Rep. 
737  (1880). 


CH.  XII.]         STATUTORY   LIABILITY   OF   STOCKHOLDERS.  [§  215. 


however,  of  the  principle  of  constitutional  law  as  affecting  stock- 
holders is  discussed  elsewhere.^ 

§  214.  These  statutes  to  he  strictly  construed. — Inasmuch  as 
all  statutes  creating  an  additional  liability  on  the  part  of  stock- 
holders are  in  derogation  of  the  common  law,  they  are  to  be 
strictly  construed.  They  are  a  wide  departure  from  established 
rules,  and,  although  founded  on  considerations  of  public  policy 
and  general  convenience,  are  not  to  he  extended  beyond  the 
plain  intendment  of  the  words  of  the  statute.^ 

§  215.  Particular  statutes  construed. — The  character,  nature, 
and  extent  of  the  liability  Imposed  by  constitutional  provisions,  or 
by  statute,  upon  stockholders,  in  addition  to  their  common  law  lia- 
bility, vary,  of  course,  very  widely,  and  the  extent  of  the  liability 
created  by  each  statute  will  depend  entirely  upon  the  particular 
words  of  the  enactment.^     There  are,  however,  certain  provisions 


'  See  Chapter  on  Amendments  and 
ConstiiutioDality  thereof. 

^  O'Reilly  «;."'Bard,  105  Penn.  St.  569 
(1884);  Chase  v.  Lord,  77  N.  Y.  1  (1879); 
Mean's  Appeal,  85  Penn.  St.  75  (1877); 
Gray  v.  Coffin,  9  Cush.  192  (]8.i2);  Pane 
V.  Dane  Manfg.  Co.  14  Gray,  489  (1859) ; 
Chamberlin  v.  Huguenot  Manfg.  Co.  118 
Mass.  532  (1875);' Grose  «.  Hilt,  36  Me. 
22(1853);  Coffin  v.  Rich,  45  Id.  511; 
Windham  Provident  Institution,  &c.  v. 
Sprague,  43  Vt.  502  (1871) ;  Dauchy  v. 
Brown,  24  Id.  197;  Moyer  v.  Pennsyl- 
vania Slate  Co.  71  Penn.  St.  293  (1872); 
Youirhioghenv  Shaft  Co.  v.  Evans,  72  Id. 
331  (1872);  Diven  v.  Lee,  3S  N.  Y.  302 
(1867);  Lowry  v.  Inman,  46  Id.  119 
(1S7I);  Salt  Lake  City  National  Bank  v. 
Hendrickson,  40  N.  J.  Law,  52.  Of.  Priest, 
V.  Es.sex  Hat  Manfg.  Co.  115  Mass.  380 
(1874);  Ripley  v.  Samp.son,  10  Pick.  371 
(1830) ;  Knowlton  v.  Ackley,  8  Cush.  93 
(1851);  Bassctt  v.  St.  Albans  Hotel  Co., 
47  Vt.  313  (1875);  Davidson  v.  Rankin, 
34Cal.  503  (1808);  Mokelumne  Hill,  &c., 
Co.  V.  Woodbury,  14  Id.  205. 

In  the  recent  case  of  Dewey  v.  St.  Al- 
bans Tru.st  Company,  57  Vt.  h'.Vl  (1885); 
a  charter  provision  that,  "  If  at  any  timu 
the  cMpital  btjck  .  .  .  sii.'ill  be  im- 
paired by  losses,  or  otherwise,  the  direc- 
tors shall  forthwith  repnir  the  same  by 
assessment,"  was  hcM  not,  to  impose  a 
personal  liMbiliiy  upon  the  stockholders 
of  the  corporation.     The  court  proceeded 


upon  the  theory  that  in  construing  such 
an  enactment  it  is  the  duty  of  the  courts 
to  ascertain  and  carry  out  the  intention 
of  tiie  legislature.  All  such  statutes  are 
to  be  construed  according  to  the  particu- 
lar clauses  found  in  them,  and  since  these 
clauses  vary  widely  in  their  formation, 
it  would  lead  only  to  confusion  to  at- 
tempt to  review  the  many  Itatutory  pro- 
visions on  the  liability  of  stockholders. 
Carver  v.  Braintree  Manfg.  Co.,  2  Story, 
433,  447  (1843);  Bohn  v.  Brown,  33 
Mich.  257  (1876) ;  Lane  v.  Morris,  8  Ga. 
468,  475  (1850);  Ingalls  v.  Cole,  47  Me. 
530.  Cf.  Chase  v.  Lord,  77  N.  Y.  1  ; 
Moyer  v.  Pennsylvania  Slate  Co.,  71  Penn. 
St.  293  ;  Potter  v.  Stevens  Machine  Co., 
127  Mass.  692;  Dane  v.  Dane  Manfg.  Co., 
14  Gray,  489;  Gray  v.  Coffin,  9' Cush. 
192. 

It  has  been  held  that  these  statutes, 
being  from  one  point  of  view  contracts, 
are  to  be  interpreted  in  the  same  way  as 
any  other  contract  containing  like  pro- 
visions. Hicks  V.  Burns,  38  N.  H.  141 
(1859). 

It  has  idso  been  held  that,  being  reme- 
dial in  their  nature,  they  are,  therefore,  to 
be  liberally  consti-ued.  Carver  y. Braintree 
Manlg.  Co..  2  Story,  433  (1843),  by  Mr. 
Justice  Story  ;  Freeland  v.  McCullough, 
1  Denio,  413  (1845).  Dtit  this,  as  it  ap- 
pears, is  not  the  prevailing  view. 

^  Bingham  i.  Hu.sting,  5  Ala.  403 
(1843);   Bank  of  St.  Mary's   v.  St.   John, 

203 


§  215.]  STATUTORY    LIABILITY  OF   STOCKHOLDERS.         [cn.  XII. 


imposing  this  additional  liability  which  are  found,  in  essentially  tlie 
same  form,  in  the  constitution  or  statutes  of  very  many  of  the 
States.  Thus,  the  ]S^ew  York  statute  providing  for  the  incorpora- 
tion of  manufacturing  companies,  passed  in  1848,^  has  been  copied, 
m  its  essential  features,  in  almost  every  State  in  the  Union.  Tliat 
statute  contains  a  provision  imposing  a  contingent  statutory  lia- 
bility upon  stockholders  vphich  has  also  been  very  generally  re- 
enacted  in  other  States.  By  this  provision  stockholders  in  a 
manufactui'ing  corporation  are  severally  individually  liable  to  cor- 
porate creditors  to  an  amount  equal  to  their  stock  until  the 
whole  capital  stock  is  paid  in,  and  a  certificate  to  that  effect 
is  duly  filed.^  Stockholders  in  a  national  bank  are  subject  to  a 
personal  liability.^ 

Sometimes  the  shareholder    is    made    individually  liable  for 


25  Id.  566,  620  (1854);  Smith  v.  Hucka- 
bee,  53  Id.  191  (1875);  Lane  v.  Morris,  8 
Ga.  468  (1850);  Sliaw  v.  Boylan,  16  Ind. 
384  (1861);  Trustees,  &c.  v.  Flint,  13 
Mete.  539(1847);  Coffin  v.  Rich,  45  Me. 
507  (1858);  Sumner  v.  Marcy,  3  Woodb. 
&  M.  105  (1847). 

'  New  Yorl^  Session  Laws,  1848,  oh. 
40. 

■  This  liability,  on  the  part  of  stock- 
holders, "  to  an  amount  equal  to  their 
stock,"  is,  it  is  believed,  universally  con- 
strued to  be  a  liability  in  addition  to  and 
equal  to  the  liability  on  the  subscription, 
so  that,  when  enforced  and  collected,  each 
subscriber  will  have  paid  double  for  his 
stock,  once  on  the  subscription,  and  once 
on  the  statutory  liability.  Matter  of  the 
Empire  City  Back,  18  N.  Y.  199,  218 
(1858);  Ohio  Life  Insurance  Co.  v.  Mer- 
chants Ins.  Co.,  11  Humph.  (Tenn.)  1 
(1850);  Lewis  w.  St.  Charles  Co.,  5  Mo. 
App.  225(1878);  Wheeler  v.  Millar,  90 
N.  Y.  353,  359  (1882);  South.  &  Jones 
on  Manfg.  &  Business  Corp.,  §  100.  Of. 
Briggs  V.  Penniman,  8  Cow.  387  ;  Bank  of 
Pouglikeepsie  v.  Ibbotson,  24  Wend. 
473. 

The  stockholders'  liability  under  this 
act  is  not  confined  to  the  original  capital 
stock,  but  attaches  on  an  increase  of  the 
capital,  as  authorized  by  tlie  act,  to  such 
increased  capital.  Where,  however,  the 
original  capital  is  paid  in,  in  full,  and  a 
certificate  made  and  recorded,  the  liabil- 
ity of  the  stockholders  thus  far  is  ended, 
and  cannot  be  revived  by  an  increase  of 
the  capital  stock.  The  holders  of  the 
original  stock  will  not,  therefore,  be  lia- 

204 


ble  thereon  becau=e  of  a  failure  to  pay  in 
the  increased  capital ;  that  liability  rests 
solely  upon  the  holders  f)f  the  increased 
stock,  and  is  limited  by  the  par  value  of 
such  stock.  Veeder  ?'.  Mudirett,  95  N.  Y. 
295  (1884).  Cf.  Chubb  v.  Upton,  65  U. 
S.  665  (1877).  See  also  Ochiltree  v.  Rail- 
road Co.,  21  Wall.  249  (1874);  Robinson 
V.  Bank  of  Darien,  18  Ga.,  65,  87  (1855). 
Cf.  Woodruff  V.  Trapnall,  10  How.  190, 
206  (1850). 

But  a  statutory  liability  cannot  be  re- 
duced, and  the  rights  of  creditors  there- 
b}'  impaired,  by  reducing  the  par  value  of 
the  shares.  Dane  v.  Young,  61  Me.  160 
(1872).  See  also  Chapter  on  Amend 
ments  of  Charter. 

^  Thus  stockholders  in  national  banks 
are  liable  individually  as  follows  (Rev. 
Stat.  §  5151):  "The  shareholders  of 
every  national  banking  association  shall 
be  held  individually  responsible,  equally 
and  ratably,  and  not  one  for  another,  for 
all  contracts,  debts,  and  engagements  of 
such  association  to  the  extent  of  the 
amount  of  their  stock  therein,  at  the  par 
value  thereof,  in  addition  to  the  amount 
invested  in  such  shares." 

Stockholders  in  banking  corporations 
in  New  York,  other  than  national  banks, 
are  not  liable  individually  for  its  debts 
(Laws  1838,  ch.  2»;0,  §  23):  "No  share- 
holder of  any  such  association  shall  be 
liable  in  his  individual  capacity  for  any 
contract,  debt,  or  engagement  of  such  as- 
sociation, unless  the  articles  of  associa- 
tion by  him  signed  shall  iiave  declared 
that  the  shareholder  shall  be  so  liable." 
See  Sherman  v.  Smith,  1  Black,  587,  rela- 


CH.  XII.]         STATUTORY  LIABILITY   OF   STOCKHOLDERS.  [§  215. 


certain  classes  of  corporate  indebtedness  only,  or  for  debts  in- 
curred for  labor  and  supplies.^  Such  provisions  are  found  in 
the  statutory  or  constitutional  law  of  nearly  all  of  the  States.^ 
When  shareholders  are  made  liable  by  statute,  absolutely  or 
as  partners,  or  in  any  way  for  the  claims  of  those  who  are  the 
servants  or  apprentices  or  laborers  of  the  corporation,  the  ques- 
tion at  once  arises,  when  it  is  attempted  to  enforce  that  liability, 
whether  or  not  the  plaintiff  comes  within  the  prescribed  class,  that 
is  to  say  whether  he  is  a  servant.^     And  in  all  cases  of  a  statutory 


live  to  tlie  amendment  as  regards  State 
banks  issuing  notes. 

'  Wc'ifB  ^^  Maucb  Chunk  Iron  Co.,  58 
Penn.  St.  295  (18^8);  Reading  Industrial 
Manfg.  Co.  v.  Graeff,  G4  Id.  395  (1870); 
Meyer  v.  PennsylTania  Slate  Co.,  71  Id. 
293(1872);  Weigley  v.  Coal  Oil  Co.,  5 
Phila.  67(1862). 

^JS'.  Y.  Session  Laws,  1848,  cb.  40, 
§  18;  N.  Y.  Session  Laws,  1850,  ch.  140, 
§  10;  Mich.  Const,  of  1850,  art.  15,  §  7. 
See  Wakefield  v.  Fargo,  90  N.  Y.  213 
(1882*. 

^  It  may  be  stated,  as  the  general  ride, 
that  only  those  who  perform  menial  or 
manual  services  are  within  the  class  con- 
templated in  the  statute;  "that  he  who 
periorms  them  rtiust  be  of  a  class  whose 
m(  mbers  usually  look  to  the  reward  of  a 
day's  labor  or  service  for  immediate  or 
present  support,  from  whom  the  company 
does  not  expect  credit,  and  to  whom  its 
future  ability  to  pay  is  of  no  conse- 
quence." Wakefield  v.  Farjro  90  N.  Y. 
213.  217  (1882).  Cf.  Williamson  v. 
Wadsworlh,  49  Barb.  294 ;  Adams  v. 
Goodrich,  65  Ga.  335.  This  overrules 
some  of  the  earlier  New  York  cases,  e.  g. 
Vincent  v.  iJrarnford,  1  Jones  &  Sp. 
506;  s.  c.  12  Abb.  Prac.  (N.  S.)  252, 
which  lield  an  engineer  and  fireman,  who 
sometimes  also  acted  as  superiTitcndent, 
to  be  a  servant  within  the  meaning  of  the 
rule.  Hiuris  v.  ^■orvell,  1  Abb.  N.  C. 
127,  which  held  a  reporter  employed  by 
a  newspaper  company,  and  a  city  or 
assiftant  editor,  if  not  an  officer  of  the 
company,  to  be  a  .servant.  Hovey  v.  Ten 
Broeck,'3  Robertson.  316  (1865),  holding 
an  overseer  and  book-keeper  w.tliin  the 
protection  of  the  act.  In  accordance 
with  this  interpretation  of  ihe  act,  the 
following  employees  have  been  held  nut 
aervants  or  laborers  within  the  jirotec- 
tion  of  the  rule : — The  secretary  of  a  inan- 
ufacturinti  company.  Coffin  v.'  Reynolds, 
87  N.  Y.  (640)  1868,  overruling  Richard- 


son V.  Abendroth,  43  Barb.  163,  and  per- 
haps Williamson  v.  Wadsworth,  49  Id. 
294,  which  is  the  case  of  a  civil  engineer 
and  traveling  agent  at  a  fixed  salary. — 
A  civil  engineer,  Pennsylvania,  <fec.^  R. 
R.  Co.  V.  Leufi"er,  84  Penn.  St.  168  (1877). 
Contra,  Conant  v.  Van  Schaick,  24  Barb. 
87.  Cf.  Williamson  v.  Wadsworth,  49 
Barb.  294. — A  consulting  engineer, 
Ericsson  v.  Brown,  38  Barb.  390  (1862). 
—  An  assistant  chief  engineer,  Brockway 
V.  Innes,  39  Mich.  47  (1878).  Cf.  Peck 
V.  Miller,  39  Mich.  594  (1878).— An  over- 
seer on  a  plantation,  Whitaker  ?'.  Smith, 
84  N.  C.  340  (1879).  Contra,  Hovey  v. 
Ten  Broeck,  3  Robertson  (JSI.  Y.  Super. 
Ct.)  316  (1875).— A  contractor,  Boutwell 
Townscnd,  37  Barb.  205  (1860);  Aikin  v. 
Wat'son,  24  N.  Y.  482  (1862);  Balch  v. 
New  York,  <fec.,  R.  R.  Co.,  46  Id.  521 
(1871);  Atcherson  v.  Troy,  <fec.,  R.  R. 
Co..  6  Abb.  Prac.  (N.  S.)  329.  Cf.  Kent 
V.  New  York,  *fec.,  R.  R.  Co.,  12  N.  Y. 
628  (1855);  McCluskey  v.  Cromwell,  11 
Id.  693  (1854). — An  agent  of  a  mining 
corporation  employed  to  take  charge  of 
its  mines  in  a  foreign  country.  Hill  v. 
Spencer,  61  N.  Y.  274  (1874);  Dean  v'. 
DeWolf,  16  Hun.  186  (1878);  Krauser  v. 
Ruckel,  1 7  Id.  463  (1 879).— A  book-keeper 
and  general  manager,  Wakefield  v.  Fargo, 
90  N.  Y.  213  (1882).— A  superintendent, 
Kincaid  v.  Dwindle,  59  N.  Y.  548  (1875). 
Cf.  Gordon  v.  Jennings,  L.  R.,  9  Q.  B. 
Div.  45.  And  compare,  also,  Gurney  v. 
Atlantic,  Ac,  Ry.  Co.,  58  N.  Y.  *358 
(1874).  But  in  general  only  manual  or 
menial  laborers  are  protected  by  the 
statute.  Adams  v.  Goodricii,  65  Ga.  335. 
Cf.  Heebner  v.  Chave,  5  Penn.  St.  116 
(1847);  Harrod  ?«.  llamer,  32  Wis.  162 
(187;i);  Soutliworth  &  Jones  on  Manfg. 
cfe  liusiness  Corfjorations,  §  96.  Under 
the  mechanics'  lien  laws  of  the  several 
Stales,  a  wider  meaning  has  been  given 
to  the  word  "  laborers."  These  cases 
are  frequently  confused  with  the  statutes 

205 


§  216.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.         [CH.  xn. 


liability,  the  extent  of  that  liability  will  depend  largely  on  the 
words  used  in  the  statute.^  Where  the  stockholders  are  made  lia- 
ble "to  double  the  amount  of  the  stock  held  by  them,"  each  stock- 
holder will  be  held  liable  once  on  his  subscription,  and  once  again 
under  the  statute.^  And  stockholders  cannot,  to  any  degree  or  by 
any  means,  limit  their  statutory  liability  to  creditors,^  except  by  an 
express  contract  with  creditors  before  the  debt  is  contracted. 

§  216.  The  statutory  liaMlity  can  he  enforced  ty  corporate 
creditors  only. — The  statutory  liability  of  the  stockholder  is 
created  exclusively  for  the  benefit  of  corporate  creditors.  It  is 
not  to  be  numbered  among  the  assets  of  the  corporation,  and  the 
corporation  has  no  right  or  interest  in  it.  It  cannot  enforce  it 
by  an  assessment  upon  the  shareholders.*  [Nor  can  the  corpora- 
tion upon  the  insolvency  assign  it  to  a  trustee  for  the  beuetit  of 
creditors.^  It  is  a  liability  existing  directly  and  immediately 
from  the  shareholders  to  the  corporate  creditors."    Accordingly  a 


considered  herein.  Stryter  v.  Cassidy, 
76  N.  Y.  50  (1879);  Mutual  Benefit  Ins. 
Co.  V.  Rowood,  26  N.  J.  Eq.  389 ;  Bank 
of  Pennsylvania  v.  Gries,  35  Penn.  St. 
423  ;  Arnoldi  v.  Gonin,  22  Grant's  Chan. 
(Upp.  Can.)  314;  Mullifran  v.  Mullii^an, 
18  La.  Ann.  21  ;  Knight  v.  Norris,  13 
Minn.  475 ;  Raeder  v.  Bensberg,  6  Mo. 
App.  445  ;  Foushee  v.  Grigsby,  12  Bush, 
75  ;  Smallhouse  v.  Kentucky,  cfec,  Co.,  2 
Montana,  443;  Capron  v.  Stout,  11  Nev. 
304.  The  mere  fact  that  one  does  some 
manual  labor  incidental  to  his  position  as 
manager,  or  foreman,  or  superintendent, 
will  not  constitute  him  a  laborer  within 
the  intent  of  these  statutes.  Krauser  v. 
Ruckel,  17  Hun,  463  (1879);  Ericsson  v. 
Brown,  38  Barb.  390.  Cf.  Wakefield  v. 
Fargo,  90  N.  Y.  213  (1882).  But  where  a 
foreman  did  so  much  manual  labor  that  it 
was  not  a  mere  incident  of  his  foremai- 
ship,  it  was  held  that  he  might  recover 
as  a  laborer.  Short  v.  Medberry,  29  Hun, 
39  (1883). 

'  In  Massachusetts  stockholders  in 
manufacturing  corporations  are  liable  as 
tenants  in  common  to  creditors,  to  the 
extent  of  the  capital  stock,  until  it  has 
been  divided  into  shares.  Hawes  v. 
Ano-lo  Saxon  Petroleum  Co.,  101  Mass. 
385^(1869);  Id.  v.  Id.  Ill  Id.  200(1872). 
Cf.  Burnape  v.  Haskins  Stsara  Engine 
Co.,  127  Ma^'s.  586.  But  where  some  of 
the  stock  is  held  by  the  corporation  itself 
this   will  not    compel   the    other    share- 

206 


holders  to  bear  the  statutory  liability  as 
to  the  stock  so  held  by  the  corporation. 
Crease  v.  Babcock,  10  Mete.  525(1846). 
And  in  Maryland  the  ordinary  statutory 
liability,  until  the  capital  stock  is  paid  in, 
makes  the  stockholder  liable  for  imsub- 
scribed  shares.  Hager  v.  Cleveland,  36 
Md.  476  (1872).  Cf.  Norris  v.  Johnson, 
34  Id.  485  (1871). 

2  Perry  v.  Turner,  55  Mo.  418  (1874) ; 
Matthews  v.  Albert,  24  Md.  527  (1866)  ; 
Norris  v.  Johnson,  34  Id.  485  (1871); 
Booth  V.  Campbell,  37  Id.  522  (1872). 
But  see  Schricker  v.  Ridings,  65  Mo.  208 
(1877);  Gay  v.  Keys,  30  111.  413.  A 
statute  imposing  a  liability  on  stock- 
holders to  the  amount  of  their  subscrip- 
tions is  not  a  statutory  liability.  The 
statute  is  only  declaratory  of  the  subscrip- 
tion liability.  Walker  v.  Lewis,  49 
Texas,  123. 

2  Union  Mutual  Insurance  Co.  v. 
Frear  Stone  Manf<r.  Co.,  97  HI.  537 
(1881);  Dane  v.  Young,  61  Me.  160 
(1872). 

•»  Umsted  v.  Buskirk.  17  Ohio  St.  113 
(1866);  Liberty  Female  Collei-e  Associa- 
tion V.  Watkins,  70  Mo.  lo  (1879). 

5  Wright  V.  McCormack,  17  Ohio  St. 
86,  95  (1856);  Dutcher  v.  Marine  National 
B.mk,  12  Blatchf.  433  (1875). 

«  Bristol  V.  Sanford.  12  Blatchf.  341 
(1874);  Line  v.  Morris,  8  Ga.  468  (1850). 
The  creditors  may  control  it  as  of  their 
own  right — may  assign  it  inter  vivos,  or 


CH.  XII.]         STATUTORY    LIABILITY   OF   STOCKHOLDERS.  [§  218. 

receiver  of  an  insolvent  corporation,  invested  veith  "  all  the  estate, 
property,  and  equitable  interests  "  of  the  concern,  has  no  power 
to  enforce  such  a  liability  as  this.^  The  action  to  enforce  can  be 
maintained  only  by  the  creditors  themselves,  in  their  own  right 
and  for  their  own  benefit.^ 

§  21 7.  Waiver  hy  corporate  creditors  of  tlieir  statutory  rights 
against  share1iolilers.—A  corporate  creditor  may,  by  express 
contract,  when  the  debt  is  incurred,  waive  his  right  to  collect 
from  the  stockholder  debts  which  the  corporation  fails  to  pay.^ 
And  the  corporation  in  its  contracts  with  third  persons  may,  it  is 
lield  in  England,  lawfully  stipulate  for  the  exemption  of  its  mem- 
bers from  the  liability  imposed  upon  them  by  statute  in  the  event 
of  the  insolvency  of  the  corporation.* 

§  218.  Enforcement  of  tliis  statutory  liaMlity  outside  the 
State. — When  some  or  all  of  the  stockholders  of  a  corporation  are 
non-residents  of  the  State  in  which  the  corporation  exists,  the  im- 
portant question  arises,  when  a  statutory  liability  is  sought  to  be 
enforced,  whether  the  courts  of  one  State  will  enforce  such  a  lia- 
bility created  by  the  statute  law  of  another  State.  The  statutory 
liability  can  usually  be  enforced  only  in  the  courts  of  the  State 
where  the  stockholders  live,  since  jurisdiction  cannot  be  obtained 
elsewhere  unless  the  stockholder  has  property  which  may  be  at- 
tached, or  can  be  served  personally  with  process.  The  question 
then  arises,  whether  the  courts  of  one  State  will  enforce  a  statutory 
stockholder's  liability  created  by  the  laws  of  another  State.     It  is 

transmit  it  to  their  personal  representa-  27  Hun,  307  (1882);  Billings  v.  Trask,  30 

tivfs.     Pfohl  V.   Simpson,  74  N.  Y.   137  Id.  314  (1883).     But  under  special  stat- 

(1878);  Weeks  ?;.  Love,  60  Id.  "SCS  (1872).  utes   in  New  York   trustees   are  vested 

See  also  Zabriskie  v.  Smith,  13    Id.  322  with  power  to  collect  these  claims  on  be- 

(1855);  Wade  v.  Kalbfleisch,  68  Id.  282  half  of  creditors.     Walker  v.  Grain,   17 

(1874);  Jackson  y.  Daggelt,  24  Hun,  204  Barb.    128;  Story  ?'.   Furman,   25   N.  Y. 

\\m\).  215:   Cuykendall    v.   Corning,    88   N.    Y. 

'  Billings  V.   Robinson,  94  N.  Y.  415  129  (1882);  Herkimer  Co.  Bank  v.  Fur- 

(1884);   Farnsworth   v.  Wood,   91   N.  Y.  miin,  17  Barb.  116;    Hurd  «.  Tallman,  CO 

308  (1883) ;  Cuykendall  v.  Corning,  88  Id.  Id.  272. 

129   (1882);  Arenz  v.  Weir.  89   111.   25;  'Robinson   v.    Bidwell,    22   Cal.   379 

Jacobson  1/.  Allen,  20  Blatclif.  525;  Han-  (18S3);   French   v.  Tesclicmaker,   24   Id. 

son  V.  Doiikerslev,  37  Mich.  184;  Cutting  518  (18t>l);  Basshor  v.  Forbes,   36  Md. 

V.   Damerel,   88  X  Y.   410  (1882).     Cf.  154(1872);    Browu  w.  Eastern  Slate  Co.. 

Davis  V.  Gray,  10  Wall.  203  (1872) ;  At-  134  Mass.  590. 

torney-General   v.  Guardian  Mutual,  <fec.,  *  Re  Athciireum,  Ac.  Society,  3  Dc  G. 

Ins.  Co.,  77  N.  Y.  272  (1879).  &   J.    060    (1859);   Ilalket   v.    Merchant 

-  Farnsworth   v.  Wood,  91    N.  Y.  308  Traders,  Ac.,  Association,    13  Q.   B.    960 

(188:!);  Weeks  i;.  Love,  50  Id.  568(1872);  (1819);   Durham's  Case,  4  Kay  A  J.  517 

rfohl  )i.  Simpson,  74  111.  137  (1878).    See  (1858).       Cf.    Shelford    on    .loint    Stock 

also  Mason  v.  New  York  Silk,  Ac,  (.o..  Companies  (2d  London  edition),  4. 

20T 


§218.] 


STATUTORY   LIABILITY   OF   STOCKHOLDERS. 


[CH. 


xn. 


a  liability  depending  on  the  law  of  the  domicile  of  the  corpora- 
tion.^ When,  therefore,  the  courts  of  one  State  are  asked  to  en- 
force the  extraordinary  liability  imposed  upon  shareholders  by  the 
statutes  of  another  State,  two  essential  considerations  enter  into 
the  determination  of  the  matter. 

First,  is  the  statutory  liability  itself  a  liability  arising  out  of  a 
contract,  or  is  it  a  mere  penalty?  Second,  are  the  remedies  pro- 
vided by  the  laws  of  the  State  where  suit  is  sought  to  be  brought, 
adequate  to  the  just  enforcement  of  the  liability?  Upon  the  first 
question  the  courts  are  now  essentially  agreed  in  holding  that  the 
statutory  liability  in  these  cases  is  not  penal  in  its  nature,  but  is  a 
liability  arising  out  of  a  contract.^     Nevertheless,  although  this  is 


1  Payson  t). Withers,  5  Biss.  269  (1 87H) ; 
Seymour  v.  Sturgess,  26  N.  Y.  ]34(1862); 
Merrick  v.  Van  Santvocrd,  34  Id.  208 
(1866);  ]VlcDonouo:h  v.  Thelps,  15  How. 
Prac.  372  (1856);  ^ Ex  parte  Van  Riper,  20 
Wend.  614  (1839).  Cf.  Hill  v.  Beach,  12 
N.  J.  Eq.  31;  Nabob  of  Carnatic  v.  East 
India  Co.,  1  Vesey,  371  ;  Dutch  West  In- 
dia Co.  V.  Henriquez,  1  btrange,  612 ; 
King  of  Spain  v.  Mullett,  2  Bligii  (N.  S.), 
3.  And  see  also  Land  Grant  Ry.,  tfec, 
Co.  V.  Coffee  County,  6  Kan.  254. 

In  Bateman  v.  Service,  L.  R.  6  App. 
Cas.  386  (1881).  the  ground  is  taken  that  a 
liability  created  by  statute  remains  the 
same  wherever  the  corporation  may  trans- 
act its  business,  or  wherever  the  share- 
holders mny  happen  to  live,  and  that  the 
fact  of  doinc:  business  in  a  foreign  State 
does  not  subject  the  shareholders  of  the 
corporation  to  the  operation  of  laws  which 
create  statutory  liability  in  such  foreign 
State.  In  accordance  with  this  view  it 
was  held  in  Ohio,  where  a  foreign  corpo- 
ration, without  statutory  liability  of  its 
stockholders,  did  business  in  Ohio,  where 
the  statutes  prescribe  a  personal  liability 
for  stockholders  in  domestic  corporations 
of  similar  character,  that  the  shareholders 
of  the  foreign  corporation  are  protected 
by  the  exemption  they  enjuy  at  home. 
Second  National  Bank  v.  Hall,  35  Ohio 
St.  158  (1878).  Cf.  Jessup  V.  Carnegie, 
80  N.  Y.  441  (1880). 

'•^  Corning  v.  McCullough,  1  N.  Y.  47 
(1847);  s.  c.  49  Am.  Dec.  287  ;  Freeland 
V.  McCullough,  1  Denio,  414  (1845);  s.  c. 
43  Am.  Dec.  685  ;  Story  v.  Furman,  25 
N.  Y .  2 1 4  (1862) ;  Jones  v.  Barlow,  62  Id. 
202  (1875);  Hawthorne  v.  Calef,  2  Wall. 
10,  22  (1864);  Hodgson  v.  Cheever,  8  Mo. 
App.  321  (1880);  Manvill©  v.  Edgar,  8  Id. 
824  (1880);  Queenan  v.  Palmer,  34  Alb.  L. 

208 


J.  117  (111.  1886);  Norris  v.  Wrenschall, 
34  Md.  492  (1871) ;  Terry  v.  Calnan,  13  S. 
C.  220  (1879);  Tinker  v.  Van  Dyke,  1 
Flippin,  532 ;  Lowry  v.  Inman,  46  N.  Y. 
119,  127  (1871);  Strong  v.  Wheaton,  38 
Barb.  625  ;  Brown  v.  Hitchcock.  36  Ohio 
St.  678  (1879);  Hatch  v.  Burroughs,  1 
Woods,  443;  Flash  v.  Conn,  109  U.  S.  371 
(1883);  Niniick  v.  Mingo  Iron  Works,  25 
West  Va.  184  (1884).  Cf.  Woods  v. 
Hicks,  7  Lea  (Tenn.),  40  (1881);  Lawler 
V.  Burt,  7  Ohio  St.  34t)  (1857).  The  12th 
section  of  the  New  York  Manufacturing 
Companies  Act,  to  the  effect  that  the  cor- 
porate officers  shall  be  liable  for  the  debts 
of  the  corporation,  in  case  they  fail  to 
make  an  annual  public  report  of  the 
business  of  the  corporation  (Laws  of 
1848,  ch.  40\  is  universally  held  to  be 
penal  in  its  character.  Chase  v.  Curtis, 
113  U.  S.  452  (1884);  Stokes  v.  Stickney, 
96  N.  Y.  323  (1884);  Pier  v.  Hanmore,  86 
Id.  95  (1881);  Pier  v.  George,  86  Id.  613 
(1881);  Veeder  v.  Baker,  83  Id.  156 
(1880);  Knox  v.  Baldwin,  80  Id.  610 
(1880);  Easterly  v.  Barber,  65  Id.  252 
(187r.);  Wiles  v.  Suydam,  64  Id.  173 
(1876);  Merchants'  Bank  of  New  Haven 
V.  Bliss,  35  Id.  412  (1866).  In  the  case  of 
New  Haven,  <tc.,  Co.  v.  Linden  Spring 
Co.,  6  East.  Rep.  663  (Mass.  1886),  the 
court,  in  refusing  to  enforce  a  subscription 
made  to  a  foreign  corporatii  n,  without  an 
express  promise  to  pay,  said :  "  That 
the  statutes  of  a  State  do  not  operate 
extra-territorially,  jorcjDrio  vigore,  will  be 
conceded.  How  tar  they  should  be  en- 
forced beyond  the  limits  of  the  State 
which  has  enacted  them,  must  depend  on 
several  considerations,  as  whether  any 
wrong  or  injury  will  be  done  to  the  citi- 
zens of  the  state  in  which  they  are 
sought  to  be  enforced,  whether  the  policy 


CH.  XII.]  STATUTORY    LIABILITY   OF   STOCKHOLDERS.  [§  218. 


true  of  the  ordinary  statutes  imposing  a  statutory  liability  ou 
stockholders,  there  are  many  instances  in  which  it  is  clear  that  the 
statutes  are  highly  penal  and  will  not  be  enforced  outside  of  the 
State  creatinir  them.^  It  is  settled  law  that  one  State  will  not  en- 
force  the  penal  legislation  of  another  State.'^  Consequently,  it  is 
a  general  rule  that  the  courts  of  one  State  will  enforce  a  statutory 
liability  of  stockholders  created  in  another  State,  only  when  that 
liability  is  held  to  have  arisen  from  contract.  If  it  is  penal  it  can 
never  be  enforced  out  of  the  State  by  which  it  is  created.^  A 
statutory  liability,  when  it  is  a  liability  in  contract,  and  not  a  pen- 
alty, may,  under  the  proper  limitations,  be  enforced  in  an  action 
in  the  Federal  courts.^ 


of  its  own  laws  will  be  contravened  or  im- 
paired, and  whether  its  courts  are  capable 
of  doing  complete  justice  to  those  liable  to 
be  affected  bj'  their  decrees." 

'  Thus,  for  an  example,  statutes  that 
create  liabilitj'  because  of  failure  on  the 
part  of  corporate  authorities  to  give  cer- 
tain specified  notices,  or  to  make  certain 
reports,  or  because  certain  forbidden  con- 
tracts are  entered  into  by  the  corporation, 
are  essentially  penal  in  their  nature,  and 
cannot  be  enforced  out  of  the  State.  In 
the  following  cases  it  appears  that  the 
courts  of  one  State  have  refused  to  en- 
force a  statutory  liability  imposed  by  an- 
other State,  upon  the  general  ground  that 
the  statutes  were  penal.  Cable  v.  Mc- 
Cune,  26  Mo.  371  (1 858) ;  Kritzer  v.  Wood- 
son, 19  Jd.  327  (1854);  Lawler  v.  Burt,  7 
Ohio  St.  340  (1857);  Sturges  v.  Burton,  8 
Id.  215  (1858);  Derrickson  v.  Smith,  27 
N.  J.  Law,  1G6  (1858);  First  National 
Bank  v.  Price,  33  Md.  487  (1870);  Halsey 
V.  McLean,  12  Allen,  438  (18(i6);  Hill  v. 
Frazier,  22  Penn.  St.  320  (1858),  Harris- 
burgh  Bank  v.  The  Common  wealth,  26  Id. 
451  (1856);  Andrews  «.  Murray,  33  Barb. 
354  (1861);  Slialer,  tfcc..  Quarry  Co.  v. 
Bliss,  34  Id.  309  (1861);  Bird  v.  Hayden, 
1  Robeitson  (N.  Y.  Super.  Ct.),  383 
(1863);  State  v.  John,  5  Ohio,  217  (1831); 
Scoville  V.  Canfield,  14  Johns.  338  (1817); 
United  States  v.  Latliro[>,  17  Id.  4  (1819); 
Gale  V.  Eastman,  7  Mete.  14  ;  Steam  En- 
gine Co.  V.  Hubbard,  101  U.  S.  188 
(1879);  Irwin  v.  McKean,  23  Cal.  472; 
Moier  v.  Sprague,  9  U.  1.  .'j41.  See  Cuj'- 
kendall  v.  Corning,  10  Fed.  Rep.  342; 
Cf.  Ogden  v.  Folliot,  3  Term  Rep.  ?26 
(1790);  Boughton  v.  Otis,  21  M.  Y.  261 
(I860);  Losie  t\  Bullard,  79  Id.  404 
(1880);  Squires  v.  Brown,  22  How.  Prac. 


36  (1860);  The  Antelope,  10  Wheaton, 
66  (1825);  Western  Transportation,  <fec., 
Co.  V.  Kilderhouse,  87  N.  Y.  430  (1882) ; 
Leramon  v.  The  People,  20  Id.  562  (1860). 
Moreover  there  can  never  be  such  a  thing 
as  a  vested  right  to  enforce  a  penalty. 
Yeaton  v.  United  States,  5  Cranch,  281 ; 
Norris  v.  Crocker,  13  How.  429. 

'2  Story  on  the  Conflict  of  Laws,  §§  620, 
621;  Wharton  on  the  Conflict  of  Laws, 
§  853  et  seq.;  Rorer  on  Interstate  Laws, 
148,  149,  and  the  cases  in  the  preceding 
note.  "  Penal  laws  are  strictly  local,  and 
cannot  have  any  operation  beyond  the 
jurisdiction  of  the  country  where  they 
were  enacted."  Scoville  v.  Canfield,  14 
Johns.  338  (1817). 

^  See  the  cases  in  the  three  preceding 
notes.  See  also  Lowry  v.  Ii)man,46  K.  Y. 
119  (1871);  Patterson  v.  Baker,  34  How. 
Prac.  180  (1867).  Cf.  Union  Iron  Co.  v. 
Pierce, 4  Biss.  327  (1869);  Howell®.  Man- 
glesdorf,  33  Kan.  194  (1885).  When  the 
Statute  of  Limitations  is  relied  upon  as  a 
defense,  it  becomes  material  to  settle 
whether  the  liability  is  of  a  penal  nature 
or  whether  it  arises  cz  coniracm.  In  the 
former  case  the  stiitute  is  generally  short- 
er.     Vide  §  227,  infra. 

*  Flash  V.  Conn,  109  U.  S.  371  (1883). 
And,  in  general,  a  creditor  of  a  corpora- 
tion whose  shareholders  are  by  statute 
made  personally  liable  for  its  debts,  niay 
maintain  a  suit  to  enforce  this  liability 
wherever  he  can  obtain  jurisdiction  ov«r 
the  necessary  parlies.  The  right  to  bring 
such  an  action,  provided  it  does  not  seek 
to  enforce  a  penalty,  will  not,  it  is  be- 
lieved, be  denied  in  any  State  to  the  in- 
habitants of  any  other  State,  if  there  is 
jurisdiction  of  the  proper  jjarties  defend- 
ant.   Aultman's  Appeal,  98  Penn.  St.  005 


[14J 


209 


;'§  219.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.  [CH.  XII. 


§  219.  Upon  the  second  question,  that  relating  to  the  adequacy 
of  the  remedy  or  the  procedure  of  the  State  in  which  the  stat- 
utory liabiHty  is  sought  to  be  enforced,  considerable  difficulty  is 
■  occasionally  experienced.  Where  the  statute  imposing  the  liabil- 
ity prescribes  the  remedy,  that  remed}^  is  held  to  be  exclusive,  and 
the  effect  of  this  sometimes  is  to  prevent  any  enforcement  of  the 
liability  except  in  the  State  creating  it.  When  the  statute  creat- 
ing the  liability  restricts  its  enforcement  to  a  peculiar  and  unusual 
procedure,  available  only  in  the  courts  of  the  State  in  which  the 
corporation  exists,  and  making  the  procedure,  as  it  were,  as  a  part 
of  the  liability,  such  a  liability  sometimes  cannot  be  enforced  by 
.the  recognized  procedure  of  another  State. 

In  such  a  case  the  creditor  can  enforce  the  statutory  liability 
only  in  the  courts  of  the  State  where  the  corporation  exists.^  In 
general,  the  statutory  liability  of  shareholders  can  be  enforced  in 
the  courts  of  a  foreign  State,  only  by  the  employment  of  the 
remedies,  and  according  to  the  course  of  procedure  provided  by 
the  laws  of  that  State.^ 


(1881);   Sackett's  Harbor  Bank  v.  Blake, 

3  Rich.  Eq.  225;  Woods  v.  Hicks,  7  Lea 
(Tenn.),  40  (1881);  First  National  Bank  v. 
Price,  33  Md.  487  (1870);  Ux  parte  Van 
RipcT,  20  Wend.  614  (1839);  McDonough 
V.  Phelps,  15  How.  Prac.  372  (1856);  Low- 
ry  ».  Inman,  46  N.  Y.  119  (1871);  Bank 
of  Virf^inia  «.  Adams,  1  Pars.  Sel.  Eq. 
Gas.  534  (1850).  See  also  Paine  v.  Stew- 
art, 33  Conn.  516  (1866);  Bond  v.  Apple- 
ton,  8  Mass,  472  (1812);  Healy  v.  Root, 
11  Pick.  389(1831);  Gale  v.  Eastman,  7 
Metp.  14  (1843);  Erickson  v.  Nesmith,  15 
Gray,  221  (1860);  s.  o.  4  Allen,  233 
(1862);  S..C.  46  N.  H.  371  (1866);  Hutch- 
ins   V.    New    England   Coal  Mining    Co., 

4  Allen,  580  (1862);  Halsev  v.  Mc- 
Lean, 12  Id.  438  (1866);  'Smith  v. 
Mutual  Life  Insurance  Co.,  14  Id.  336 
(1867) ;  Bateman  v.  Service,  L.  R.  6  App. 
Gas.  386  (1881).  And,  when  the  suit  is 
maintainable, the  construction  placed  upon 
the  statute  of  the  ^tate  in  which  the  cor- 
poration exists,  by  the  courts  of  that 
.State,  is,  as   a   general   rule,   controlling 

and  will  be  followed  by  the  courts  of  the 
State  where  the  suit  to  enforce  is  brought. 
.Jessup  V.  Carnegie,  80  N.  Y.  441  (1880); 
Chase  v.  Curtis,  113  U.  S.  452  (1884). 
See  also  Hunt  v.  Hunt,  72  N.  Y.  236 
((1878) ;  Fairfield  V.  County  of  Gallatin, 
100  U.  S.  47  (1879);  Elmendorf  v.  Tay- 
lor, 10   Wheaton,   152,  160;    Shelby   v. 

21t) 


Guy,  11  Id.  367;  Town  of  South  Otta- 
wa V.  Perkins,  94  U.  S.  260,  267  (1876); 
Peik  V.  Chicago,  Ac,  R.  R.  Co.,  94  Id. 
164;  County  of  Leavenworth  v.  Barne:', 
94  Id.  70;  Adams  v.  Nashville,  95  Id. 
19,(1877);  Town  of  Elmwood  t).  Marcy, 
92  Id.   289  (1875). 

1  Lowry  v.  Inman,  46  N.  Y.  119,  127 
(1871);  Niraick  v.  Mingo  Iron  Works,  25 
West  Va.  184  (1884).  Thus  where  the 
statute  provides  that  the  creditor's  rem- 
edy shall  be  by  bill  in  equity,  the  lia- 
bility cannot  be  enforced  in  a  State  which 
has  no  general  system  of  equity  jurispru- 
dence and  procedure.  Erickson  v.  Nes- 
mith, 4  Allen,  233  (1862);  s.  c.  15  Gray, 
221  (1860),  Cf.  s.  c.  46  N.  H.  371  (1866). 
It  should  be  noted  here  that,  in  Mas- 
sachusetts, there  is  no  general  equity 
jurisdiction.  The  leo-islature,  however, 
from  time  to  time,  has  enlarged,  by  spe- 
cial acts,  the  power  of  the  courts  of  that 
State,  so  that  at  present  they  have  limited 
equity  powers.  In  the  case  Patterson  v. 
Lynde,  112  111.  196  (1884);  s.  c.  106  U. 
S.  519,  the  Illinois  court  refused  to  en- 
force the  statutory  liability  of  a  stock- 
holder in  an  Oregon  corporation,  where 
a  single  corporate  creditor  sought  the 
enforcement.  The  Oregon  prDcedure  in 
equity  was  held  to  be  his  only  remedy. 

'•^  Drinkwater  v.  Portland  Marine  R.  R. 
Co.,  18  Me.  35  (1841);  Nimick  v.  Mingo 


CH.  XII.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS. .        [§  221. 

§  220.  Statutorxj  liaUUty  not  enforceable  to  i)ay  damages 
recovered  against  the  corporation  in  tort.— The  statutory  lia- 
bility imposed  upon  the  shareholders  in  corporations  is  a  lia- 
bility, exclusively  for  debts  and  demands  accruing  against  the 
corporation  by  reason  of  its  contracts.  It  cannot,  therefore,  be 
enforced  to  pay  damages  recovered  against  the  corporation  in  an 
action  in  tort.^ 

§  221.  Judgment,  execution,  (&c.,  against  the  corporation, 
a  condition  precedent  to  the  right  to  enforce  the  statutory  lia- 
J)ility. — Even  when  not  expressly  provided  by  statute,  it  is  the 
rule,  according  to  the  weight  of  authority,  that  corporate  credit- 
ors, before  they  can  proceed  against  the  shareholders  upon  their 
statutory  liability,  must  first  exhaust  their  remedy  against  the 
corporation  and  its  assets.^     This  rule  is  based  upon  the  principle 


Iron  Works,  25  West  Va.  184  (1884). 
Cf.  Talt  V.  Ward,  106  Mass.  518  (1871). 
The  validity,  interpretation,  and  effect  of 
the  statute  imposing  the  liability,  are  to 
be  determined  by  tiie  law  of  the  State 
creating  the  corpor;ition,  but  the  remedy, 
tlie  forms,  and  procedure  to  enforce  the 
liability,  must  be  governed  by  the  law  of 
the  State  where  enforcement  is  sought. 
Lowrv  V.  Inman,  46  N.  Y.  119,  126 
(1871).  In  New  Hampshire,  it  is  held  to 
be  necessary  to  set  out  in  the  pleading 
the  remedy  provided  by  the  laws  of  the 
State  creating  the  corporation  and  the 
liability,  and  to  show  th  it  this  remedy 
can  be  employed  in  the  court  where  suit 
is  br()U'j;ht.  Rice  v.  Merrimack  Hosiery 
Co.,  56  N.  H.  114(1875). 

'  lleacock  v.  Sherman,  14  Wend.  59 
(18.35).  In  tliis  case  the  stockholders  in 
a  company  which  owned  a  bridgu,  and 
against  whicli  a  judgment  had  been  re- 
covered for  damages,  because  the  bridge 
was  out  of  repair,  were  held  not  to  be 
liable  upon  such  a  demand,  since  the  act 
imposing  a  personal  liabilit\-  upon  them 
contemplated  a  liability  only  foi-  demands 
arising  i-x  conimcln.  In  general,  the  Wtn'd 
"  debt,"  as  used  in  statutes  imposing  a 
pcrsiual  liability  upon  stockliolders,  ia 
construed  to  include  oidy  liabilities  aris- 
ing fx  contractu,  and  not  to  include  lia- 
bility for  damages  recovered  against  the 
C(jrporation  in  actions  sounding  in  tort. 
Child  V.  Boston,  «kc..  Iron  Works,  137 
Mass.  516  (1884) ;  s.  c.  50  Am.  Rep.  328  ; 
Matter  of  the    Bo.ston,  drc,  Iron  Works, 


23  Fed.  Rep.  880 ;  Mill  Dam  Foundery 
Co.  V.  Hosey,  21  Pick.  417,  455  (1839)  ; 
Dryden  v.  Kellogg,  2  Mo.  App.  87  (1876); 
Doolittle  V.  Marsh,  11  Neb.  243;  Esmond 
V.  BuUard,  16  Hun,  65  (1878);  s.  o.  af- 
firmed, sub  nom.  Losse  v.  Bullard,  79  N. 
Y.  404  (1880) ;  Archer  v.  Rose,  3  Brewster 
(Penn.),  264  (1871);  Cable  i;.  McCune,  26 
Mo.  371  (1858) ;  Bohn  v.  Brown,  33  Mich. 
257,  263  (1876);  Chase  v.  Curtis,  113  U, 
S.  452  (1884).  Cf.  Carver  i;.  Braintree 
Mfg.  Co.,  2  Story,  432,  447;  Wyman  v. 
American  Powder  Co.,  8  Cush.  168,  182; 
Gray?;.  Bennett,  3  Mete.  522;  Chase  y. 
Ingalls,  97  Mass.  524;  Lowell  v.  Street 
Commissioners,  106  Id.  540;  Zimmer  v. 
Schleehauf,  115  Id.  52.  Nor  will  the 
word  "  debt,"  in  such  enactments  include 
a  judgment  for  costs  against  the  corpo- 
ration in  an  action  in  tort.  Schouton  v. 
Kilmer,  8  How.  Prac.  527(1853);  Lathrop 
V.  Singer,  39  Barb.  396  (1863).  But  tiiere 
is  a  contrary  rule  upon  this  point  in  Penn- 
sylvania. Lane  v.  Baker,  2  Grant's  Cases, 
424(1853). 

^  Mean's  Appeal,  85  Penn.  St.  75 
(1877);  liayliss  v.  Swil't,  40  Iowa,  648 
(18  75);  McCliircn  ?'.  Franciscus,  4;i  Mo. 
452  (1869);  Wright  v.  McCormack,  17 
Ohio  St.  86(1866);  Wehrman  i>.  lleakirt, 
1  Cinn.  Super.  Ct.  230  (1871);  Lane  w. 
Harris,  16  Ga.  217  (1854);  Drinkwater 
V.  Portland,  (fee,  R.  11.  Co.,  18  Me.  35; 
Dauchy  ".  Brown,  24  Vt.  197  (1852); 
Cambridge  Water  Works  v.  .Somei-ville 
Dy-)ingCo.,  4  Allen,  239  (1862);  Toucey 
V.  Bowen,  1  Biss.  81  (1855).      Cf.  Patter- 

211 


§  221.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.        [CH.  XII. 


that  the  liability  of  the  shareholder  is  not  the  primary  resource 
of  corporate  creditors,  and  is  not,  therefore,  to  be  resorted  to  if 
the  assets  of  the  corporation,  including  the  assessments  on  the 
stock  enforceable  at  common  law,  will  suffice  to  pay  the  debts.^ 
Frequently  the  statutes  which  impose  this  extraordinary  or  extra 
common  law  liability  upon  shareholders,  provide  that  a  creditor 
shall  obtain  judgment  against  the  corporation,  and  that  an  execu- 
tion duly  levied  thereunder  shall  have  been  returned  wholly  or 
partially  unsatisfied,  before  the  creditor  has  a  right  to  proceed 
against  the  stockholder  individually.^     But  in  general,  proceed- 


son  V.  Wyomissing  Mfg.  Co.,  40  Pen  a.  St. 
117  (1861);  Harper  w.  Union  Mfg.  Co., 
100  111.  225 ;  Hatch  v.  Burroughs,  1 
Woods,  439.  The  case  Patterson  v. 
Lynde,  112  111.  196  (1884),  holds  that 
the  judgment  must  be  obtained  in  the 
State  where  enforcement  is  sought,  and 
that  not  even  a  judgment  in  the  Federal 
Circuit  Court  for  that  district  will  suffice. 
Citing  Steere  i;.  Hoagland,  39  111.  264; 
McLunc  V.  Benceni,  2  Ired.  Eq.  513. 

'  Stewart  ?>.  Lay,  45  Iowa,  604(1877); 
Wright  V.  McCormack,  17  Ohio  St.  86 
(1866\  There  is,  however,  a  line  of  au- 
thorities in  support  of  the  proposition 
that  a  judgment  against  the  corporation 
is  not  a  prerequisite  to  the  enforcement 
of  the  shareholders'  statutory  liability. 
Perkins  j;.  Church,  31  Barb.  84  (1859); 
Southmayd  v.  Russ,  3  Conn.  52  (1819); 
Culver  V.  Third  National  Bank,  64  HI. 
528  (1871) ;  Davidson  v.  Rankin,  34  Cal. 
503  (1868);  Young  ?•.  Rosenbaum,  89  Id. 
646  (1870);  Witherhead  v.  Allen,  4  Abb. 
Aop.  Dec.  628  (1867);  Manufacturing 
Co.  V.  Bradley,  105  U.  S.  175  (1881); 
Morrow  v.  Superior  Court,  64  Cal.  383 
(1883);  Bird  v.  Calvert,  22  S.  C.  292 
(1884).  In  these  cases  it  is  held  in  gen- 
eriil,  that  the  shareholder's  liability  under 
the  statute  is  unconditional,  original,  and 
immediate,  not  dependent  on  the  insuf- 
ficiency of  the  corporate  assets,  and  not 
collateral  to  that  of  the  corporation  upon 
the  event  of  its  insolvency.  Thus,  in  the 
case  of  Manufacturing  Company  v.  Brad- 
ley, 105  U.  S.  175  (1881),  it  was  held, 
that  upon  a  bill  being  filed  against  the 
corporation,  for  the  collection  of  a  debt, 
the  shareholders  might  properly  be  made 
parties,  in  order  to  avoid  a  multiplicity  of 
suits,  and  upon  the  ground  thattlie  share- 
holders were  immediately  liable,  under 

212 


that  provision  of  their  charter  which  made 

"  members  of  the  company  .  .  jointly 
and  severally  liable  for  all  debts  and 
contracts  made  by  the  company  until  the 
whole  amount  of  the  capital  stock  fixed 
and  limited  by  the  corporation  "  is  paid 
in. 

■■^  See  Laws  of  1848,  New  York,  chap. 
40,  §  24,  commonly  known  as  "  The  Gen- 
eral Manufacturing  Act."  Handv  v.  Dra- 
per, 89  N.  Y.  334  (1882);  Southworth  & 
Jones  on  Manuf.  <fe  Business  Corpora- 
tions, g§91,  121;  Taylor  on  Corp.,  §§713. 
724.  See  also  Rocky  Mountain  National 
Bank  v.  Bliss,  89  N.  V.  338  (1882) ;  Dean 
V.  Mace,  19  Hun,  391  (1879).  Sometimes 
there  is  a  provision  that  the  action  must 
have  been  commenced  by  the  creditor 
against  the  corporatijon  within  a  given 
limited  time  after  the  maturity  of  the 
debt,  in  order  to  hold  the  shareowrier  on 
his  statutory  liability.  N.  Y.  Laws  of 
1848,  chap.  40,  §  24 ;  'Shellington  v.  How- 
land,  53  N.  Y.  371  (1873);  lUrmingham 
National  Hank  v.  Moss3r,  14  Hun,  605 
(1878);  Lindsley  v.  Simonds,  2  Abb. 
Prac.  (N.  S.)  69.  Cf.  State  Savings  As- 
sociation V.  Kellogg,  52  Mo.  583  (1873). 
And  sometimes  thataspecificdemandshall 
have  been  made.  Haynes  v.  Brown,  36 
N.  H.  545  (1858).  But  even  where  the 
statute  requires  it,  a  suit  to  enforce  a 
statutory  liability  need  not  be  delayed 
until  the  corporate  property  has  all  been 
applied  to  the  payment  of  debts,  if  it  be 
clear  that  such  property  will  be  insuf- 
ficient to  pay  everything.  Munger  v. 
Jacobson,  99  111.  349  (1881).  Or  where 
the  corporation  is  clearly  insolvent,  and 
it  would  be  idle  to  wait  the  return  of  the 
execution.  Flash  v.  Conn,  109  U.  S.  371 
(1883).  LIf.  Toucey  v.  Bowan,  1  Biss. 
81  (1855);  Munger   v.   Jacobson,  supra. 


CH.  XII.]        STATUTORY    LIABILITY    OF   STOCKHOLDERS. 


[§  222. 


iugs  against  the  corporation  are  not  to  be  required  when  they 
would  be  nugatory  or  impossible.^ 

Where  the  statutes  provide  for  an  enforcement  of  the  share- 
holder's statutory  liability  only  upon  the  dissolution  of  the  cor- 
poration, it  is  held  that  a  dissolution,  in  the  sense  in  which  that 
term  is  here  used,  takes  place  when  the  corporation  comes  into 
the  condition  of  having  debts  and  no  assets,  or  has  ceased  to  act 
and  exercise  its  corporate  functions,  or  has  suffered  acts  to  be 
done  which  are  subversive  of  the  end  and  object  for  which  it  was 
■created.^ 

§  222.  Eotv  far  the  judgment  against  the  corporation  is  con- 
clusive of  the  creditor's  claim. — In  general  the  judgment  in  these 
cases  against  the  corporation  is  conclusive  as  to  the  amount  and 
validity  of  the  creditor's  claim.  Consequently  when  suit  is 
brought  to  enforce  the  shareholder's  statutory  liability  that  judg- 


or  the  corporation  is  dissolved.   Patterson 
V.  Lynde,  112  111.  196  1 1884). 

'  ShelliiigtoD  V.  Holland,  53  N.  Y'. 
371  (1873) ;  State  Sav.  Ass.  v.  Kellogg,  52 
Mo.  583(1873);  Dryden  v.  Kellogg.  2  Mo. 
A  pp.  87.  Cf.  Ansonia  Brass  <fe  Co]  per 
Co.  V.  New  Lamp  Chimney  Co  ,  53  N.  Y. 
123  (1873);  8.  c.  affi'd  91  U.  S.  65fi 
(1875);  Kincaid  v.  Dwinelle,  59  N.  Y.  548 
{1875);  Birmingham  National  Bank  v. 
Mosser,  14  Hmi,  606  (1878);  Hollings- 
head  v.  Woodward,  35  Id.  410  (1885): 
Paine  v.  Stewart,  33  Conn.  516  (18G6); 
Ch.'imberlin  v.  Huguenot  Mfg.  Co.,  118 
MafP.  532  (1875).  In  many  of  these  cases 
it  ■will  appear  that  (he  National  Bank- 
rujitcy  Act  is  referred  to,  and  that  ■when- 
ever, under  the  operation  of  this  legisla- 
tion, the  perlbrmancc  of  the  conditions 
precedent  to  the  due  and  regular  enforce- 
ment of  the  liability  of  the  shareholder 
under  the  State  law,  is  rendered  impos- 
sible, such  performance  is  to  be  excused. 
So  also  where  the  priptrty  of  the  corpo- 
ration is  in  the  hands  of  a  receiver,  this 
does  not  in  any  way  affect  or  qualify  the 
right  of  the  corporate  cieditors  to  enforce 
the  remedy  thej*  have  by  statute  against 
the  shareholder  individually.  When  the 
corporate  assets  are  in  tlie  hands  of  a  re- 
ceiver, corpf)rate  creditors  cannot,  of 
course,  maintain  any  action  to  approjiri- 
ate  the  corporate  property.  But  the 
Btatutory  liability  is  not  a  corp(,rate 
asEet,  and  corporate  creditors  m;iy,  with- 
out reference  to  the  receiver,  prosecute 
their  action  freely,  to  recover  from  the 


shareholders  upon  that  ground.  Mason 
V.  Ke-w  York  Silk  Mfg.  Co.,  27  Hun, 
307  (1882);  Jacobson  v.  Allen,  12  Fed. 
Rep.  454  1 1882).  When  the  circumstancea 
are  such  that  the  provisions  of  the  stat- 
ute in  reference  fo  the  judgment  against 
the  corporation  may  properly  apply,  it  ia 
held  in  New  York,  that  a  proceeding  in 
rem,  and  a  judgment  and  execution  there- 
in, affecting  only  specific  property  of  the 
corporation,  is  not  sufficient.  The  pro- 
ceeding and  the  judgment  must  be  di- 
rectly against  the  corporation.  Rocky 
Mountain  National  Bank  v.  Bliss,  89  N. 
Y.  338  (1882);  Agate  v.  Edgar,  Gonl. 
Teim  Com.  Pleas,  New  York  (not  re- 
ported). Moreover,  judgment  and  exe- 
cution in  a  foreign  State  will  not  satisfy 
the  requirement  of  the  statute.  It  must 
be  a  judgment  of  a  court  of  the  State 
where  the  statutory  liability  is  imposed 
and  sought  to  be  enforced,  and  the  execu- 
tion must  duly  issue  out  of  a  court  of  that 
State.  Dean?).  Mace,  19  Hun.  391  (1879); 
Kocky,  (fee,  Bk.  v.  Bliss,  supra;  Patter- 
son V.  Lynde,  112  ill.  196. 

''  Bank  of  Poughkeepsie  v 
24  Wend.  473  (1840)  ;  Slee  v. 
Johns.  456  (1822);  Penniman 
Hopkins'  Chan.  300(1825);  s. 
Briggs  V.  Penniman,  8  Cowen,  387  (1826); 
Moriey  v.  Thayer,  3  Fed.  Rep.  737  ( 1880); 
State  Savings  Association  v.  Kellogjj,  52 
Mo.  583  (1873);  Dryden  v.  Kelh  gg,  2  Mo. 
App.87;  Perry  ^.Turner,  .'■)5Mo.118(lts74); 
Central  Agric,  <fec.,  Association  v.  Ala- 
bama, &c.,  Ins.  Co.,  70  Ala.  120(1881). 

213 


Ibbotson, 
Bloom,  19 
V.  Briggs, 
c.  sub  vom. 


§  222.]  STATUTORY   LIABILITY  OF   STOCKHOLDERS.         [cH.  XII. 

* 

ment  can  be  impeached  only  for  fraud  and  collusion,  or  for  want 
of  jurisdiction.  This,  as  will  further  appear,  is  not  the  rule  in 
New  York,  but  aside  from  the  decisions  of  the  courts  of  that  State, 
the  authorities  are  essentially  agreed  in  sustaining  this  principle 
of  law.^  Sometimes  the  judgment  is  said  to  be  on\j  prima  facie 
evidence  of  the  creditor's  claim.^ 

When  the  stockholders  are,  by  statute,  made  liable  for  only 
a  certain  class  of  the  corporate  indebtedness,  it  is  plain  that  they 
cannot  be  charged  upon  a  judgment  recovered  against  the  cor- 
poration, unless  it  be  shown  that  the  claim  in  controversy  comes 
within  the  class  upon  which  they  are  liable.^ 

In  New  York,  however,  the  view  is  taken  that  the  statutory 
liability  of  stockholders  makes  tliem  practically  the  guarantors  of 
all  debts  contracted  by  the  corporation.  It  devolves  upon  the 
creditor,  accordingly,  before  he  can  enforce  his  claim  against  the 
shareholder  individually,  to  show  that  the  corporate  assets  are  in- 
sufficient to  satisfy  his  claim  against  it.  The  judgment  against 
the  corporation  and  the  execution  returned  wholly  or  partially 
unsatisfied  are,  therefore,  evidence  only  that  the  corporation 
cannot  pay  its  debts.  They  only  serve  to  show  that  the  creditor 
has  taken  the  necessary  precedent  steps  to  collect  his  claim  from 
the  corporate  assets.  But  he  cannot  rely  upon  the  judgment  ob- 
tained against  the  corporation  to  establish  his  right  to  recover 
against  the  shareholder.  It  is  not  even  pr'iTna  facie  evidence 
either  of  the  amount  or  validity  of  his  claim.  The  stockholder 
may  set  up  any  defense  that  the  corporation  might  have  set  up.* 


'  Thaver  t).  New  Eno-land  Lithographic  60  N.  H.  363;  Chesnut  v.  Pennell,  92  III. 

Co.,  108  Mass.  523  (1871);  Came  v.  Hria;-  55. 

ham,  39  Me.  35  (1854);  Milliken  v.  White-  '^  Grand  v.  Tucker,  5  Kan.  TO  (1869); 

house,  49  Id.  527  (1860);  Wilson  »;.  The  Hawes    v.    Anfjlo-Saxon,    &c,  Co.,    101 

Stockholders,    <fec.,    43    Penn.    St.    424  Mass.  385  (1869) ;  Grand  Rapids  Savin2;3 

(1862);  Don  worth  v.  Coolbaugh,  5  Iowa,  Bank  v.    Warren,  52   Mich.  557;   Berger 

300(1857);  Farnum  t>.   Hallard,  (fee.  Ma-  v.  Williams,  4   McLean,  577;  Merchants 

chine  Shop.  12  Cusb.  507  (1853);    Rob-  Bank  v.  Chandler,  19  Wis.  435.     And  see 

bins   V.   The   Justices,  <fec.,  12  Gray,  225  Neilson  v.   Crawford,  52  Cal.  249. 

(1858);     Handrahan    v.     Cheshira    Iron  ^  Bq|jq  „  B,.(j^n  33  ^jich.  257;  Wilson 

Works,    4  Allen,   396  (1862);  Gaskill  t'.  ?;.  The  Stockholders,  (fee,  43  Penn.  St.424:^ 

Dudley,  6  Mete.  546 ;  Hampson  v.  Weare,  Convent  v.  Van  Schaick,  24  Barb.  87.   Cf. 

4  Iowa,  13  (1856)  ;  Bullock  v.  Kilgour,  39  Larrabee  v.  Baldwin,  35  Cal.  155  (1868); 

Ohio  St.   543(1883).    (y.  Merrilu.  Suf-  Farnsworth    v.    Wood,    91    IST.    Y.    308 

folk   Bank,    31   Me.   57  (1849);   Ilolyoke  (1883). 

Hank  V.  Goodman,  (fee,  Manfg.  Co.,  9  Cash.  ■*  Moss    v.    McCullough,    5   Hill,    131 

576(1852);   Bank  of  Australasia  v.  Nias,  (1843).     [This  case  was  reversed  w/wn  aw- 

16  Q.  B  717;  s.  c.  20  L.  J.  (C.  B.)  284;  other  point   in    McCullough    v.   Moss,   6 

Connecticut  River  Savings  Bank  i>.  Fiske,  Denio,  667  (1846).]     McMalion  v.  Maoy, 

214 


CH.  XII.]        STATUTORY   LIABILITY   OF   STOCKHOLDERS. 


[^<  223.. 


§  223.  Difjlculties  in  determining  whether  the  creditor^ s  rem- 
edy is  at  law  or  in  equity. — Perhaps  tlie  most  difficult,  unsettled,, 
and  unsatisfactory  question  concerning  the  statutory  liability  of 
stockholders  is  the  question  whether  that  liability  must  be  en- 
forced at  law,  or  must  be  in  equity,  or  may  be  in  either  a  court 
of  law  or  of  equity.  After  determining  this  point  there  arises  the 
further  dithculty  of  ascertaining  who  shall  be  parties  plaintiff 
and  parties  defendant ;  whether  one  corporate  creditor  may  sue  or 
all  must  join;  whether  one  stockholder  may  be  pursued  as  a  sin- 
gle-defendant or  all  the  stockholders  must  be  brought  in.  The 
law  on  these  points  is  in  a  transition  stage.  The  question  is  large- 
ly one  of  practice,  and  from  experience  the  courts  will  doubtless 
evolve  that  rule  which  is  most  just  and  convenient.  At  present, 
however,  not  only  must  the  decisions  of  the  State  in  which  the 
action  is  brought  be  examined,  but  it  is  necessary  also  to  note 
carefully  the  wording  of  the  statute  creating  the  liability.^  Some- 
times the  shareholder's  liability  is  said  to  be  like  that  of  partners 
at  common  law — in  other  cases  like  that  of  sureties ;  again  that  it 


61  N.  Y.  155  (18'72);  Miller  v.  White,  50 
Id.  137  (1872);  Chase  ^'.  Curtis,  113  U.  S. 
452(1884);  Esmond  v.  Bull.-ircl,  16  Hun, 
65  (1878).  But  see  Slee  v.  Bloom,  20 
Johns.  669  (1822);  Behnonl  v.  Coleman, 
21  N.  Y.,  96  (1^60);  Hastings  !•.  Drew, 
76  Id.  9  (1879);  Stephens  v.  Fox.  83  Id. 
313  (1881).  in  which  tlie  ground  is  taken 
that  the  judgHient  in  these  cases  ia  prima 
/(/(•«e  evidence  or  more,  without,  however, 
overruling  the  earlier  cases.  See  also 
Cunant  v.  Van  Schaick,  24  Barb.  87 
(1857);  Moss  v.  Oakley,l2  Hill,  265  (1842), 
andjS  Trippe  v.  Huncheon,  82  Ind.  307; 
Southmayd  v.  Russ,  3  Conn.  62  (1819) 
Wlijiney  Arms  Company  v.  Jiailow,  03 
N.  Y.  02  (1875);  (hase  v.  Curtis,  113 
U.  S.  452  (1884).  I'rMctically  the  cor- 
porate creditor  must  hrinii^  liis  action 
anew  agains-t  the  shareholder  upon  his 
orij^inal  demand.  B^^iley  v.  Bancker,  3 
Hill,  168  (1842);  Kuicaid  v.  Dwindle, 
69  N.  Y.  548  (1875);  Mohs  v.  Averell,  10 
Id.  449  (lf-53j.  As  to  the  eflect  ot  re- 
citals in  a  decree  against  the  corporation, 
Rt;e  Che^nut  r.  rennell,  1)2  lil.  55.  This 
judginent  against  the  corporation  is  ad- 
rniskihle  only  as  evidence  thyt  the  condi- 
tion precedent  to  his  rif;lit  to  recover 
lioiij  the  bhareliolder  has   been   complied 


with.  Wheeler  v.  Miller,  24  Hun,  541 
(1881):  s.  c.  suf>  norn.  Wheeler  r.  Millar, 
90  N.  Y.  353  (1882);  Strong  v.  Wheaton, 
88  Barb.  616.  But  Cf.  Tyng  v.  Clarke,  9 
Hun,  269  (1876).  See  also  Bissit  v.  Ken- 
tucky, <fec..  Navigation  Co.,  15  Fed.  Rep. 
363  (1882),  and  the  annotation;  Union. 
Bank^'.  AVando  Mining,  &c.,  Co.,  17  S.  C. 
339  (1881).  The  judgment  niiiy  avail,, 
however,  in  these  eases,  to  pre\ent  the 
Statute  of  Limitations  from  barrintr  the- 
action.  Van  Cott  v.  Van  Brunt,  2  Abb. 
N.  C.  283,  294 ;  rev'd  on  other  points, 
82  N.  Y.  535. 

'  Mr.  Chief  Justice  Waite,  in  Terry  v.. 
Little,  101  U.  S.  210,  217  (1879),  said: 
"The  first  thing  to  be  determined  in  all 
such  cases  is,  therelbre,  wliat  liability 
has  been  created.  There  will  always  be 
difficulty  in  attempting  to  reconcile  casea 
ot  this  class,  in  which  the  general  ques- 
tion of  remedy  has  arisen,  unless  .-pei  ial 
attention  is  given  to  the  precise  languiigo 
of  the  statute  under  (MJiisideratioii.  The 
remedy  muet  always  be  such  as  is  nppro- 
priate  to  the  liability  to  be  enforced. 
'J  lie  statute  which  creates  the  liaUility 
may  declare  the  purposes  of  its  creation 
and  piovidc  diiectly  or  indirectly  a  rem- 
edy ior  its  enforcement." 

215 


§  224.]  STATUTORY    LIABILITY   OF   STOCKHOLDERS.        [CH.  XU. 

is  joint  and  several — or  joint  or  several — sometimes  at  law  and 
sometimes  in  equity. 

§  224.  Particular  statutes  considered  as  regards  the  credit- 
or's remedy. — Under  a  statute  providing  that  ''  eacli  shareholder 
shall  be  individually  and  personally  liable  for  his  proportion  of  all 
the  debts  and  liabilities  of  the  company  contracted  or  incurred, 

.  .  for  the  recovery  of  which  joint  or  several  actions  may  be 
prosecuted,"  it  has  been  held  that  the  liability  of  the  shareholders 
is  substantially  that  of  partners,  and  that  all  the  stockholders 
must  be  joined  as  parties  defendant.*  So  also  a  general  joint  a,nd 
several  liability  for  all  the  corporate  debts  makes  the  stockholders 
liable  as  partners  as  though  there  had  been  no  incorporation.^ 
Under  the  provisions  of  the  constitution  and  statutes  of  Ohio,  it 
is  held  that  while  the  undertaking  of  the  shareholder  is  not  pri- 
mary, and  is  to  be  resorted  to  only  in  case  of  the  insolvency  of 
the  corporation,  still  the  liability,  when  it  does  properly  arise,  is 
essentially  that  of  partners.^  And,  in  general,  unless  the  statute 
prescribes  otherwise,  the  common]  law  rules  as  to  the  liability  of 


i 


'  Mokelumne  Hill  Canal,  <fec.,  Co.  v. 
Woodbury,  14  Cal.  265(1859);  Mitchell 
V.  Beckraan,  64  Id.  117(1883);  Davidson 
V.  Rankin,  34  Id.  503  (1868);  Youn^  v. 
Roseiibaiim,  39  Id.  646  (1870);  Larrabee 
V.  Baldwin,  35  Id.  155  (18(58);  McAuley 
V.  Yorke  Mining  Co.,  6  Id.  80  (1856); 
Adkins  v.  Thornton,  19  Ga.  325  (1856) 
[this  case  is  frequently  miscited,  owing 
to  a  misprint  in  the  original  report,  as 
Dozier  v.  Thornton]  ;  Branch  v.  Baker, 
53  Ga.  502  (1874);  Dane  v.  Young,  61 
Me.  160(1872);  Castleman  v.  Holmes,  4 
J.  J.  Marsh.  1  (1830).  Of.  Morawetz  on 
Corp.  (2d  edition),  §  878;  Taylor  on 
Corp.,  §  718  et  seq.;  also  §  726  ;  Fuller  v. 
Ledden",  87  111.  312  ;  Brown  v.  Hitchcock, 
36  Ohio  St.  678. 

-  Planters  Bank,  &c.  v.  Bivingsville, 
Ac,  Manfg.  Co.,  lORich.  Law,  95  (;i856); 
Southmayd  v.  Russ,  3  Conn.  52  (1819); 
Middlttown  Bank  v.  Magill,  5  Id.  28,  45 
(1823);  Deming  i;.  Bull,  10  Id.  409  (1835); 
Conant  v.  Van  Schaick,  24  Barb.  87 
(1857);  Allen  v.  Sewall,  2  Wend.  327 
(1829);  Moss  v.  Oakley,  2  Hill,  265 
(1842);  Harger  v.  McCuUough,  2  Denio, 
119  (1846);  McCuUough  v.  Moss,  5  Id. 
567  (1816);  Corning  I'.  McCuUough,  I  N. 
Y.  47  (1847) ;  Moss  v.  Averell,  10  Id. 
449  (18.N3) ;  WUes  v.  Suydam,  64  Id.  173, 
176  (1876);  Conklin  v."  Furman,  8  Abb. 

216 


Prac.  (K  S.)  164;  s.  c.  57  Barb.  487; 
Abbott  V.  Aspinwall,  26  Barb.  207 ; 
Erickson  v.  Ne3mith,46  N".  H.  371  (1866); 
White  V.  Blum,  4  Neb.  555  (1876);  New 
England  Commercial  Bank  v.  Newport 
Steam  Factory,  6  R.  1.  154  (1859);  Moies  u. 
Sprague,  9  Id.  541  (1870);  Witherhead 
V.  Allen,  28  Barb.  667  ;  Cliase  v.  Lord, 
77  N.  Y.  33  ;  Jones  v.  Barlow,  62  Id.  210; 
Tinker  v.  Van  Dyke,  1  Flippin,  532. 

^  And  that  although  the  stated  extent 
of  the  shareholder's  liability,  as  provided 
by  the  statute,  cannot  ba  exceeded,  still, 
up  to  tlie  fu'l  measure  of  iiis  liability,  he 
may  be  charged,  aIthou2:h  itbe  shown  that, 
if  other  solvent  shareholders  had  contrib- 
uted their  full  proportion,  it  would  not 
be  necessary  f  >r  him  to  pay.  Wehrman 
V.  Reakirt,  1  Cinn.  Super.  C't.  330(1871); 
Brown  v.  Hitchcock,  36  Ohio  St.  678.  Cf. 
Stewart  v.  Lay,  45  Iowa,  604  (1877); 
Crease  v.  Babcock,  10  Mete.  525  (1846)  ; 
Hodgson  V.  Cheever,  8  Mo.  App.  321. 
In  Wisconsin,  stockholders  in  banking 
corporations  are  liable,  by  statute,  as 
original  and  principal  debtors,  substan- 
tially as  though  they  were  partners,  ex- 
cept, as  in  Ohio,  that  the  responsibility 
of  each  is  limited  to  a  sum  equal  to  his 
shares  of  stock.  Coleman  v.  White,  14 
Wis.  700  (1862);  Carpenter  v.  Alarine 
Bank,  Id.  7(>5,  n. 


CH,  XII.]        STATUTORY   LIABILITY    OF   STOCKHOLDERS.  [§  224. 

partners,  and  the  remedies  for  enforcing  that  liability  apply  to 
the  statutory  liability  of  shareowners  in  incorporated  companies.* 
The  question  wliether  the  statutory  liability  of  the  shareholder 
in  any  given  case  is  that  of  a  partner  at  common  law,  is  one  of 
very  great  practical  importance,  since,  if  the  relation  of  the  share- 
holders be  that  of  partners,  the  corporate  creditor  may  have  his 
action  at  law  against  them  as  such  to  collect  his  debt.  They 
are  liable  jointly  or  severally.  Each  is  liable  as  a  principal, 
and  not  as  a  surety,  and  each  is  liable  for  the  whole  corporate 
debt,  not  otherwise  provided  for,  to  the  full  extent  of  the 
statutory  liability  imposed  upon  his  stock.^  Where  the  statute 
provides  expressly  the  'form  of  the  remedy  in  this  respect,  it  is 
the  well  established  rule  that  that  remedy  was  intended  by  the 
legislature  to  exclude  every  other,  and  it  must  be  strictly  pursued.^ 


'  Story   V.    Furman,    25  IS'.    Y.     214 
(1862);  New  Enorland  Commercial  Bnnk 
V.  Newport  Steam  Factory,  (i  R.  I.   154 
(1859);    Moies    v.    Sprague,     9    Id.    541 
(1870).     It  is  sometimes  held  that  a  gen- 
eral statutory  liability  means  a  liability 
on  the  part  of  the  stcickholder  only  in  the 
proportion  which  his  interest  bears  to  the 
total   indebtedness  of    the    corporation. 
Boyd  r.   Hall,  56   Ga.  563(1876);  Rey- 
nolds V.  Feliciana  Steamboat  Co.,  17  La. 
Rej).  397  (1841).     In  such  a  case,  where 
the  shareholders  are  jointly  and  severally 
personally  liable  for  debts  contracted  by 
the  corporation,  which  it  cannot  or  does 
rot  pay,  in  proportion  to  the  number  of 
shares  they  own,  it  seems  to  be  settled 
that,  they  are  to  be  held  principal  debtors, 
and  not  mere  sureties  for  the  corporation. 
Ilarger  v.    McCuliouffh,     5    Denio,    119 
(184i5i;  Corning  v.  McCiillough,  1  N.  Y. 
47  (1847);  Moss  v.   Avercll,  10  Id.  450 
(1S53);  Simonson  v.   Spencer,  15   Wend. 
648  (1836);  Bailey  v.   Bancker,  3   Hill, 
18«  (1842) :  Southmavd  v.  Huss,  3  Conn. 
62(1819);  Marcy   v.  Clark.  17  Mass.  330 
(1821),     In  Michigan  it  is  held  that  they 
are  sureties.     Ilansfm  v.  Donkerslcy,  37 
Mich.    184.       Cf.    Grand  Rapids  Savings 
Bank  «.  Warren.  52  Id.  557.     It  has  been 
held  aJFO  that  they  are   not  fiirrlies  for 
each  other.     Lane  ?>.  Harris,  16  Ga.  217, 
2.'i4  (1854);  Crease  v.  Babcock,  10  Mete. 
625  (1846).     Cf.    Larrabee   v.    Baldwin, 
35  Cal.  165  (1868).     This  seems  to  ho  the 
rule,  in  general,  a.s  to  all  statutory  liabil- 
ity.     Young  V.   Rosenbaum,  ::0  Cal.    646 
(1^70);  Taylor  on  Corporations,  g^  714, 
715. 


^  Erickson  v.  Nesmith,  46  N.  H.  371 
(1866);    Thompson    v.  Meisser,    108    111. 
359.      It    is  obvious   that  the    question 
whether  the   creditor,    in   pursuing    his 
remedy  against  the  shareholder,  may  sue 
one   or  any  of  the    shareholders   at    his 
option,  or  must  sue  all,  in  a  juint  action, 
is  of  ihe  highest  importance.     It  goes  to 
the  very  form  and  essence  and  content  of 
his  action,  but  it  is  a  point  upon  which, 
as   lias    been    already  intimated,  a  text 
writer  cannot  deduce  from  the  reported 
cases  any  clearly  settled  rule  of  general 
application.     It  is,  in  every  case  where 
the  statute  does  not  contain  an  explicit 
provision,   a    question  of  construction  to 
be  determined  by  the  courts  in  expound- 
ing the  words  of  the  statute. 

■*  Lowry  v.  Inman,  46   N.  Y.   119,  127 
(1871);  Morley  v.  Thaver,  3  Fed.  Rep. 
737,741   (1880);  Haskins  w.   Harding,  7 
West.   Juiist,  622;    Allen   v.  Walsh,   25 
Minn.    543(1879);    Windham  Provident 
Savings   Institution   v.    Sprague,  43   Vt. 
502(r871);  Bassett  v.   St.  Albans  Hotel 
Co.,  47  Id.  313  (1875);  Pollard  >;.  Bailey. 
20  Wall.  520(1874);  Knowlton  v.  Ackley, 
8  Cush.  93,  98   (1851);   Erickson   v.  Nes- 
mith,    15   Gray,  221    (1860);   Brinham  »/. 
Wcllcrsburg  Coal  Co.,   47  J'enn.    St.    43 
(1864);    Hoard     >:    Wilcox,    47   Id.    51; 
Youghioghony  Shaft  Co.  v.  Evans,  72  Id. 
331   (1872).    'Cf.   Andrews  v.  Callender, 
13  Pick.   484   (1833);  Potter  r.    Stcvona 
Machine  Co.,  127  Mass.  592  (1879) ;  C.ro.?e 
V.  Hilt,  36  Me.  22   (1853);    Liven  r.  Leo. 
36  N.  Y,  302  (1867) ;  W.  hrman  v.  Uoakirt, 
1   Cinn.   Super.  Ct.    230  (1871).     In    tho 
greater  number  of  cases  it  will  ho  found 

217 


§  224.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.        [CH.  xn. 


In  New  York  the  shareholders'  liability,  imposed  by  the  stat- 
ute known  as  the  General  Manufacturing  Act,^  is  held  to  be  indi- 
vidual, so  that  any  creditor  who  has  recovered  a  judgment  against 
the  company,  and  sued  out  an  execution  thereon,  which  has  been 
returned  unsatisfied,  may  sue  any  stockholder  and  recover  to  the 
extent  provided  by  the  statute  in  an  action  at  law.^  So  elsewhere, 
when  it  is  provided  by  statute  that  th^  shareholders  "  sliall,  to  the 
amount  of  the  stock  by  them  held,  be  jointly  and  severally  liable 
for  all  the  debts  and  responsibilities  of  such  company,"  it  is  held 
that  an  action  at  law  may  be  maintained  on  the  individual  liability 
by  any  corporate  creditor  against  any  individual  shareholder.^ 


that   there    are    no   similar   charter    or 
statutory  provisions  in  point,  by  which 
the  creditor  can  be  guided  in  determining 
whetlier  his  action  must  be  ag^dnst,  all 
the  sharehtilders  or  not.     He  will,  there- 
fore, depend  upon  the  terms  of  the  statute 
from  which  his  right  is  derived  and  by 
which  the  liability  is  imposed,  and  upon 
the  construction  put  upon  that  particular 
statute  by  the  courts.     Jacobson  v.  Allen, 
12  Fed.  Rep.  454   (1882);   Cuykendall  v. 
Miles.  10  Id.  342  (1882);   Terry  v.  Little, 
101    U.    S.    216.     In   Illinois,  under  the 
charter  provision  that   "  each  stockholder 
shall  be  liable  to  double  the  amount  of 
stock"  owned,  it  was  held  that  the  stock- 
holders  were  severally  and  individually 
liable,  that  is  that  an  action  at  law  against 
one  or  all  of  them    wcjuld  lie.     McCarthy 
V.  Livasche,  89  111.    2V0  (1878);  Hull  if. 
Burtis,    90     Id.    213  (1878);     Fuller   v. 
Ledden,  87  Id.   310;    Thebus  v.  Smiley, 
110  Id.  316;  Jacobson   v.    Allen,  12  Fed. 
Rep.   454(1882);   s.  c.    20  Blatchf.    525. 
In    Illinois   there  was  some  doubt  as  to 
whetlier  the  bill  in  equity  would  lie,  but 
the  late  case  of  Tunesma  v.  Schuttler,  114 
111.  1.^)6  (1885),  holds  that  in  case  the  cor- 
poration is   insolvent  and  the  corporate 
creditors  numerous,  a  bill  inequity  is  the 
proper  remedy.     Under  the  Manufactur- 
ing Company's  Act  of  Illinois,  the  credit- 
or's remedy  "is  held  to  be  clearly  in  equity. 
Rounds  v.  McCormick,  114  111.252(1885); 
Harper  J).  Union   Mfg.  Co.,  110  111.  222; 
Low  V.  Buchanan,  94  111.  76.     As  regards 
the  method  of  enforcement  of  the  statu- 
tory liability  of  stockholders  in  national 
banks,  see  irons  v.  Manufacturers  Natl. 
Bk.  27  Fed.  Rep  591  (1886);   Hobart  v. 
Johnson,  19  Blatch.  359  (1881);    Ander- 
son V.  Line,  14  Fed.  Rep.  405  (1880). 

'  New  York  Laws  of  1848,  chap.  40, 

10,  11,  24. 


§^ 


'^  Abbott  V.  Aspinwall,  26  Barb.  202 
(1857);  Wiles  v.  Suydam,  64  N.  Y.  173 
(1876);  Shellington  v.  Howland,  53  Id. 
371  (1873);  Handy  v.  Draper,  89  Id.  334 
(1882);  Rocky  Mountain  National  Bank 
V.  Bliss,  Id.  338  (1882) ;  Mathez  v.  Neidig, 
72  Id.  100  (1878);  Flash  v.  Conn,  109  U. 
S.  371,  380  (1883) ;  Southworth  &  Jones 
on  Manufg.  &  Business  Corporations, 
§  107;  Weeks  v.  Love,  50  N.  Y.  568 
(1872).  And  this  was  the  rule  also  under 
the  earlier  statute  of  March  22,  1811. 
See  3  R.  S.  282;  Bank  of  Foughkeepsie 
V.  Ibbotson,  24  Wend.  473  (1840);  Van 
Hook  w.  Whitlock,  3  Paige,  409 ;  Simonson 
V.  Spencer,  15  Wend.  548  (1836).  But 
when  the  action  is  to  enforce  the  statutory 
liibility  to  employees,  "laborers,  serv- 
ants, and  apprentices,"  in  New  York,  it 
has  been  held  that  all  the  shareholders 
should  be  made  parties.  Strong  v.  Wbea- 
ton,  38  Barb.  616  (1861). 

3  Grund  ».  Tucker,  6  Kan.  70  (1869); 
Norris  v.  Johnson,  34  Md.  485  (1871). 
See  Bullard  v.  Bell,  1  Mason,  243  (by 
Story,  J.).  Cf.  Matthews  v.  Albert.  24 
Md.  527  (;i866);  Culver  v.  Third  .National 
Bank,  64  111.  528  (1871);  Bond  v.  Apple- 
ton,  8  Mass.  472  (1812);  Harris  v.  First 
Parish  in  Dorchester,  23  Pick.  112  (1839); 
Coleman  v.  White,  14  Wis.  700  (1862). 
Under  a  Georgia  statute,  by  the  provi- 
sions of  which  each  shareholder  in  bank- 
ing corporations  in  that  State  is  made 
liable  to  redeem  his  proportionate  share 
of  the  outstanding  circulation,  a  single 
creditor  may  have  his  action  at  law 
against  any  individual  shareholder.  Lane 
V.  Harris,  16  Ga.  217  (1854);  Lane  v. 
Morris,  8  Ga.  468  (1850);  Branch  v.  Bak- 
er, 53  Id.  502  (1874);  Hatch  r.  Bar- 
roughs,  1  Woods,  439  (1870).  Of.  Bank 
of  Foughkeepsie  v.  Ibbotson,  24  Wend. 
473  (1840). 


218 


CH.  XII-l  STATrTORT    LIABILITY    OF   STOCKHOLDERS. 


226. 


§  225.  Tlie  remedy  at  law,  Iwiv  far  exclusive.— It  will 
generally  be  found  where  an  action  at  law  can  be  maintained  by 
any  individual  creditor  against  any  individual  stockholder,  to  en- 
force the  statutory  liability,  that  this  is  not  held  to  be  the  cred- 
itor's exclusive  remedy.  The  rule  is  believed,  in  general,  to  go  no 
further  than  to  allow  such  an  action,  leaving  the  further  remedy 
by  suit  in  equity,  on  behalf  of  all  the  creditors  and  against  all  the 
shareholders,  to  be  pursued  at  the  option  of  the  creditors. 

On  the  other  hand,  there  is  to  be  found  a  line  of  decisions 
which  hold  that  while  an  action  at  law  is  a  proper  proceeding  on 
the  part  of  the  corporate  creditor,  the  liability  of  the  shareholder 
is  joint,  and  that  in  consequence  all  should  be  made  parties 
defendant.^ 

§  226.  lIlKslrations  of  Hie  remedy  in  equity  and  at  law. — 

The  remedy  in  equity  is  the  favorite  remedy  of  the  courts.  Ac- 
cordingly it  is  frequently  held  that  an  action  at  law  to  enforce  a 
statutory  liability  is  not  a  proper  proceeding,  but  that  the  rights 
of  all  parties  can  be  properly  adjusted  only  in  a  court  of  equity, 
and  that  the  latter  remedy  is  exclusive  of  all  others.* 


'  Mansfield  Iron  Worts  v.  Willcox.  52 
Peiin.  St.  3VY  (1866);  Brinham  r.  Wel- 
lersliire  Coal  Co.,  47  Id.  43  (1864);  Mc- 
HoFe  rr.  Whf  eler,  45  Td.  32  (1863) ;  Hoard 
V.  W'ilcox,  41  Id.  51  (1864).  In  Pennsyl- 
vania (he  corporation  also  f^liould  be 
mi\(U'  a  party  del'erdnnt.  Mansfield  Iron 
Works  jj.WMiloox,  52  Penn.  St.  377  (1866). 
Cf.  Deniinp:  v.  Bull.  10  Conn.  409  (1835); 
Middletdwn  Bank  v.Maeill,  5  Id. 28  (1  823). 
In  Vermont  a  provision  that  shareholders 
"  shall  he  personally  holden,"  is  held  to 
cicate  cnly  a  joint  liahility.  Windham 
Provident  Si. vines  Institution  v.  S}iriigue, 
43  Vt.  502  (1871). 

'  Ihus,  under  a  charter  provision  that 
stockholders  shall  "  he  hound  respectively 
for  all  dehts  of  the  hank  in  projiortion  to 
(Iifir  stock  holden  therein,"  it  was  held 
that  !in  oclion  at  law  hy  n  single  creditor 
against  a  single  stotkholder  would  not 
lie.  Pollard  v.  Bailcv,  20  W^all.  520 
(1874);  Hatch  v.  Ihwa,  101  U.  S,  205 
(1879);  Terry  v.  Little,  Id.  216.  Cf. 
Wright  V.  McCorniack,  17  Ohio  St.  86 
(1866);  Sn.ith  v.  Iluckahee,  63  Ala.  101 
(1875);  Srmdsr.  Kimhark.  37  Harh.  108, 
1^0  (]8r3);  Cushman  v.  Shepard.  4  Id. 
113  (1848).  Nor  under  a  statute  making 
the  stockholders  of  a  banking  company 


"  individually  responsible  to  the  amount 
of  their  resj)ective  share  or  shares  of 
stock  for  all  its  indebtedness  and  liabili- 
ties of  every  description."  Coleman  v. 
White,  14  Wis.  700(1862);  Carpenter  v. 
Marine  Bank,  Id.  70F,  d. 

Also  upon  the  ground  that  at  law  the 
indebteilness  of  the  corporation  and  the 
several  liabilities  of  the  members  could 
not  be  equitnWv  adjusted.  See  also  Allen 
V.  W^alsh,  25  Minn.  543  (1879);  Jones  v. 
Jarman,  34  Ark.  323  (1879);  Low  v.  Bu- 
chanan, 94  111.  76  (1879);  and  particularly 
Flash  V.  Conn,  109  U.  S.  371  (1883); 
Quecnan  v.  Palmer,  34  Alb.  L.  J.  117  (111.. 
1886).  Cf.  Stewart  v.  Lay,  45  Iowa,  604 
(1877);  Norris  v.  Johnson,  34  Md.  485 
(1871);  Favmonville  v.  McCullough,  59 
Cal.  285  (1881);  Garrison  v.  Howe,  17  N. 
Y.  458  (1858);  Story  v.  Furman,  25  Id. 
214  (1862). 

W' here,  in  South  Carolina,  the  charter 
of  a  bank  provided  that  ii])on  the  failure 
of  the  bank,  "  each  stockholder  shall  be 
liable  and  held  hound  .  .  .  for  any 
sum  not  exceeding  twice  the  amount  of 
his  .  .  .  shares,"  it  was  held 
iiy  the  Supreme  Tourt  of  the  United 
States  that  a  suit  in  <  quity  by  or  on  be- 
half of  nil  the  creditors  is  the  only  appro- 

219 


§  226.]  STATUTORY   LIABILITY   OF   STOCK HOLDE US.  [OH,  XII. 


It  is  uncertain  whether  a  stockholder,  who  is  also  a  creditor  of 
the  corporation,  can  bring  an  action  at  law  against  his  co-stock- 
holders to  enforce  a  statutory  liability.  In  Massachusetts^  and 
New  York^  the  rule  is  settled  that  such  an  action  cannot  be  main- 
tained. In  those  jurisdictions  the  only  remedy  for  such  a  cred- 
itor in  such  a  case  is  in  a  court  of  equity. 

Put  in  Pennsylvania^  and  in  Maine'*  the  rule  is  otherwise, 
and  it  is  no  objection  to  the  creditor's  action  that  he  be,  himself, 
also  a  shareholder.^  Where  an  action  at  law  can  be  maintained, 
and  the  shareholder's  liability  is  limited  and  several,  each  share- 
holder being  made  liable  for  a  sum  certain,  a  separate  action  will 
lie  against  each  one.®  And  unless  the  remedy  at  law  has  been 
enlarged  by  statute,  so  as  to  allow  judgment  separately  against 
each  one  of  several  defendants  before  the  court  in  the  same  pro- 
ceeding, each  creditor  must  sue  each  shareholder,  or  each  creditor 
must  sue  some  one  or  more  shareholders  separately.'     In  many 


priate  innde  of  enforcing  the  liability  in- 
curred by  such  a  failure.  Terry  v.  Little, 
101  IT.  S.  216  (1879). 

'  Thayer  v.  Union  Tool  Co.,  4  Gray, 
75(1855);  Potter  v.  Stevens  Machine  Co., 
127  Mass.  592  (1879). 

2  Bailey  V.  Bancker,  3  Hill,  188  (1842); 
overruling  upon  this  point  Simonson  v. 
Spencer,  15  Wend.  548  (1836);  Beers  v. 
Waterbury,  8  Bosw.  396  (1861);  Richard- 
son V.  Abendroth,  43  B.arb.  162  (1864). 
But  see  contra,  Sanborn  v.  Lefferts,  58 
N.  Y.  179(1874);  Garrison  v.  Howe,  17 
N.  Y.  458  (1858).  Cf.  Slee  v.  Bloom,  5 
Johns.  Clian.  366,  382  (1821). 

3  Brinhani  v.  Wellersburg  Coal  Co., 
47  Penn.  St.  43  (1864). 

•»  Fowler  v.  Robinson,  31  Me.  189 
(1850). 

^  In  New  York  it  seems  that  the  as- 
signee of  a  shareholder  may  bring  the 
suit  to  enforce  statutory  liability.  Wood- 
ruff &  Beacli  Iron  Works  v.  Chittenden, 
4  Bosw.  406  (1-59).  See  Garrett  >■. 
Sayles,  1  Fed.  Rep.  371  (1880).  to  the 
point  that  an  assignee  in  bankruptcy  may 
maintain  such  a  suit.  But  this  is  point- 
edly denied  in  Massachusetts,  and,  as  it 
appears,  upon  tenable  grounds.  Potter 
V.  Stevens  Machine  Co.,  127  Mass.  592 
(1879).  For  if  an  assignee  may  sue,  there 
is  an  end  of  the  rule. 

*  Bank  of  Poughkeepsie  v.  Ibbotson, 
24  Wend.  473  (1840);  Perry;'.  Turner, 
55  Mo.  418  (1874);  Boyd  v.  Hall,  56  Ga. 
663  (1876);  Jones  v.  Wiltberger,  42  Id. 

220 


575  '(1871),  Lane  v.  Harris,  16  Id.  217 
(1854);  Paine  v.  Stewart,  33  Conn.  516 
(1866);  Culver  v.  Third  National  Bank, 
64  111.  528  (1871);  Abbott  v.  Aspinwall, 
26  Barb.  202  (1857);  Garrison  v.  Howe, 
17  N.  Y.  458  (1858);  Terrv  v.  Little,  101 
U.  S.  216  (1879). 

The  late  case  of  Mason  v.  Alexander, 
13  Am.  &  Eng.  Corp.  Cas.,  54  (0.,  1888), 
holds  that  the  corporation  is  a  necessary 
party  to  the  creditor's  suit  in  equity,  that 
judgment  against  the  stockholders  is  to 
be  against  them  severally,  and  that  inter- 
est is  to  be  allowed  from  the  commence- 
ment of  the  suit,  "  although  the  amount 
of  recovery  miiy  thereby  exceed  the  stock- 
holder's original  liability." 

^  Bank  of  Poughkeepsie  v.  Ibbotson, 
24  Wend.  473;  Abbott  v.  Aspinwall,  26 
Barb.  202  (1857) ;  Pettibone  v.  McGraw. 
6  Mich.  441  (1859);  Paine  v.  Stewart,  33 
Conn.  516  (1866);  Matter  of  the  Hollister 
Bank,  27  N.  Y.  393  (1863)  ;  Perry  v. 
Turner.  55  Mo.  418  (1874).  Cf.  Pratt  v. 
B.icon,  10  Pick.  122  (1830);  Milroy  v. 
Spurr  Mountain  Iron  Mining  Co.,  43 
Mich.  231  (1880).  But  where  the  share- 
holder's liability  is  held  to  be  like  tliat  of 
a  partner,  tlien  all  must  be  joined  as  de- 
fendants, and  the  omission  of  any  one  is 
around  for  a  plea  in  abatement.  Allen  v. 
Sewall,  2  Wend.  327  (1829);  Strong  v. 
Wheaton,  38  Barb.  616  (1881);  Reynolds 
V.  Feliciana  Steamboat  Co.,  17  La.  Rep. 
397  (1841);  Bonewitz  v.  Bank,  41  Ohio 
St.    78.     Cf.   Dodge  v.   Minnesota,    (fee. 


CH.  XII.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.  [§  226. 


jurisdictions  the  rule  prevails  that  creditors  in  these  cases  have  a 
concurrent  remedy,  either  at  law  or  in  equity.  The  action  at  law 
will  lie  upon  the  debt,  while,  on  the  other  hand,  the  equitable 
jurisdiction  arises  from  the  power  of  a  Court  of  Chancery  to 
compel  contribution  among  the  shareholders  and  to  effect  an 
equitable  distribution  among  the  creditors.^ 

In  the  courts  of  the  United  States  it  is  the  rule  that  where  a 
stockholder's  statutory  liability  is  by  the  terms  of  the  statute  a 
joint  and  several  or  several  liability,  the  creditor  may,  after  the 
remedy  against  the  corporation  is  exhausted,  be  enforced  in  an 
action  at  law,  but  in  all  other  cases  of  statutory  liability,  the  rem- 
edy must  be  in  equity,  as  in  cases  of  unpaid  subscriptions.'''  In 
several  of  the  State  courts  it  is  held  that  a  creditor's  remedy 
against  a  shareholder  upon   the  statutory  liabihty  is  in   equity 


Slate  Roofing'  Co.,  16  Minn.  !^68(1871); 
Culver  V.  Third  National  Bank,  64  111. 
628  (1871);  Branson  cOregonian  Ry.  Co., 
10  Oregon,  278  (1882). 

In  PeimsylvaniH,  under  the  statute 
relating;  to  the  incorporation  of  manufac- 
turing companies,  the  corporate  creditor 
proceeds  against  the  sliareholders  in  an 
action  at  law  upon  the  original  contract, 
maldcg  the  corporation  and  all  the  share- 
holders parties  defendant.  Brinliam  v. 
Wellersburg  Coal  Co.,  47  Penn.  St.  43 
(1864);  Mansfield  Iron  Works  I'.Wilicox, 
62  Id.  377  (1866);  Hoard  v.  Wilcox,  47 
Id.  51  (1864);  McHose  v.  Wheeler,  45  Id. 
32  (1863).  See  Patterson  v.  Wyomissing 
Manfg.  Co.,  40  Penn.  St.  117  (1861).  And 
compiire  Thompson  ?>.  Jewell,  43  Mich. 
240  (1880);  Pope  v.  Leonard,  115  Mass. 
286  (1874);  Branson  v.  Oregonian  Ry. 
Co.,  10  Ongon,  278  (1882). 

'  Bank  ot  the  United  States  v.  Dallam, 
4  Dana,  574  (1836);  Van  Hook  v.  Whit- 
lock,  3  Paige,  409  (1832) ;  Bank  of  Pough- 
keepsie  v.  Ibbotson,  24  Wend.  473  (1840); 
Masters  v.  Rossie  Lead  Mining  Co.,  2 
Sandf.  Chan.  301  (1845);  Pfohl  v.  Simp- 
son, 74  N.  Y.  137  (1878);  Eames  v.  Doris, 
102  111.  350  (1882) ;  Culver  v.  Third  Na- 
tional Bank,  64  Id.  528  (1871);  Grund  v. 
Tucker,  5  Kan.  70  (1869);  Perry  v.  Tur- 
ner. 55  Mo.  418  (1874);  Norris  v.  John- 
Bon,  34  Md.  485,489(1871);  Matlhcws  v. 
Albert,  24  Id.  5'i7  (1866).  Cf.  Weeks  v. 
Love,  60  N.  Y.  568  (1872);  Story  v.  Fur- 
man, 25  Id.  214  (1862);  Garrison  v.  Howe, 
17  Id.  458  (1868).   And  see  the  following 


New  York  cases,  wherein  it  seems  to  be 
held  that  where  there  is  a  remedy  in 
equity  it  is  exclusive:  Morgan  v.  New 
York,  &c.,  R.  R.  Co.,  10  >aige.  290 
(1843);  Sherwood  v.  Buffalo,  Ac,  R.  R. 
Co.,  12  How.  Prac.  136  (1855);  Hinds  v. 
Canandaigua,  &c.,  R.  R.  Co.,  10  Id.  487 
(1855);  Courtois  v.  Harrison,  12  Id.  359 
(1856).  This  is  not,  however,  it  is  be- 
lieved, the  prevailing  view  in  that  State. 
-  Revised  Statutes  of  the  United  States, 
^  737;  Ogilvie  v.  Knox  Insurance  Co.,  22 
How.  380;  Sawyer  v.  Hoag,  17  Wall.  610 
(1873);Pollnrdi'.  Bailev,  20ld.520(1874); 
Terry  v.  Anderson,  95  U.  S.  628,  635 
(1877);  Mills  v.  Scott,  99  Id.  25  (1878); 
Hatch  V.  Dana,  101  Id.  205  (1879);  Teny 
V.  Little,  Id.  216  {\Sld);  Patterson  v. 
Lynde,  106  Id.  519  (1882).  C/.  County 
of  Morgan  v.  Allen,  103  Id.  498  (1880); 
Eulhirdi'.  Bell,  1  Mason,  243(1817);  Wood 
V.  Dummer,  3  Id.  809;  Marsh  v.  Bur- 
roughs, 1  Woods,  463 ;  Holmes  ?'.  Sher- 
wood, 3  McCrary,  405  ;  s.  c.  16  Fed.  Rep. 
725;  Cuykendali  v.  Miles,  10  Fed.  Rep. 
342  (188*2).  Acccjrdingly  in  these  courts, 
under  a  statute  making  "  the  persons  and 
propierty  of  the  stockholders  .  . 
liable  for  .  .  .  notes  ...  in 
proportion  to  the  number  of  shares  that 
each  individual  may  hold,"  the  remedy  is 
exclusively'  in  equity.  Mills  v.  Scott,  99 
U.  S.  25  (1878);  Terry  v.  Tubman,  92  Id. 
156  (1875);  Pollard  'v.  Bailey,  20  Wall. 
520  (1874);  Cuykendali  v.  Miles,  10  Fed. 
Rep.  342  (1882);  Patterson  v.  Lynde,  106 
U.  S.  619  (1882). 

221 


§  227.J  STATUTORY    LIABILITY   6F   STOCKHOLDERS.  [CH.  xn. 

alone.^  In  New  York,  a  stockholder  sued  at  law  for  the  enforce- 
ment of  this  liability  may  institute  an  equitable  proceeding  to 
bring  in  all  the  parties.^ 

§  227.  iStocTilwlder' s  defenses  against  Ms  statutory  liability. 
— There  are  two  classes  of  defenses  that  may  occur  to  a  stock- 
holder to  defeat  his  statutory  liability.  One  class  is  of  defenses 
that  the  corporation  itself  might  have  set  up,  or  did  set  up,  against 
the  plaintiff  when  he  sought  to  collect  his  debt  from  the  corpora- 
tion. As  already  explained  herein,  in  some  jurisdictions,  particu- 
larly New  York,  the  stockholder  may  set  up  these  defenses, 
although  the  corporation  has  failed  to  establish  them.  In  other 
and  most  jurisdictions  he  cannot. 

A  second  class  of  defenses  include  those  which  are  personal  to 
the  particular  stockholder,  and  not  such  as  the  corporation  might 
have  set  up.  They  are  largely  such  defenses  as  the  stockholder 
might  set  up  against  the  corporation  to  defeat  his  subscription. 
They  do  not  refer  to  the  validity  of  the  creditor's  debt,  but  they 
deny  that  that  particular  defendant  is  one  of  those  who  are  liable 
for  the  corporate  debts.  There  are,  in  addition  to  the  defenses 
specified  in  a  previous  chapter,^  several  defenses  which  are  pecu- 
liar to  this  statutory  liability. 

{a.)  Release. — A  release  by  the  corporate  creditor,  of  one  share- 


'  Smith  V.  Huckabee,  53  Ala.  191  practicable.  Umsted  v.  Buskirk,  17  Ohio 
(IS'ZS);  Perkins  v.  Sanders,  56  Miss.  733  ;  St.  113  (1866);  Pierce  v.  Milwaukee  Con- 
Eames  v.  Doris,  102  111.  350  (1882).  See  struction  Co.,  38  Wis.  253  (1875);  Cole- 
Patterson  V.  Lynde,  106  U.  S.  519  (1882).  man  v.  White,  14  Wis.  70i>  (1862);  Crease 

2  Garrison  v.  Howe,  17  N.  Y.  458  ».  Babcock,  10  Mete.  525  (1846);  Brund- 
(1858).  So  also  in  Oregon.  Bruadage  v.  age  v.  Monuniental,  <fec..  Mining  Co.,  12 
Monumental,  (fee,  Mining  Co.,  12  Oregon,  Oregon,  322  (1886).  Two  or  more  cred- 
322(1885).  When  the  equitable  remedy  itors  may  join  in  an  equitable  action  to 
is  pursued,  the  corporation,  and  all  the  enforce  the  statutory  liability  of  share- 
sol /ent  shaieholders  within  the  jurisdic-  holders.  Hickling  ».  Wilson,  104  111.  54 
tion,  who  are  known,  should  be  made  de-  (1882).  And  an  action  to  enforce  stat- 
fendants.  Contribution  among  the  share-  utory  liability  may  be  joined  Avith  an  ac- 
holders  is  of  the  essence  of  tins  proceed-  tion  to  collect  unpaid  subscriptions.  War- 
ing, and  that  is  best  effected  when  all  are  ner  v.  Callender,  20  Ohio  St.  190  (1870). 
made  parties.  Walsh  u.  Memphis,  tfec,  R.  But  a  claim  against  stockholders  upon  a 
R.  Co.,2  McCrary,  156  (1881);  s  o.  6  Fed.  liability  imposed  by  statute,  cannot  be 
Rep.  797;  Umsted  v.  Buskirk,  17  Ohio  joined  in  one  bill  in  equity  with  a  claim 
St.  113  (1866);  Erickson  v.  Nesmith,  46  against  the  directors  of  the  company,  al- 
N.  H.  371  (18''i6);  Hadley  k.  Russell,  40  tijough  the  two  chiims  are  derived  from 
N.  H.  109;  Brinhatii  v.  Wellersburg  Coal  the  same  statute.  Cambridi;e  Water 
Co.,  47  Penn.  St.  43  (1864) ;  Hoard  v.  Wil-  Works  ».  Somerviile  Dyeing,  Ac,  Co.,  14 
cox,  Id.  51  (1864);  Mansfield  Iron  Works  Cray,  193  (18;i9)  ;  Pope  ».  "Leonard,  115 
V.  Willcox,  52  Id.  377  (1866);  McHose  v.  Mass.  286  (1874).  Cf.  Wiles  v.  Suydam, 
Wheeler,  45  Id.  32  (1863).  The  joinder  64  N.  Y.  173  (1876),  aiul  see  Douglass  v. 
of  all  the  shareholders  may  be  dispensed  Ireland,  73  N.  Y.  100  (1878). 
with  in  a  case  where  it  is  shown  to  be  im-  ^  Chapter  X. 

222 


CH.  XII.]  STATL'TORY   LIABILITY   OF   STOCKHOLDERS.  [§  227. 


holder  from  his  proportion  of  the  corporate  indebtedness,  will 
not  operate  to  release  the  other  shareholders.^  Thus  Mhere  the 
shareholders  are  held  to  be  severally  and  not  jointly  liable  nnder 
the  statute,  one  may  be  released  without  releasing  the  others.^ 

(b.)  £'6ioj'j)eL — Again,  the  defense  of  estoppel  is  sometimes 
set  lip.  In  the  English  cases  it  is  said  that  the  doctrine  of  estoppel 
is  a  defense  to  an  action  to  enforce  the  common  law  liability  on  the 
subscription,  but  not  to  an  action  to  enforce  a  statutory  liability.' 

(c.)  Liahility  already  paid. — It  is  a  defense  to  the  stockholder 
to  prove  that  his  full  statutory  liability  has  already  been  paid  by 
him.  A  stockliolder  who  has  voluntarily  paid  corporate  debts  to 
the  full  extent  of  his  statutory  liability,  is  entitled  to  set  up  that 
fact.  And  when  such  a  payment  was  lona  fide  it  is  a  bar  to  an 
action  to  collect  any  further  amount.* 


'  Prince  v.  Lynch,  38  Cal.  628  (1869); 
Berries  v.  Piatt.' 21  Hun,  132  (1880). 

'  Bank  of  Poughkeepsie  v.  Ibbotson,  5 
Hill,  561  (1843).  Cf.  Berries  v.  Piatt,  21 
Hun,  132  (1880).  But  whether  an  exten- 
sion g-iven  to  the  corporation  by  a  cred- 
itor ■will  not  discbarge  a  shareholder  as  to 
his  liability  by  statute  seems  uncertain. 
In  the  case  of  Harger  v.  McCulkiugh,  2 
Denio.  119  (1846),  it  was  held  that  it 
would  not,  while  in  the  later  cnse  of  Par- 
rott  V.  Colby,  6  Hun,  55  (18*75);  s.  c.  af- 
firmed, Vl  N.  Y.  597  (1877)  ('/.  Ault- 
man's  Appeal,  98  Penn.  St.  505  (1881); 
Hanson  v.  Donkersley,  37  Mich.  184; 
Grand  Rapids  Savings  Bank  v.  Warren, 
52  Id.  557),  without  expressly  overruling 
Harger  v.  McCullougb.,  it  is  plainly  de- 
clared, in  making  an  application  of  the 
short  Statute  of  Limitations  provided  by 
the  General  ISIanufacturing  Act  of  New 
York  (N.  Y.  Laws  of  1848,  chap.  40, 
§  10),  that  the  liability  of  shareholders  in 
these  cases  cannot  be  revived  or  extended 
by  any  renewal  or  extension  of  the  in- 
debtedness which  the  creditors  may  make 
with  the  corporation.  And  in  accordance 
with  that  view,  where  the  effect  of  the  ex- 
tension granted  by  the  creilitor  to  the  cor- 
poration had  been  to  poi-tponc  tiie  action 
against  the  shareholder  beyond  the  time 
prescribed  by  the  statute  within  which 
such  an  action  is  maintainable,  that  is, 
one  year  from  the  time  the  corporate  debt 
was  fir.-t  due,  it  was  held  that  the  share- 
holder \va^  thereby  discharged.  Parrot t 
t'.  Colb}-,  mijtra.  Ace.  .laj^trer  Iron  Co.  v. 
Walker,  76  N.  Y.  521  (1879);  Stilphen  v. 
"Ware,  45  Cal.  110.     Cf.  Sutherland  v.  01- 


cott,  95  N.  Y.  93  (1884) ;  reversing  s.  o. 
29  Hun,  161  ;  Jones  v.  Barlow,  62  N.  Y. 
202  (1875). 

5  Ness  V.  Angas,  3  Exch.  805  (1849); 
Ness  V.  Armstrong,  4  Id.  21 ;  Moss  v. 
Steam  Gondola  Co.,  17  C.  B.  180  (1855); 
Bailey  v.  Universal  Provident  Life  Asso- 
ciation, 1  C.  B.  (N.  S.)  557  (1857).  In 
New  York,  the  admission  of  one  share- 
holder is  inadmissible  to  charge  others 
with  whom  he  is  sued,  to  etiforce  their 
personal  liability  as  stockholders  of  an 
insolvent  cor|ioration.  Simmons  v.  Sis- 
son,  26  N.  Y.  264  (1863), 

■*  Buchanan  v.  Meisser,  105  111.  638 
(1883);  Lane  v.  Harris,  16  Ga.  217 
(1854);  Belcher  v.  Willcox,  40  Id.  391 
(1869);  Robinson  v.  Bank  of  Darien,  18 
Id.  65,  109  (1855);  Tallmadge  v.  Fishkill 
Iron  Co.,  4  Barb.  382  (1848);  Garrison 
V.  Howe.  17  N.  Y.  458  (1858);  Woodruff 
<fe  Beach  Iron  Works  v.  Chittenden,  4 
Bosw.  406  (1859);  Boyd  v.  Hall,  56 
Ga.  563  (1876);  San  Jose  Savings 
Bank  v.  Pilaris,  58  Cal.  380;  Thompson 
V.  Meisser,  108  111.  359.  But  when  a 
creditor  has  actually  commenced  a  suit 
to  enforce  the  statutory  liability  of  any 
individual  shareholder,  it  is  tht-n  too  late 
for  tiiat  shareholder  to  defeat  the  .'iction 
by  ])aying  some  other  corporate  ei-edit- 
or's  cbiim.  Jones  v.  Wiltbergcr,  42  Ga. 
575  (18711.  Norw^ll  a  shareholder,  who 
has  em))loyed  an  agent  to  buy  up  claims 
at  a  discount,  and  then  conlessed  judg- 
ment ill  favor  of  that  agent,  be  ]iermitled 
to  i)l<ad  such  a  judgment  in  bar  of  an 
action  by  other  creiiitors.  Manville  v. 
Karst,  16   Fed.   Rep.   173.     raynicut  of 

223 


§  227.J  STATUTORY    LIABILITY   OF   STOCKHOLDERS.  [CH.  xri, 

{d.)  Set-off. — In  a  preceding  section,  it  has  been  shown  that, 
when  a  shareholder  is  indebted  to  the  corporation  for  an  unpaid 
balance  of  subscription,  he  cannot  set-off,  as  against  that  liability, 
a  debt  due  hiai  from  the  corporation.^  He  must  first  pay  what 
he  owes  to  the  company,  and  then  come  in  the  same  as  other 
creditors,  and  share  ratably  in  the  distribution  of  the  assets. 
The  rule  is  not  so  stringent  as  regards  the  statutory  liability, 
and  the  question  whether  he  may  set-off  a  debt  owing  to  him 
from  the  corporation,  will  depend  entirely  upon  the  nature  of  the 
liability  imposed  upon  him  by  the  statute.  If  the  statute  creates 
a  fund,  out  of  which  the  creditors  are  to  be  paid  ratably,  then  the 
stockholder  cannot  set-off  an  indebtedness  of  the  corporation 
to  him.  He  must  pay  in  what  the  statute  requires,  and  then 
prove  his  claim  against  the  corporation  like  any  other  creditor.^ 
But  where  the  shareholder's  liability  by  statute  is  immediate,  and 
personal,  and  several,  and  any  creditor  may  sue  any  shareholder, 


the  judgments  at  a  discount  is  no  ex- 
haustion of  the  liability,  though  tl:e  judg- 
ments at  full  value  would  have  exhausted 
it.  Kunkelman  v.  lleutchler,  15  Brad. 
(111.)  271  (1884).  Neither  may  a  share- 
holder himself  buy  in  claims  at  a  discount, 
and  then  set  them  off  at  their  face  value 
in  an  action  to  enforce  his  statutory  lia- 
bility to  creditors.  Gauch  v.  Harrison, 
12  Bradw.  (111.)  459;  Thompson  i-.  Meis- 
ser,  108  111.  359.  Cf.  Diven  v.  Phelps, 
34  Barb.  224;  Balch  v.  Wilson,  25  Minn. 
299;  Smith  v.  Mosby,  9  Heisk.  (Tenn.) 
501 ;  Lanier  v.  Gayoso  Savings  Institu- 
tion, 9  Id.  506. 

'  See  Chapter  XI. 

'^  Smiih  V.  Huckabee,  53  Ala.  191,  196 
(1875);  Buchanan  v.  Meisser,  105  111.  638 
(1883);  Matter  of  the  Empire  City  Bank, 
18  N.  Y.  199,  227  (1858);  Matthews  v. 
Albert,  24  Md.  527  (1866);  Garrison  v. 
Howe,  17  N.  Y.  458  (1858);  Hillier  v. 
Allegheny  Mutual  Ins.  Co.,  3  Penn.  St. 

470;   Lawrence   v.  Nelson,   21   N.  Y.  158 

(1860);  Thebus  v.  Smiley,   110  111.   316 

(1884);  Weber  v.  Fickey,  47  Md.    196; 

Emmert  v.  Smith,  40  Id.   123;  Terry  w. 

Bank  of  Cape  Fear,   20  Fed.  Rep.   777 ; 

Stockton  V.  Mechanics,  &c.,  Bank,  32  N. 

J.  Eq.  163,  167;  Grissell's  Case,  L.  R.,  1 

Chan.  528  ;  Black's  Case,  L.  R.,  S  Chan. 

254;   CdUisher's  Case,  L.  R.,  5   Eq.  214; 

Barnett's  Case,  L.  R.,  19  Eq.  449.     Cf. 

Clapp   V.   Wright,   21    Hun,    240  (18€0). 

Where  the  shareliolders  liability  is  un- 

224 


limited,  the  question  of  the  right  to  set- 
off is  not  material,  because  each  share- 
holder "  is  liable  to  contribute  to  any 
amount  until  all  the  liabilities  of  the  com- 
pany are  satisfied,  and  therefore  it  signi- 
fies nothing  to  the  creditors,  whether  the 
set-off  is  allowed  or  not."  Grissell's  Case, 
supra,  p.  536.  But  see  Briggs  v.  Penni- 
man,  8  Cowen,  387  (1826). 

Upon    this    point    Denio,   J.,    says: 
"  Under  a  proceeding  for  winding  up  a 
corporation  where  an  account  of  all  the 
debts  and  of  the  effects,   including  the 
aggregate  liability  of  the  stockholders,  is 
required  to  be  taken,  there  is  no  reason 
why  a  creditor  should  be  in  any  better 
situation  on  account  of  being  at  the  same 
time  a  stockholder.     In  the  latter  char- 
acter, the   constitution   and   the    statute 
make  him  liable  to  the  creditors,  to  an 
amount  equal  to  his  stock,  or  to  his  just 
proportion  of  that  amount,  if  the  whole 
is  not  required,  but  as  a  creditor  he  is 
entitled  only  to  a  dividend  in  proportion 
to  the  other  creditors.     In  case  of  a  de- 
ficiency in  means  to  pay  all  the  debts,  he 
must  take  his  dividend  joro  rata.     But  if 
he  could  set-off  his  claim  as  a  creditor 
against  iiis  liability  as  a  stockholder,  he 
might  be  paid   in  full,   while   the  other 
creditors  would  receive  only  a  part  of  the 
amount  due  tiiem."   M;itter  of  the  Empire 
City  Bank,  18  N.  Y.  199,  227.     See  Mor- 
awetz  on  Corporations  (2d  edition),  §  898; 
Taylor  on  Corporations,  §  731. 


CH.  XII.]         STATUTORY   LIABILITY   OF    STOCKHOLDERS. 


[§227. 


then  the  shareholder  may  properly  set-off  a  debt  owing  to  liim 
from  the  corporation,  when  he  is  sued  by  a  corporate  creditor.'^ 

(<?,)  Interest. — In  South  Carolina^  and  Illinois,^  the  share- 
holder is  not  liable  for  interest  on  the  amount  for  which  the  stat- 
ute makes  him  answerable,  and  when  he  pays  the  principal  sum 
the  whole  liability  is  discharged.  But  in  New  York,  interest  is 
collectible  from  the  time  the  suit  to  enforce  is  commenced,* 

(/.)  Costs. — Although  it  be  a  condition  precedent  to  the  ac- 
tion against  the  shareholder  that  a  judgment  be  recovered  against 
the  corporation,  it  is  no  part  of  the  shareholder's  statutory  liability 
to  pay  the  costs  of  obtaining  that  judgment.  Accordingly  a  judg- 
ment against  the  shareholder  must  not  include  any  part  of  the 
<iOsts  of  the  proceeding  against  the  corporation,^ 

((/.)  Statute   of    Limitations. — Where   the    liability    of    the 


'  Mathez  v.  Neidig,  72  N.  Y.  100 
(1878);  Agate  V.  Sands,  73  Id.  620  (1878); 
Wheeler  v.  Millar,  90  Id.  353,  362(1882); 
Boyd  r.  Hall,  56  Ga.  563  (1876);  Reming- 
ton V.  Kins,  11  Abb.  Prac.  279  (1858). 
See  also  Quick  v.  Lemon,  105  111.  578. 
This  defense  is  allowed  by  the  courts  of 
New  York  in  actions  to  enforce  the  extra- 
ordinary liability  imposed  by  the  statute 
of  that  State  known  as  the  Manufacturing 
Companies  Act  of  1848.  N.  Y.  Laws  of 
1848,  chap.  40,  gg  10,  24.  See  Wheeler 
V.  Millar,  90  N.  "Y.  353  (1882),  a  case  in 
which  the  right  to  set-off  under  this  stat- 
ute is  fully  considered.  The  shareholder's 
right  to  set-off  his  claim  against  the  cor- 
poration in  defense  to  an  action  against 
him  to  enforce  his  statutory  liability  may 
sometimes  be  a  matter  of  bona  fides. 
Boyd  V.  Hall,  56  Ga.  563  (1876);  Be'lcher 
t).  Willcox,  40  Id.  391  (1869);  Smith  v. 
Huckabee,  53  Ala.  191  (1875);  Thompson 
V.  Meisser.  108  111.  359. 

■^  Sacketts  Harbor  Bank  v.  Blake,  3 
Rich.  Kc].  225  (1849). 

•'  Munger  v.  .lacobson,  99  111.  349 
(1881). 

■»  Handy  v.  Draper,  89  N.  Y.  334 
(1K82);  P.iirr  v.  Wilcox,  22  Id.  551 
{I860).  Cf.  Casey  v.  Galli,  94  IT.  S.  673 
(1876).  Where  a  referee  computed  the 
interest  on  the  plaintiff's  claim  from  the 
date  on  which  it  became  due  from  the 
company,  instead  of  from  the  day  the 
suit  against  the  shareholder  was  com- 
menced, it  ajfpearing  that  the  imlebted- 
riess   was   less  than    the   amount    of  the 


shareholder  s  liability,  and  that  the  allow- 
ance of  interest  did  not  swell  it  beyond 
that  limit,  the  Court  of  Appeals  held  such 
a  computation  no  error.  Wheeler  v. 
Millar,  90  N.  Y.  353,  362  (1882),  and  ap- 
parently upon  sufficient  ground,  the 
court,  b}'  Fiuch,  J.,  saying:  "  The  credit- 
or's debt  consists  both  of  principal  and 
interest.  He  is  just  as  much  entitled  to 
the  latter  as  the  former,  and  the  liability  to 
pay  the  debt  must  necessarily  include  the 
accrued  interest  up  to  the  statutory  limit. 
When  that  is  reached  any  further  intrrest 
runs  only  upon  that  sum  from  the  date  of 
the  commencement  of  the  action.  The 
entire  principal  and  interest  of  the  debt  in 
the  present  case  did  not  exceed  the  limit 
of  liaiiilit}',  and  the  allowance  of  interest 
from  the  maturity  of  the  debt  was,  there- 
fore, proper  and  violated  no  right  of  the 
defendant."  Wheeler  ?;.  Millar,  supra,  p. 
363.  Cf.  Corning  v.  McCulhjugh.  1  N. 
Y.  47,  54  (1847);  Cole  •;;.  Butler,  43  Me. 
401  fl857).  So  in  Michigan,  the  share- 
holder is  liable  for  interest.  Grand 
Rapids  Savings  Banky.  Warren,  52  Mich. 
557  (1884);  Cleveland  v.  Burnham,  64 
Wis.  347  (1885). 

5  Bailey  v.  IJancker,  3  Hill.  188  (1842); 
Rorke  v.  Thomas,  56  N.  Y.  559,  565. 
(1871).  Cy.  Miller  ?;.  White,  CO  N.  Y. 
137(1872).  It  is  possible  that  the  rule 
miijht  be  otherwise  in  a  case  whore  the 
judument  is  held  to  be  conclusive  as 
against  the  shareholder.  So  in  Michi- 
gan, Grand  liapids  Savings  Bank  t'.  War- 
ren, 62  Mich.  567  (1884). 


[15] 


225 


§  227.]  STATUTORY   LIABILITY  OF   STOCKHOLDERS.  [cH.  XII, 


shareholder  is  immediate  and  primary,  and  not  contingent  on  the 
obtaining  of  a  judgment  against  the  corporation,  it  is  clear  that 
the  Statute  of  Limitations  begins  to  run  in  favor  of  the  shareholder 
when  the  debt  matures  against  the  corporation.^ 

But  when  the  creditor  must  first  obtain  a  judgment  against 
the  corporation  and  sue  out  an  execution,  which  must  be 
duly  returned  wholly  or  partially  unsatisfied  before  the  cause  of 
action  arises  against  the  shareholder  on  his  statutory  liability,, 
then  the  Statute  of  Limitations  commence  to  run  upon  the  return 
of  the  execution.^ 

It  is  a  general  rule  of  law  that  the  Statute  of  Limitations  ob- 
taining in  any  jurisdiction,  and  applicable  to  an  ordinary  action 
to  enforce  a  contract,  is  the  one  applicable  to  the  action  to  enforce 
the  statutory  liability  of  shareholders  in  incorporated  companies.* 

Accordingly  the  suit  must  usually  be  commenced  within  six 
years  after  the  cause  of  action  has  accrued.* 


89    N.    Y.    334 

13  Week.    Dig. 

Little.    26  Me. 


'Davidsou  v.  Rankin,  34  Cal.  503 
(1868);  Lindsay  v.  Hyatt,  4  Edw.  Chan. 
(N.  Y.)  97.  Compare  Carrol  v.  Grpeu, 
92  U.  S.  509  (1875);  Terry  v.  Tubman, 
92  Id.  156  (1875);  Terry  v.  McLure,  103 
Id.  442  (1880);  Corning  v.  McCuUough, 
1  N.  Y.  47  (1847).  See  also  Allibone  v. 
Hager,  46  Tenn.  St.  48  ;  Terry  v.  Calnan, 
13  S.  C.  220;  Lawler  v.  Burt,  7  Ohio  St. 
340;  King  v.  Duncan,  38  Hun,  461 
(1886). 

'-'  Handy  v.  Draper, 
(1882):  Merritt  v.  Reid, 
(N.  Y.)  453  ;  Longley  v. 
162.  In  Terry  i^.'Tubman,  92  U.  S.  156 
(1875),  where  the  charter  of  a  bank  con- 
tained a  provision  making  the  share- 
holders individually  liable,  for  the  ulti- 
mate redemption  of  its  bills,  the  liability 
of  the  shareholders  was  held  to  arise,  and 
hence  the  Statute  of  Limitations  to  com- 
mence to  run  in  their  favor,  upon  the 
open  and  notorious  insolvency  of  the 
bank.  So  likewise  where  shareholders 
were  made  individually  liable  "  upon  the 
failure  of  the  bank  "  it  was  held  that  the 
liability  arising  upon  the  failure,  the  Stat- 
ute of  Limitations  began  to  run  at  that 
time.  Carrol  v.  Green,  92  U.S.  509,  511 
(1875).  To  the  same  effect,  is  Baker  v. 
Atlas  Bank,  9  Mete.  182  (1845) ;  Terry 
T.  McLure  103  U.  S.  442,  (1-880);  Godfrey 
1}.  Terry,  97  Id.  171,  (1877). 

^  Green    v.   Beckman,    69    Cal.     545 

226 


(1881);  Corning  «.  McCulloiigh,  1  N.  Y. 
47  (1847);  Wiles  v.  Siiydam,  64  Id.  173,. 
176(1876);  Map])ier  ».  Mortimer,  11  Abb. 
Prac.  (N.  S.)  455;  Salt  Lake  City  Na- 
tional Bank «.  Hendrickson,  40  N.  J. 
Law,  52 ;  Baker  v.  The  Athis  Bank,  9 
Mete.  182  (1845);  The  Commonwealth 
«.  The  Cochituate  Bank,  3  Allen,  42 ; 
Norris  v.  Wrenschall,  34  Md.  492  ;  N.  Y. 
Code  of  Civil  Procedure,  §  382.  Compare 
Merchants'  Bank  of  New  Haven  v.  Bliss, 
21  How.  Prac.  366;  s.  c.  13  Abb.  Prac. 
234 ;  1  Robertson  (N.  Y.  Super.  Ct.), 
401;   35  N.  Y.  414  (1866). 

^  The  citations  in  the  preceding  note. 
See  also  Phillips  v.  Therasson,  11  Hun, 
141  (1877);  King«,  Duncan,  38  Id.  461 
(1886);  Knox«,  Baldwin,  80  N.  Y.  610 
(1880);  Hawkins  v.  Furnace  Co.,  40  Ohio 
St.  507  (1884).  In  S^uth  Carolina,  under 
the  Statute  of  Limitations  of  17 12  in  that 
State,  this  action  mu?t  be  begun  within 
four  years.  Carrol  v.  Green,  92  U.  S. 
509  (1875);  Terry  «.  McLure,  103  Id. 
442  (1880);  and,  on  the  other  extreme, 
in  some  of  the  older  cases,  it  is  held  that 
an  obligation,  such  as  this,  to  pay  money, 
arising  under  a  statute,  is  a  debt  by 
specialty,  and  accordingly  that  it  is 
barred  only  by  a  lapse  of  twenty  years. 
Bulliird  P.Bell,  1  Mason,  243,  289,  (1817 
by  Judge  Story);  Thornton  v.  Lane,  11 
Ga.  459  (1852);  Lane  v.  Morris,  10  Id. 
162  (1851).   But  see  this  view  condemned 


CH.  xn.]         STATITORY  LIABILITY   OF   STOCKHOLDERS. 


[§  228. 


If  a  statutory  liability  be  held  to  be  a  penalty,  then  of  course,, 
it  will  be  held  to  come  within  that  provision  of  the  Statute  of 
Limitations  which  provide  for  action  to  enforce  penalties.^ 

In  general,  whatever  the  statute  be,  it  is  the  rule  that  a  lapse 
of  time  sufficient  to  constitute  a  bar  at  law,  will  in  equity  be 
given  the  same  efl'ect  ;  which  is  to  say  that  in  these  cases  there  is 
the  same  Statute  of  Limitations  both  at  law  and  in  equity.^ 

§  228.  Priority  among  creditors. — When  the  creditor  is  en- 
titled to  an  action  at  law  against  an  individual  shareholder  for  an 
enforcement  of  a  statutory  liability,  in  order  to  collect  a  claim 
against  the  corporation,  it  is  a  general  rule  that  the  creditor  first 
suing  any  shareholder  is  entitled  to  priority  in  enforcing  his  claim 
as  against  that  particular  shareholder.  The  diligent  creditor  is 
entitled  to  the  payment  of  his  claim,  although  other  creditors  are 
thereby  deprived  of  payment.^  The  right  to  a  priority,  how- 
ever, in  these  cases,  is  in  general  one  of  questionable  propriety, 
and  the  courts  are  not  inclined  to  favor  it.*     And  one  creditor- 


in  Carrol  V.  Green.  92  U.  S.  509,  515 
(1875),  in  an  opinion  by  Justice  Swayne, 
construing  the  South  Carolina  statute  of 
1712.  Cf.  Green  v.  Beckman,  59  Cal. 
545  (1881),  construing  §  359  California 
Code  of  Civil  Procedure. 

'  Gridley  v.  Barnes,  103  111.  211;  Di- 
versey  v.  Sn  ith,  Id.  378.  See  also  Cable 
V.  McCune,  26  Mo.  380;  Lawlor  v.  Burt, 
Y  Ohio  St.  340;  Cody  v.  Smith,  12  Neb. 
e28;  Knox?;.  Baldwin,  80  N.  Y.  610, 
(1880).  C'f.  Duckworth  v.  Roach,  81  N. 
Y.  49(1880). 

-  Bank  (if  Poughkeepsie  v.  Ibbotson, 
24  Wend.  473  (1840);  Carrol  'v.  Green, 
92  U.  S.  509  (1875);  Baker  v.  The  Atlas 
Bank,  9  Mete.  182  (1845);  Lindsay  v. 
Hyatt;  4  Edw.  Chan.  (N.  Y.)  104.  When 
the  statute  prescribes  the  limitation  tiiere 
is  of  course  no  conti'oversy.  Baker  v. 
Bachus'  Admr.,  32  111.  99.  In  the  New 
York  Manutacturiiig  Companies  Act  (N. 
Y.  Laws  of  1848,  cha]).  4")  it  iw  provided 
(§  24)  that  "  No  stockholder  shall  be  per- 
sonally liable  for  the  payment  of  any 
debt  contracted  by  any  company 
formed  under  this  act,  which  is  not  to 
be  paid  within  one  ye;ir  from  the  time 
the  debt  is  contracted,  nor»unle.«s  a  suit 
for  the  collection  of  such  debt  sliall  be 
brought  against  sucli  company  with- 
in one  year  after  the  debt  shall  become 
due,    and    no    suit     shall      lie     brought 


against  any  stockholder  who  shall  cease- 
to  be  a  stockholder  iu  any  such  com- 
pany, for  any  debt  so  contracted,  un- 
less the  same  shall  be  commenced  with- 
in two  years  from  the  time  he  shall 
have  ceased  to  be  a  stockholder  in  such 
company."  Provisions  in  substance 
the  same  as  this  may  be  found  iu  the 
genend  statutes  of  most  of  the  States. 

3  Cole  V.  Butler,  43  Me.  401  (1857); 
Ingalls  V.  Cole,  47  Id.  530,  541  (I860); 
Jones  V.  Wiltberger,  42  Ga.  675  (1871); 
Robinson  v.  Bank  of  Darien.  18  Id.  65,. 
108  (18.55);  Thebus  v.  Smiley,  110  III. 
316;  Jones  v.  Arkansas,  Ac,  Co.,  38 
Ark.  17.  See  also  Weeks  v.  Love.  50 
N.  Y.  568  (1872);  Miers  i».  Zanesville, 
&.C.,  Turnpike  Co.,  13  Ohio,  197.  Ac- 
cordingly, after  the  creditor  commences 
his  action,  the  shareholder  cannot  defeat 
him  by  paying  voluntarily  some  other 
creditor,  and  thereby  exhausting  his  lia- 
bility. Jones  y. Wiltberger,  supra;  Thebus 
V.  Smiley,  110  111.  316  (1884),  holding 
also  that  a  stockholder  sued  by  a  single- 
creditor  may  brir)g  a  suit  in  equity  to 
bring  in  all  the  stockholders  and  cred- 
itors. 

■*  State  Savings  Association  v.  Kel- 
logg, 6  Mo.  App.  540;  Wright  v.  McCor- 
mack,  17  Ohio  St.  86;  Smith  v.  ilucka- 
bee,  53  Ala.  191;  Chicago  v.  Hail,  103 
111.  342.   Cy:  Hallston  Spa  Bank  z'.  Marine 

227 


§  229.]  STATUTORY   LIABILITY   OF   STOCKHOLDERS.        [CH.  XII. 


may,  at  the  instance  of  the  rest,  be  restrained  from  the  prosecu- 
tion of  his  individual  suit  where  it  is  in  prejudice  of  the  equal 
rights  of  all  the  others.^  In  general  incorporated  companies  are 
not  allowed  in  case  of  insolvency  to  make  assignments  with 
preferences.^ 

When  the  proceeding  to  enforce  the  statutory  liability  is  in 
equity  there  can  be,  upon  plain  principles,  no  priority  among 
creditors.  The  fund  from  which  corporate  debts  are  paid  belongs 
equally  in  equity  to  all  the  creditors,  and  cannot  be  appropriated 
by  either  debtor  or  creditor  to  the  payment  of  one  claim  to  the 
prejudice  or  exclusion  of  others.^ 

§  229.  Contribution  among  shareholders. — Upon  general  prin- 
ciples of  equity,  where  a  shareholder  has  been  held  liable,  under 
the  provisions  of  a  statute,  for  a  debt  of  the  corporation  of  which 


Bank,  18  Wis.  4<JCl(1864);  Pierce  v.  Mil- 
waukee Construction  Co.,  38  Id.  253 
(1875);  Courtois  v.  Harrison,  12  How. 
Prac.  359;  Lowber  v.  Mayor,  5  Abb. 
Prac.  268  (1857);  McBride  v.  Farmers 
Bank,  28  Barb.  476  (1858)  ;  Rankine  v. 
Elliott,  16  K  Y.  377  (1857);  State  v. 
Bank  of  Maryland,  6  Gill  &  J.  205; 
Shockley  v.  Fisher,  75  Mo.  498  ;  Lionber- 
ger  V.  Broadway  Savings  Bank,  10  Mo. 
App.  499,  and  particularly  Savings  Bank 
V.  Bates,  8  Conn.  505  ;  Whitwell  v.  War- 
ner, 20  Vt.  425;  Ringo  v.  Briscoe,  13 
Ark.  563  ;  Arthur  v.  Commercial,  &c., 
Bank,  17  Miss.  394.  Cf.  Catlin  v.  Eaale 
Bank,  6  Conn.  233  ;  Hopkins  v.  Gallatin 
Turnpike  Co.,  4  Humph.  (Teun.)  403; 
Union  Bank  v.  Ellicott,  6  Gill  <fe  J.  363 ; 
Pope  V.  Brandon,  2  Stewart  (Ala.),  401. 
The  national  banks  are  forbidden  by 
statute  from  making  assignments  with 
preferences.  U.  S.  Rev.'Stat.  §  .'')242. 
See  Irons?'.  Manufacturers  National  Bank, 
6  Biss,  301,  and  in  New  York  a  statute 
prevents  assignments  by  incorporated 
companies  in  ioto,  the  intent  of  the  statute 
apparently  being  to  prevent  preferences 
in  any  shape.  1  R.  S.  chap.  18,  title  4, 
§4  (7th  edition,  p.  1534). 

1  Eames  v.  Doris,  102  111.  350(1882); 
Marr  v.  Bank  of  West  Tennessee,  4  Caldw. 
471 ,  483-486 ;  Pfohl  v.  Simpson,  74  N.  Y. 
137  (1878).  Cf.  Garrison  v.  Howe,  17 
N.  Y.  458  (1858). 

^  Robins  v.  Embry,  1  Sm.  &  M.  Chan. 

228 


(Miss.)  207,  258 ;  Bodley  v.  Goodrich,  7 
How,  276 ;  Swepson  v.  The  Bank,  9  Lea 
(Tenn.),  713  ;  Richards  v.  New  Hampshire 
Ins.  Co.,  43  N.  H.  263.  But  see  for  an 
apparently  contrary  view,  Ardesco  Oil 
Co.  V.  North  American  Oil,  <tc.,  Co  ,  66 
Penn.  St.  375.  See  also  Ladd  v.  Cart;- 
wright,  7  Oregon, 329;  Patterson  v.Lynde, 
106  U.  S.  519  (1882).  A  shareholder, 
it  is  said,  being  also  a  creditor  of  the  cor- 
poration, may  make  use  of  whatever  ad- 
vantage his  position  as  shareholder  gives 
him  to  secure  the  paj'ment  of  his  claim, 
even  to  the  exclusion  of  other  creditors 
who  are  not  shareholders.  Whitwell  v. 
Warner,  20  Vt.  425,444;  Reichwald  v. 
Commercial  Hotel  Co.,  106  HI.  439.  See 
also  Bristol  Milling,  ttc,  Co.  v.  Probasco, 
64  Ind.  406  ;  Terry  v.  Bank  of  Cape  Fear, 
20  Fed.  Rep.  777 ;  Osgood  v.  Ogden,  4 
Keyes  (N.  Y.),  70. 

3  Sawyer  v.  Hong,  17  Wall.  610;  Sco- 
ville  V.  Thayer,  105  U.  S.  143,  152;  Bis- 
sit  V.  Kentucky  River  Navigation  Co.,  15 
Fed.  Rep.  353  (and  the  note);  Cochran 
V.  Ocean  Dry  Dock  Co.,  30  La.  Ann. 
1865;  Williams  v.  Traphagen,  38  N.J. 
Eq.  57;  Goodwin  v.  McGehee,  15  Ala, 
246;  Lexington,  <fec..  Insurance  Co.  v. 
Page,  17  B.  Mon.  412  ;  Life  As?ociaLion 
V.  Levy,  33  La  Ann.  1203;  Terry  v. 
Bank  of  Cape  Fear,  20  Fed.  Rep.  777; 
Long  V.  Pennsylvania  Insurance  Co.,  6 
Penn.  St.  421,  and  the  cases  generally 
cited  in  the  preceding  notes. 


CH.  XII.]         STATUTORY   LIABILITY   OF    STOCKHOLDERS.  [§229. 

he  is  a  member,  he  may  maintain  an  action  against  his  co-share- 
holders for  contribution.^ 


'  AspiDwall  V.    Sacchi,  5Y  N.  Y.  ;^31  and  the  cases  generally,  sMjora.  SeeSpack- 

(1874) ;    Stewart   v.    Liv,  45    Iowa,  604  man  v.    Evans,  L.  R.    .3  House  of  Lords, 

(1877):  Umsted  v.  Buskirk.  17  Ohio  St.  171,  197.     Cf.  Raj  v.  Powers,  134  Mass. 

113;    Matthews  v.   Albert,  24  Md.  527;  22;  O'Reilly  t'.  Bard,  105  Penn.  St.  569  ; 

Hadley  v.   Russell.  40  N.  H.    109,    112;  llartman  I'.'ins.  Co.  of  Valley  of  Va.,  .32 

Erickson  v.  Nesmitli,  46  Id.  371 ;    Gray  Gratt.   242;  Chandler   v.  Brown,  77    III. 

V.  Ct'ffin,  9  Cash.  192;  Middletown  Bank  334;  Bronson  v.  Wilmington,  <fee.,  Insur- 

«.  Magil),  5  Conn.  61;  Brinham  2^.  Wellers-  ance   Co.,    85  N.    C,  411;  Morawetz  on 

burg'Co:;]  Co.,  47  Penn.  fet.  43;  Masters  Corp.  (2d   edition),  J;§  311-315;  Lindley 

V.  RossieLead  Mi  ingCo..  2  Sandf.  Chan,  on  Partnership,  pp.  1223-1474. 
301 ;  Farrow  v.  Bivings,  13  Rich.  Eq.  25, 


22y 


CHAPTEK  XIII. 

XIABILITY  AS  PARTNERS  AND  FOR  ASSESSMENTS  BEYOND  THE 
PAR  VALUE  OF  THE  STOCK. 


§  230.  Different    liabilities    of    a    stock- 
holder. 
231-33.  Liability  as  partners  by  rea- 
son of  deficient  incorporation. 

234.  Instances. 

235.  Extent  of  the  liability. 

236.  Liability  as  partners  by  reason  of 
unauthorized  incorporation. 


§  237-39.  Liability  as  partners  by  reason 
of  raififration  of  corporation. 

240.  Liability  as  partners  by  reason  of 
abandoned  enterprise. 

241-42.  Assessments  in  excess  of  par 
value  of  stock. 

243.  Miscellaneous  cases  of  liability. 


§  230.  Different  Uahilities  of  a  stochlwlder  on  Ms  stock. — 

A  stockholder  may  be  said  to  be.  liable  on  his  stock  in  three  dif- 
ferent ways.  He  is  liable  to  the  corporation  and  corporate  cred- 
itors until  the  full  par  value  of  his  stock  has  been  paid.^  Second, 
he  may  have  an  additional  liability  imposed  upon  him  by  statute,^ 
Third,  it  may  happen  that  by  some  accident,  mistake,  or  neglect 
tiie  supposed  corporation  was  never  duly  incorporated,  thereby 
leaving  the  members  liable  as  partners  in  a  copartnership;  or  such 
a  liability  may  arise  in  other  ways  ;  or  it  may  be  within  the  power 
'^of  the  corporation  to  assess  the  stockholder  for  sums  over  and  above 
and  in  addition  to  the  par  value  of  the  stock.  This  third  kind  of 
liability  is  unusual  in  its  character,  and  is  the  subject  of  this 
chapter. 

§  231.  Liahility  as  partners  hy  reason  of  material  defects  in 
hecoming  incorporated. — The  statutes  under  which  incorporations 
are  generally  made  provide  that  a  corporation  may  be  formed  by 
taking  certain  steps,  usually  the  making  and  filing  with  the  State, 
.and  also  with  the  local  authorities,  a  certificate  signed  by  the  cor- 
porators, and  containing  a  statement  of  the  business,  of  the  capital 
stock,  and  other  facts  material  to  the  organization  of  the  corpo- 
ration. 

Occasionally,  however,  it  happens  that  this  certificate  is  not 
fully  made  out,  as  required  by  the  statute,  or  is  not  filed,  or  some 


>  See  Chapters  XI  and  VII.  «  See  Chapter  XXL 

980 


CH.  XIII.]     PARTNERSHIP    LIABILITY   OF   STOCKHOLDERS.  [§  233. 

■Other  step  prescribed  by  law  is  not  complied  with.  The  corpo- 
ration is  then  not  duly  incorporated,  and  the  State,  by  quo  warran- 
to, may  oust  it  from  its  user  of  corporate  franchises.  But  it  is  a 
difficult  question  to  determine  whether  a  private  individual  may 
take  advantage  of  such  facts  and  claim  that  the  supposed  corpo- 
ration is  not  a  corporation,  but  only  a  partnership. 

§  2;32.  When  the  regularity  of  acts  in  hecoming  incorporated 
cannot  he  questioned  l)y  a  private  individual. — As  alieady  ex- 
plained,^ a  subscriber  for  stock  in  a  corporation  cannot,  when  sued 
for  calls  on  his  stock,  set  up  that  the  corporation  was  not  duly  in- 
•corporated.  He  is  estopped  from  so  doing.  Nor  can  a  stock- 
holder, who  has  funds  of  the  corporation  in  his  hands,  defeat  an 
action  by  the  corporation  therefor  by  setting  up  that  the  corpo- 
ration was  not  duly  incorporated.'^  And  in  general,  a  party  con- 
tracting to  pay  money  to  a  corporation,  or  to  transfer  property  to 
it  as  a  corporation,  cannot  avoid  the  obligation  of  that  contract 
by  alleging  the  fact  that  the  corporation  was  not  duly  incorpo- 
rated, provided  that  such  corporations  were  allowed  by  law.' 
Nor,  on  the  other  hand,  can  the  corporation  itself  avoid  its  con- 
tracts on  such  grounds.* 

§  233.  When  the  regularity  of  the  incorporation  may  he 
questioned  hy  a  private  individual. — A  corporate  creditor  seek- 
ing to  enforce  the  payment  of  his  debt  may,  however,  ignore  the 
Existence  of  the  corporation,  and  may  proceed  against  the  sup- 
posed stockholders  as  partners,  by  proving  that  the  prescribed 
method  of  becoming  incorporated  was  not  complied  with  by  the 
company  in  question.^     He  is  not  estopped  from  so  doing,  since 

'  See  Chapter  X  ;  Buffalo  &  A.  R.  R.  *  It  is  submitted  that  the  clear  weight 

Co.  V.  Cary,  26  N.  Y.  75.  of  authority,  as  shown  by  a  close  study  of 

'  Krutz  V.  Paola  Town  Co.,  20  Kan.  the  cases,  sup])orts  this  rule.      And  it  is 

397  (1878).  difficult  to  see  how  a  contrary  rule  can  be 

"See  19  Am.  Dec.  67,  notes;  Lessee  justified  or  applied.  There  are  several 
of  Frost  V.  Frostbury  ("oiil  Co.,  24  How.  grades  of  associations,  from  the  ordinary 
278  (1860),  where  tlie  grantor  of  land  to  partnershij)  up  to  the  iull  corporation. 
A  corporation  clMimed  that  no  title  passed.  First,  the  unincorporated  joint-stock  corn- 
Pope  ?;.  ('ai)ital  lik.,  20  Kan.  440(1878),  puny,  where  clearly  ail  expect  to  be  liable, 
where  the  plaintiff  coriioration  sued  the  and  are  liable  as  partners.  (See  (Chapter 
defendant  on  a  proi.iissory  note.  Fay  v.  on  Joint  stock  Companies.)  Then  the  un- 
Noble,  7  Cush.  188,  where  a  third  per-son  incorporated  joint-stock  company,  where 
was  not  allowed  to  imfieach  a  transfer  of  the  members  think  they  are  not  liable, 
profiertv  by  a  coi-poration  V)y  setting  up  and  contracts  are  niadi-  under  that  im- 
that  the  transfer  was  invalid  owing  to  in-  pression.  'J'hciy  are  still  liable  as  part- 
formalities  in  the  incorporation.  ner.H.     Then  might  be  mentioned  an  asso- 

*  Holbrook  v.  St.  I'aul  Fire  &  M.  Ins.  ciation  wiiere  the  members  directed   an 

€o.,  25  Minn.  229  (1878).  incorporation  to  be  had,  but  none  is  had. 

2.'U 


§  234.1         PARTNERSHIP   LIABILITY   OF   STOCKHOLDERS.     [CH.  XIIL 


he  is  not  repudiating  a  contract,  but  is  enforcing  it.  The  fact 
tliat  he  contracted  with  them  under  a  corporate  name  is  imma- 
terial, since,  at  common  law,  parties  maj  carry  on  business  under 
any  name  they  choose. 

§  234.  Instances. — Thus  it  has  been  held,  where  the  articles 
of  association  are  signed,  but  not  filed  until  some  time  subse- 
quently, that  debts  contracted  in  the  interim  may  be  collected 
from  the  stockholders  as  partners.^  So  also  a  total  failure  to  file 
or  record  the  certificate  or  articles  of  incorporation  renders  the 
members  liable  as  partners;^  as  does  an  omission  of  the  members 
to  sign  and  publish  the  articles  of  association  ;  ^   or  an  indefinite 


Clearly  here,  too,  they  are  liable  as  part- 
ners. Asrain,  where  the  incorporation  is 
but  partially  completed,  there  is  no  rea- 
eon  why  the  members  should  be  exempt 
from  liability  as  partners.  And  such  is 
the  effect  of  the  rule  given  above.  In  all 
these  cases  the  bona  fides  of  the  members, 
or  the  understanding  of  the  person  with 
whom  they  contract,  or  the  fact  that  the 
contract  is  made  in  the  name  of  a  corpo- 
ration or  company,  is  immaterial.  Any 
partnership  or  sin'j:;le  individual  may 
transact  business  under  the  name  of  a  com- 
pany. (See  Laufertv  «'.  Wheeler,  11 
Abb.  N.  C.  223.)  The  law  holds  that 
in  all  the  above  mentioned  cases  the 
members  are  liable  as  partners.  The 
author  cannot  .agree  with  Morawetz  in 
his  learned  work  on  Corporations  (2d  ed., 
^  748),  where  a  contrary  view  is  taken. 
The  case  of  Chaffe  v.  Ludeling,  27  La. 
Ann.  607  (1875),  well  says:  "Obligors 
are  bound  not  by  the  style  which  they 
give  to  themselves,  but  by  the  conse- 
quences which  they  incur  by  reason  of 
their  acts.  It  matters  not  what  they 
choose  to  call  themselves."  See  also 
Natl.  Bk.,  Ac.  v.  Landon,  45  N.  Y.  410 
414  (1871);  Ridenour  v.  Mayo,  40  O.  St. 
9(1883);  and  cases  «■«/"(•«. 

'  Bigelow  V,  Gregory,  73  111.  197 
(1874).  See  also  Bergen  v.  Porpoise  F. 
Co.,  13  Am.  &  Eng.  Corp.  Cas.  1  (N.  J., 
1886), 

^  Field  V.  Cooks,  16  La.  Ann.  153 
(1861);  Abbott  v.  Omaha  Smeltina:  Co., 
4  Neb.  416(1876);  Garnetty.  Richardson, 
85  Ark.  144  (1879);  Ferris  v.  Thaw,  72 
Mo.  449  (1880);  First  Natl.  Bank  of  Da- 
venport V.  Davies,  43  Iowa,  424  (1876); 
Coleman  v.  Coleman,  78  Ind.  344  (1881); 
Martin  v.  Fewell,  79  Mo.  401,  410  (1883). 
In  the  case  of  Hurt  v.  Salisbury,  55  Mo. 

232 


310  (1874),  corporate  officers  were  held 
personally  liable  on  a  promissory  note 
signed  by  them  as  officers,  where  the  cer- 
tificate of  incorporation  was  not  filed  as 
required.  In  Richardson  v.  Pitts,  71  Mo. 
128  (1879),  the  same  officers  were  held 
to  be  entitled  to  contribution  from  other 
members  of  the  supposed  corporation. 
In  the  case  De  Witt  v.  Hastings,  69  N.Y, 
518  (1S77),  where  no  certificate  was  filed, 
owing  to  an  abandonment  of  the  enter 
prise,  it  was  held  that  a  subsequent  filinor 
of  it  could  not  I'ender  liable  one  of  the 
original  promoters  who  took  no  part  in 
the  filing  of  the  articles  of  association, 
although  his  name  was  attached  thereto. 
Cf.  Blanchard  v  KauU,  44  Cal.  440  (1072). 
Contra,  Planters,  (fee,  Bk.  v.  Padgett.  69 
Ga.  159  (1882);  Humphreys  v.  Mooney, 
5  Colorado,  282  (1880);  Gartside  Coal  Co. 
V.  Maxwell,  22  Fed.  Rep.  197  (1884); 
Merriman  v.  Magivennis,  12  Heisk.(Tenn.) 
494  ( 1873) ;  Merchants,  <fec. ,  Bk.  v.  Stone, 
38  Mich.  779  (1878).  Of.  Harrod  v. 
Hamer,  32  Wis.  162  (1873),  where  the 
statute  effected  an  incorporntion  without 
a  filing,  but  prohibited  organization  until 
after  the  articles  were  filed.  So  also 
where  the  certificate  or  articles  are  to  be 
filed  both  with  the  State  and  the  locd 
authorities,  a  failure  as  to  the  former  does 
not  render  the  stockholders  liable  as 
partners,  provided  the  articles  or  certifi- 
cate are  filed  with  the  local  authorities. 
Makeluinne  Hill  Min.  Co.  v.  Woodbury, 
14  Cal.  424  (1859);  Cross  v.  Pinckney- 
ville  Mill  Co.,  17  111,  54.  The  creditor 
cannot  sue  the  directors  for  damages  for 
a  fraudulent  conspiracy  herein,  especially 
when  he  was  informed  that  the  corpo- 
ration had  been  irregularly  incorporated. 
Nelson  v.  Luling,  62  N.  Y.  645  (1875). 
»  Unity  Ins.  Co.   v.  Cram,  43   N.  H. 


CH.  XIII.]     PARTNERSHIP  LIABILITY   OF   STOCKKOLDERS.         [§  236. 

Etatenient  of  wLere  the  principal  place  of  business  of  the  corpo- 
ration is  to  be.^  The  mere  assumption  of  corporate  powers,  with- 
out any  attempt  at  incorporation,  cannot,  of  course,  protect  the 
members  from  full  liability.^  It  is  not,  however,  every  omission 
to  comply  wnth  the  statute  that  renders  the  members  liable  as 
partners.  Immaterial  provisions,  or  requisites  to  be  complied 
with  after  incorporation,  have  not  that  effect.^  Thus,  a  failure  to 
commence  the  principal  business*  does  not  invalidate  the  incor- 
poration, nor  does  an  ultra  vires  act  or  fraud  of  the  corporation 
have  that  effect.^ 

§  235.  Extent  of  the  liaMlity  by  reason  of  deficient  incor- 
poration.— The  mere  fact  that  an  attempted  incorporation  has 
failed  does  not  necessarily  render  all  the  participants  therein  liable 
absolutely  for  the  debts  of  the  concern.  At  the  most,  each  is 
liable  only  in  case  he  would  be  liable  if  the  original  plan  had  been 
to  form  a  partnership.  If  he  was  not  a  member  when  the  debt 
was  contracted  he  cannot  be  held  liable  on  that  particular  debt.® 
One  case  goes  still  farther,  and  holds  that  one  who  becomes  a 
member,  subsequently  to  the  attempted  incorporation,  but  takes 
no  part  in  the  organization  or  management  of  the  company, 
cannot  be  held  liable  for  its  debts.' 

§  23G.  LiaMlity  as  partners  ly  reason  of  fact  that  corpora- 
tions cannot  le  organized  for  the  husiness  involved. — The  gen- 
eral incorporating  acts,  common  to  m.ost  of  the  States,  usually 
specify  the  particular  kinds  of  business  for  the  prosecution  of 

636  (1862);  Kaiser  v.  Lawrence   S.  Bk.,  Cin.  v.  Hall,  35  0.  St.  158  (1878).  Where, 

66  Iowa,  104   (1681 ),  vvliere  tlie  articles  however,  an  incorporated  society  used  all 

were  not  properly  signed  and  acknowl-  its  lunds  lo  contest  a  debt,  the  court  com- 

edged.     Ihis  case  also  disajjproves  the  pellcd  the  members  to  replace  the  money 

decifeion  in  Ilumjihrcy  v.  Mooney,  1  Colo-  so  used.      Admr.  of  Bigelow  v.  Conn;.  So- 

rado,  19:i.     lu  eiiforc'iiig  this  jiartncrship  ciety  of  M.,   11    Vt.  283  (1839).     Jn   the 

liability,  the  assumed  corporation  is  not  case  Medill  v.  Collier,  16  (>.  St.  599,  613 

to  be  made  a  party  defendant  with  the  (1866),  the  court  Fays:  "  When  the  entire 

members    iheriof.     Smith    v.    Colorado  business  carried   on   by  persons   in  the 

Fire  Ins.  Co.,  14  Fed.  Rep.  399  (1882).  mime  of  a  corporation  is  such  as  the  cor- 

'  Harris   v.    McGregor,    29    Cal.    124  i)oriitioii  is  prijhibited  by  law  Iroui  doiiifi', 

(186.0).  they  cannot  interpose  the  coporate  privi- 

■■'Pittis  t>.  Atkins,  60  111.454  (1871);  h  gcs  between    them    and    the    li;.biiities 

Ftdler  v.  Rowe,  57  K.  Y.  23  (1874).  wliich  the  law  imposes  upon  individuals 

"  Thus  a  failure  to  notify  each  member  in    the   Iransaction    of    similar   business 

of  the  meeting  to  organize  is  immaterial,  without  the  use  of  the  corporate  nmne." 
Met  linch  V.  Sturgis,  72  Me.  288  (1881).  «  Fulhr  v.  Howe,  57  N.  Y.  23  (1874). 

■•  Trowbridge  v.  Scudder,  66  Mass.  83  '  Stafford  P.k.  v.  Palmer,  47  Conn.  443 

(IS.'iS).  (1880).      Cy.  Richardson  j^.  Pitts,  71    Mo. 

<•  Langan  v.  Iowa  &.  Minn.  Con.  Co.,  128(1879). 
49  Iowa,  317  (1878);  Second  Natl.  Bk.  of 

233 


§  237.]         PARTNERSHIP   LIABILITY   OF   STOCKHOLDERS.     '[oH.  XHI. 


which  corporations  may  be  formed  thereunder.  It  follows,  that 
no  business  can  be  carried  on  by  persons,  as  a  corporation,  under 
the  incorporating  act,  unless  that  particular  business  is  specified 
therein.^  Frequently  certain  kinds  of  business  are  not  mentioned 
in  the  act,  for  the  reason  that  it  is  not  deemed  wise  public  policy 
to  allow  a  limited  liability  in  that  class  of  business.  This  seems 
to  have  been  the  rule  as  regards  construction  companies  for 
the  building  of  railroads,''^  and  as  regards  a  general  mercantile 
business.  Accordingly  where  the  business  for  which  incorpora- 
tion is  sought  is  not  within  the  classes  of  business  mentioned  in 
the  act  itself,  the  attempted  incorporation  is  void,  and  the  partic- 
ipants are  liable  as  copartners. 

§237.  Liahility  as  partners  hij  reason  of  mig ration  of  cor- 
poration.— By  the  comity  of  States  the  rule  has  become  well 
established  that  a  corporation  organized  under  the  laws  of  a  State 
may  transact  business  beyond  the  borders  of  that  State.^     But  in 


'  Thus,  where  a  rifle  club  attempted 
incorporalion  under  the  statute  allowing 
incor]ioration  fi>r  "  literary,  scientific,  and 
charitable  puiposes,"  the  members  are 
individually  liable  for  damages  to  the 
widow  of  a  man  who  was  killed  by  a  bear 
which  the  club  was  keeping.  Vredenburg 
V.  Behan,  33  La.  Ann.  627  (1881).  See 
also  Glen  v.  Breard,  35  La.  Ann.  875 
(1883).  There  may  be  a  question  as  to 
the  validity  of  the  law  itself  allowing  the 
incorp:iration.  Williams  v.  Bk.  of  Michi- 
gan, 7  Wend.  540  (1831) ;  State  of  Michi- 
gan V.  Howard,  1  Mich.  512  (1846); 
Chenango  Bi-iilge  Co.  v.  Paige,  83  N.  Y. 
178.  190  (1880). 

'^  The  New  York  Business  Companies 
Act  of  1875  (ch.  611),  expressly  excludes 
railroad  construction  companies  from  in- 
corporation under  tliat  act.  In  the  fol- 
lowing statutes  authorizing  the  incor- 
porati  )n  of  railroad  corporations,  the 
words  used  do  not  authorize  corporations 
to  "  construct,"  but  read  "  for  the  pur- 
pose of  constructing,  maintaining,  and 
operating  railroads."  N.  Y.  Sess.  L. 
1850,  ch.  140,  §  1  ;  Laws  of  Michigan, 
t:^  3313;  Bri^-htley's  Purdon's  Dige?t. 
(Penn.)  1414;  Stat,  of  111.,  cli.  114,  §  1; 
Ind.  R.  S.,  ch.  37  (1885).  In  Ohio,  on 
the  other  hand,  there  may  be  an  incor- 
poration "  for  any  purpuse  for  which  indi- 
viduals may  lawfully  associate  tliemselves, 
except  for  dealing  in  real  estate,  or  carry- 
ing  on    professional   business."       R.    .S. 

234 


(1886),  §  3235.  But  railroad  construc- 
tion companies  must  file  a  statement  of 
the  termini,  (fee,  of  the  railroad  itself 
§  3237. 

It  has  been  held,  however,  that  un- 
der the  general  act  for  the  incorpora- 
tion of  companies  for  constructing  and 
operating  a  railroad,  a  company  for  the 
construction  alone  of  the  road  may  be  in- 
corp  )rated.  "That  there  can  be  a  rail- 
road company  which  does  nothing  but 
cjnstruct  the  road,  and  a  railroad  com- 
pany which  does  nothing  but  operate  the 
constructed  road,  cannot  be  doubted.  It 
is  not  essential  to  the  idea  o!'  a  railroad 
company  that  it  should  both  construct 
and  operate  a  railway."  First  Natl.  Bk. 
of  Davenport  v.  Davies,  43  Iowa,  424 
(1876);  Langan  v.  Iowa  &  Minn.  Con- 
struction Co.,  49  Iowa,  317  (1878). 

^  "  It  is  very  true  that  a  corporation 
can  have  no  legal  existence  out  of  the 
boundaries  of  the  sovereignty  by  which 
it  is  crciited.  .  .  .  But  although  it 
must  live  and  have  its  being  in  that  State 
only,  yet  it  does  not  by  any  means  follow 
ti>at  its  existence  there  will  not  be  re- 
cognized in  other  places  ;  and  its  resi- 
dence in  one  State  creates  no  insuperable 
objection  to  its  power  of  contracting  in 
another."  Ch.  J.  Marshall,  in  Bank  of 
Augusta  V.  Earle,  13  Pet.  521.  See  also 
Angell  &  Ames  on  Corp.,  §  273  ;  Taylor 
on  Corp.,  Ch.  Vll,  Part  V;  Wood's 
Field     on     Corp.,    §     225 ;    Potter     on 


CH.  XIII.]     PARTKERSniP   LIABILITY   OF   STOCKHOLDERS.         [§  238. 

order  that  such  contracts  should  be  upheld,  and  the  corporate 
character  be  sustained,  it  is  necessary  that  both  the  State  creating 
the  corporation,  and  also  the  corporation  so  created,  shall  have 
acted  in  good  faith  in  conferring  and  taking  the  corporate  privi- 
leges. Thus,  where  a  corporation  was  incorporated  by  the 
legislature  of  Pennsylvania,  and  authorized  to  do  business  any- 
where but  in  that  State,  the  court  of  Kansas  refused  to  recognize 
its  corporate  character.^  The  comity  of  States  does  not  prevail 
to  that  extent. 

§  238.  A  corporation  must  have  obtained  its  franchises  in 
ffood  faith,  in  order  to  preserve  its  corporate  character  in  its  con- 
tracts, and  shield  its  members  from  personal  liability  on  such 
contracts.  In  New  Jersey,  at  an  early  day,  it  was  held  that  a 
corporation  could  not  become  incorporated  under  the  laws  of 
New  York  for  the  purpose  of  carrying  on  all  its  corporate  trans- 
actions in  the  State  of  New  Jersey.^  The  stockholders  were  de- 
clared to  be  merely  partners.  Likewise  it  was  held  that  where  a 
corporation  was  incorporated  to  do  business  in  a  certain  city  in 
the  State,  but  actually  does  all  its  business  in  another  city  of  that 
State,  the  incorporation  is  a  fraud  uj  on  the  law,  and  the  company 
is  the  same  as  though  unincorporated.^  This  doctrine  was  fol- 
lowed in  a  New  York  case,  in  an  inferior  court,  the  facts  being 
that  a  New  Jersey  corporation  had  no  office  or  place  of  business 
in  New  Jersey,  and  did  no  business  there,  but  transacted  its  busi- 
ness in  New  York.^ 


Corp.,  ;;  10;  Morawetz  on  Corp.,  §§  359-  lishments  hero,  and  under  their  assumed 

361  (2d  ed).  name,   transact  their  business,  not  only 

'  Land    Grant    Ily.    &    Trust   Co.   v.  free  from  all  personal  responsibility,  but 

Coffey  County,  6  Kans.   245,   the   court  under  cover  of  a  corporation  not  amen- 

saying:   "No  rule   of  comity  will  allow  able  to  our  laws."     Hill  ?.  Beach,   12  N. 

one    State  to    spawn    corporations,    and  J.  Eq.  R.  31  (1858). 

send  them  forth  into  other  States  to  be  '■'  The    corporation    was  incorporated 

nurtured,    and    do  l:)usiness   there,  when  to   do  business  in  'I'renton,   but  actu!)lly 

said  firbt   mentioned  State  will   not  allow  transacted  all  its  business  in  Jersey  City. 

them  to  do  business  within  its  own  bound-  The  court  said  :  "  The  doctrine  that  the 

aries."  orgjanization     cannot    be    inquired    into 

-  The  corporation  "  cannot  be  recog-  collaterally,   has  no   application   as   the 

nizcd  by    any   court  in  New  Jersey  as  a  case  stands,  because  the  charter  does  not 

li'gally    constituted   corporation,    nor    bo  fit  this   company,  and   was   not  intended 

dealt  with    as  such.     Jf   it  can    be,  what  for  it."     Booth  v.  Wonderiy,    36  N.  J.  L. 

need    is   there   of  any  general  or   special  250(1873). 

law  in  our   State.     Individuals,  desirous  ''  "  It  was  not  an  exi.sting  corporation 

of  carrying  on   any  manufacturing   busi-  within  the  meaning  of  the  statute  of  New 

ness,  may  go  intr)  the  city  of  New  York,  Jersey,  under  which  it  purports  to  have 

organize   under   the  general  laws  of  that  been     incorp'rated.     ...     It    was    a 

State,  erect  all  their  manufacturing  estab-  fraud  upon  the  laws  of  New  Jersey,  and 

235 


§240.]  PARTNERSHIP   LIABILITY   OF   STOCKHOLDERS.      [CH.  xm. 

§  239.  A  much  more  broad  and  liberal  view  of  the  comity  of 
States  and  the  interests  of  business  was  taken  by  the  New  York 
Court  of  Appeals  in  the  case  of  Merrick  v.  Van  Santvoord,  where, 
although  a  Connecticut  corporation  did  all  its  corporate  business 
and  performed  all  its  corporate  acts  in  New  York,  excepting  the 
holding  of  elections,  yet  the  court,  in  a  well  considered  and  ably 
written  opinion,  held  that  the  corporation  did  not  thereby  lose  its 
corporate  chai'acter,  and  that  its  members  were  not  liable  as  co- 
partners.^ This  view  of  the  law  has  been  taken  also  by  the  Su- 
preme Court  of  the  State  of  Ohio.^ 

§  240.  Liability  for  corporate  debts  where  the  enterprise  is 
abandoned  before  incorporation. — The  questions  sometimes  arise 
whether  a  subscriber  for  stock  in  a  projected  corporation  is  liable 
to  its  creditors,  in  case  the  enterprise  is  abandoned  before  incor- 
poration ;  and  also  whether  the  promoters  of  the  abortive  corpo- 
ration are  liable  to  the  subscribers  for  deposits  made  by  the  latter. 
The  former  question  is  decided  in  the  negative.  "  The  sub- 
scribers to  the  stock  or  articles  of  association  are  not  partners  with 
those  who  assume  the  risk  of  acting  for  a  corporation  not  yet 
legally  established."  ^     As  to  the  latter  question,  the  rule  has  be- 


cannot   screen     defendants    and    its   or-  Connecticut."     See  also  Danforth  v.  Pen- 

ganizers  from  personal  responsibility   as  ny,  3  Mete.  564. 

partners  for  contracts  made  in  New  York  '^  Second  Natl.  Bt.  of  Cin.  v.  Hall,  35 

under   the   assumed   name."       Kruse    v.  Ohio  St.  158  (1878),  the  court  holdinj^  it 

Duijcubury,  19  Weekly  Dijj.  (N.  Y.    Com.  to  be  no  fraud  on  the  Ohio  laws    for  a 

PI.)  201  (1884).  corporation  organized  under  the  laws  of 

'  Merrick  v.  Van  Santvoord,  34  N.  Y.  Kentucky  to  do  all  its  business  in  Ohio, 

207  ( 1866),  the  court  saying:    "  We  think  even  though  thereby  the  stockholders  es- 

the    recognition,    in    uur    State,    of    the  caped  a  personal   liability, 
rights  hitherio  conceded  in  our  courts  to  ^  Ward   v.    Bri^ham,    117    Mass.    24 

foreign  corporations,  is  neither   injurious  (1879),    the    court    saying  also:    "Those 

to  our  interests,  repugnant  to  our  policy,  who  acted    as    agents    for    the    inchoate 

nor  opposed  to  the  spirit  of  our  legisla-  corporation    acted    without    a    principal 

tion.     ...     It  would  be  neither  provi-  behind  them,  because  there  was  no  body 

dent  nor  just  to  inaugurate  a  rule  which  corporate  capable  of  ap|)ointing    agents, 

would  unsettle  the  security  of  corporate  and  so  became  principals  in  the  transac- 

property  and  rights,  and  exclude  others  tion."     See  also  Duke  v.  Andrews,  2  Ex. 

from    the   enjoyment   here   of  privileges  290  ;   Ilutton  v.  Thompson,  3  H.  L.  Cas. 

which  have  always  been   accorded  to  us  161  ;  Duke  v.  Diver,  1  Ex.  36,  where  the 

abroad.     ...     A    corporation    is   an  stockholder  had  promised  to  pay  on  a  cer- 

artiticial    being,    and    has    no    dwelling,  tain  day,   and  was  held  to  his  promise, 

either  in  its    office,   its    warehouses,    its  To  same  effect,  Duke  v.  Forbes,  Id.  356  ; 

depots,  or  its  ships.     .     .     .     The  grant  Aldham  v.  Brown,  7  E.  <fe  B.  164  ;  2  E.  <fe 

of  franchises  without  restriction  is  equiv-  E.  398,  on  appeal ;   Woolmer  v.  Toby,  10 

aleat  to  a  specific  authority  to  exercise  Q.  B.  691.     However,  in  the  case  of  Lake 

them  wherever  the  company   might  find  v.  Duke  of  Argylc,  6  Q.  B.  477(1844),  the 

it  convenient  or  profitable,  wiiether  with-  court  held  that  attendance  at  a  meeting, 

in  or  without  the  limits  of  the   State  of  announcement  of  intention  of  being  pres- 

230 


€H.  XTII.]     PARTNERSHIP   LIABILITY   OF   STOCKHOLDERS.         [§  241. 


come  well  established  in  England  that  a  subscriber  for  stock  in  a 
corporation  that  never  comes  into  existence,  who  has  paid  a  part 
of  his  subscription,  may  recover  back  from  the  promoters  of  the 
enterprise  the  amount  so  paid,  and  is  not  liable  even  for  the  pre- 
liminary expenses.^  His  remedy  may  be  by  bill  in  equity .^  If, 
however,  the  subscriber  expressly  or  by  implication  authorizes 
expenditures,  he  cannot  recover  back  his  deposit.^ 

§  241.  Assessments  dy  the  corporation  in  excess  of  the  par 
value  of  the  stoclc— It  is  a  principle  of  law,  coeval  with  the  ex- 
istence of  corporations  having  a  capital  stock,  that  unless  the  cor- 
porate charter  or  a  constitutional  statute  provides-  otherwise,  a 
stockholder,  the  full  par  value  of  whose  stock  has  been  paid  in, 
is  not  liable  and  cannot  be  made  to  pay  any  sums  in  addition 
thereto."*     The  mere  legislative  act  of  creating  a  corporation   cre- 


ident  and  of  taking  stock,  and  concur- 
rencp  in  measures  for  incorporation,  may- 
be strong  evidence  that  defendant  "  held 
himself  out  as  a  paymaster  to  all  who 
executed  the  orders.'^  Tlie  question,  then, 
is  for  the  jury. 

'  Ashpitel    V.    Sercombe,    6    Ex.    147 
(18'50),    where    the  court  says :    "There 
seems  to  be  no  doubt  that  the  plaintiff, 
having-  paid  his  money   for  shares  in  a 
concern  which  never  came  into  existence, 
or  a  scheme  which  was  abandoned    be- 
fore it  was  carried  into    execution,   has 
paid  it    on    a    consideration    which    has 
failed,  and  may  recovej  it  back  as  money 
"had  and  rfceived  to  its   use,   unless    he 
can   be  ?hown   to  have  consented  to  or 
acquiesced  in  the  ajiplication  of  the  money 
which    the    directors    have    made."     See 
also  Thompson  on  Liabilities  of  Officers, 
Ac,  210;  Nockels  v.  Crosby,  3   B.    &  C. 
814,  the  Icadinff  case  ;  1  Lindley  on  Part- 
nership (4th    ed.),  119,  citinnj    Walstab  i'. 
Spottiswoode,  15  M.  &  W.  501  ;  Jloore  v. 
Garwood,  4  Ex.   681  ;   Coupland  v.  Chal- 
Ms,  2   E-K.  08'2  ;  Owen  v.   Cliidlis,  6  C.  B. 
";15;  Ward  v.  Londesborough,   12  C.  B. 
.  52 ;  Mowatt  v.  Londeshorough,   3  E.  & 
B.  307,  and  4  Id.  1.     See  also  Vallans  v. 
Fletcher,   1   Ex.  20;  Chaplin  v.  Clarke,  4 
Ex.  402. 

2  2  Lindley  on  Partnership  (4th  ed.), 
954,  citing  Harvey  v.  Collett,  15  Sim. 
332,  before  the  Judicature  Acts;  and 
Cooper  V.  Webb,  15  Sim.  454;  Wilson  v. 
Stachope,  2  Call.  G29;  Afferby  v.  Page,  1 
Pli.  770;  Clements  v.  Bowers,  17  Sim. 
107;   Sheppard  v.    Oxenford,   1    K.  &  J. 


491;  Butt  V.  Mouteaux,  1  K.  &  J.  98, 
since  such  acts.  See  also  Colt  v.  Wool- 
aston,  2  P.  Wms.  153,  where  there  was 
fraud ;  Green  v.  Barrett,  1  Sim.  45  ;  Wil- 
liams V.  Page,  24  Beav.  654  ;  Blain  v. 
Agar,  1  Sim.  37;  2  Id.  289;  Cridland  v. 
De  Mauley,  1  De  G.  &  S.  459  ;  Hallows 
V.  Fermie,  3  Ch.  467  ;  Grand  Trunk,  &c  , 
R.  Co.  V.  Brodie,  9  Hare,  822. 

^  1  Lindley  on  Partnership  (4th  ed.), 
121,  citing  Baird  v.  Ross,  2  McQueen, 
68;  Garwood  v.  Ede,  1  Ex.  264;  W^atts  v. 
Salter,  10  C.  B.  477  ;  Vane  v.  Cobbold,  1 
Ex.  798;  Atkinson  r.  Pocock,  Id.  796; 
Willey  V.  Parratt,  3  Ex.  211  ;  Clements 
V.  Todd,  1  Ex.  286;  Jones  v.  Harrison,  2 
Ex.  52;  Oldham  v.  Brown,  7  E.  <fe  B. 
164;  2  E.   <fe   E.   398. 

4  Great  Falls  &  C.  R.  R.   Co.  v.  Copp, 
38  N.  H.  124  (1859) ;   State  v.  Morristown 
Fire  Ass'n,  3  Zab.  195  (1851);  Morley  ;;. 
Thayer,  3  Fed.  Rep.  737  (1880);  Chase  v. 
Lord,  77  N.Y.  1  (1879);  Sleet'.  Bloom,  19 
Johns.  453,  473  (1822);  Shaw?'.  Boylan, 
16  Ind.  384;  Coffin  t.  Rich,  45    Me.    511 
(1858);  Gray  v.  Coffin,  63  Mass.  192,  199 
(1852)  ;  French  v.  Teschimaker,  24    Cal. 
518,  540;  Inhabitants  of  Norton  v.  Hod- 
ges,   100    Ma^s.    241    (1868);    Oliver  v. 
Liverpool  &  L.  L.  &  F.  Ins.  Co.,  100  Mass. 
531,  539  (1868),  holding  that  in  order  to 
prevent  this  limited  liabilily  tlic  English 
Parliament  expressly  declared  joint-stock 
companies  not  to  be  corporations.    Mycra 
t;.  Irwin,  2  Serg.   &  R.  371    (1816),   llic 
court  saying:    "The  personal    responsi- 
bility of  the  stockholders  ia  inconsi.stcnt 
with'   the  nature    of  a    body    corporate." 

237 


§  241.]         PARTNERSHIP  LIABILITY   OF   STOCKHOLDERS.      [CH.  XIII. 


ates  by  implication  this  limited  liability  of  its  members.  For 
this  reason  the  statutes  regulating  joint-stock  companies  are  fre- 
quently careful  to  state  that  nothing  therein  contained  shall  give 
such  companies  the  character  of  corporations.^  The  older  text 
books  and  the  earlier  reports  did  not  emphasize  or  probably  ap- 
preciate the  vitality  of  this  principle  of  law.  Of  such  impor- 
tance is  it  that  it  would  seem  to  be  the  the  great  and  distinguish- 
ing characteristic  of  corporations,  and  not  a  subsidiary  or  unim- 
portant one.  It  seems  to  have  been  assumed  rather  than  estab- 
lished by  direct  adjudication.^  In  the  early  turnpike  company 
cases  of  New  England  a  contrary  rule  seems  to  have  been  as- 
snmed,  and  the  subscriber  appears  to  have  been  open  to  assess- 
ments indefinitely,  except  that  he  might  forfeit  his  stock.^  Such 
companies  however,  had  no  fixed  par  value  of  their  stock.  At 
present  the  rule  of  non-hability  at  common  law,  beyond   the  par 


Liverpool  Ins.  Co.  v.  Massachusetts,  10 
Wall.  566,  575  (1870);  New  Eng.  Bk. 
V.  Stockholders  of  N.  S  Factory,  6  R.  1. 
188  (1859);  Walker  v.  Lewis,  49  Texas, 
123(1878);  Green?;.  Beckman,  59  Cal. 
545(1881);  Jones  v.  Jarrn;in,  34  Ark. 
323  (1879);  Wiudhara  Prov.  Inst.  v. 
Sprague,  43  Vt.  .502  (1871);  Woods  v. 
Hicks,  7  Lea  (Tenn.),  40,  on  the  ground 
tiiat  the  corporate  creditor  contracts  not 
with  the  stockholders,  but  with  the 
corporation.  Teri'y  v.  Little,  101  U.  S. 
216(1879).  the  coiirt  saying:  "The  in- 
dividual liability  of  stockholders  in  a 
corporation  is  always  a  creature  of  stat- 
ute. It  does  not  exist  at  common  law." 
Smith?;.  Huckabee,  53  Ala.  191  (1875), 
where  the  court  said:  "Immunity  from 
such  liability  is  one  of  the  inducements 
which  has  led  to  the  multiplication  of 
private  corporations,  and  caused  them  to 
supersede,  to  a  great  extent,  in  hazard- 
ous enterprises,  or  enterprises  requiring 
large  capiial,  partnerships."  Spense  v. 
Iowa  Valley  Construction  Co.,  36  Iowa, 
407  (1873),  the  court  saying:  "  It  is  one 
of  the  distinguishing  features  of  incor- 
poration that  the  individual  property  of 
its  members  may  be  exempt  from  liability 
for  corporate  debts.  Therein  consists 
the  great  superiority  of  a  corporation 
over  a  partnership  or  an  unincorporated 
joint-stock  company."  Salt  Laka  City 
Nat.  Bk.  V.  Hendrickison,  40  N.  J.  L.  Rep. 
52  (1878);  Van  Sandan  v.  Moore,  1  Russ. 
Ch.  392,  408  (1826) ;  Atwood  v.  Rhode  I. 
Agri.  Bk.,  1  \i.  \.  376  (1850),  the  court 

238 


saying;  "At  common  law  the  stockhold- 
ers in  a  corporation  are  not  liable  indi- 
vidually for  the  corporate  debts.  The 
capital  stock  is  the  fund  to  which  alone 
the  creditors  must  resort,  unless  in  cases 
of  fraud."  The  case  Atlantic  De  Laine 
Co.  V.  Mason,  5  R.  I.  463  (1858),  holds 
that  the  payment  of  one  invalid  assess- 
ment is  no  waiver  of  the  right  to  object 
to  another.  Gf.  Field  v.  Pierce,  102  Mass. 
253  (1869). 

'  Oliver  v.  Liverpool,  <fec.,  Ins.  Co., 
supra;  Laws  of  N.  Y.,  1854,  ch.  245,  §  3, 
and  see  Chap.  XXIX. 

'^  In  the  case  Otirr  v.  Iglohart,  3  0.  St. 
457  (1854),  the  court  took  counsel  to 
task  for  q\iestioning  this  principle  of  law. 
The  court  said,  it  is  contended  "  that 
stockholders  in  a  corporation  are  indi- 
vidually liable  for  its  debts,  unless  by 
some  provision  of  the  charter,  or  statute 
law,  they  are  exempted  from  such  re- 
sponsibility. The  counsel  for  the  com- 
plainant admits  that  Blackstone  and 
divers  other  eminent  writers  upon  the 
law  and  also  certain  courts,  have  enter- 
tained a  contrary  opinion,  but  he  is  very 
clear  that  they  were  all  wrong,  and  he 
hopes  and  thinks  this  court  will  not  be 
governed  by  such  loose  and  inconsiderate 
expressions,  either  of  text  books  or 
judges  "  But  counsel  is  wrong.  "  We 
suppose  that  no  law  is  better  settled  than 
that  they  are  not  liable." 

3  Middlesex  Turnpike  Co.  v.  Swan,  10 
Mass.  384. 


CH.  xm.]      PARTNERSHIP   LIABILITY   OF    STOCKHOLDERS.  [§  243. 


value  of  the  stock,  is  established  beyond  question,  and  forms  the 
chief  inducement  in  the  formation  of  the  many  corporations  of 
the  day. 

§  242.  Attempts  have  been  made  in  various  ways  to  author- 
ize the  assessment  of  stockholders  for  amounts  after  the  par  value 
of  their  stock  has  been  jDaid  in.  Such  efforts  have  generally 
failed.  It  cannot  be  done  by  a  majority  vote  of  the  stockholders, 
nor  of  the  directors,  nor  by  a  by-law.^  The  liability  is  sometimes 
created  by  statute.^  Where  the  State  has  reserved  the  povs^er  to 
alter,  repeal,  or  amend  the  charter,  it  may  authorize  the  corpora- 
tion to  levy  assessments  on  its  stockholders,  in  addition  to  the 
subscription  of  their  stock.  The  reasoning  of  this  rule  is  clear. 
The  limited  liability  is  a  part  of  the  corporate  privileges  conferred. 
A  right  to  repeal  the  franchises  includes  the  right  to  repeal 
in  part  or  altogether  the  franchise  or  privilege  of  limited  liability. 
On  such  grounds,  laws  of  this  character,  however  harsh  in  their 
operation,  are  upheld  as  constitutional.^ 

§  243.  MxsceUimeous  cases  of  liaWity  or  non-liaWity. — It 
has  been  held  on  grounds  of  public  policy,  that  although  a  corpo- 
ration is  advertised  as  having  a  capital  stock  of  a  fixed  amount,  the 
shareholders  and  directors  are  not  liable  personally,  even  though 


'  Flint    V.     Pierce,      54     Mass.      539 
(18P>8);    Kennebec  &  Portland  R.  R.  Co. 
V.  Kcndiill,  31  Me.  470   (185t'.);  Trustees 
of  Free   School  v.    Flint,   64  Mass.   539 
(1847);  Reid  v.   Eatonton  m^.  Co.,   40 
Ala.  98  (1869).     In  the    first   mentioned 
case  the  defendant  subscribed  to    such  a 
by-law,  among   other  by-laws,  when   he 
subscribed  for  stock.     Placing  the  words 
"  individual    projjeity    of     stockholders 
liable  "  on  the  face   of  corporate   liabili- 
ties has  no  efl'ect  in  itself.     Stockholders 
are  liable  only  as    prescribed    by    law. 
Lowry  w.  Inman,  46    N.   Y.    119    (1871). 
The  case,  however,  of  Hume  v.  Winyah  & 
W.  Canal  Co.,  C  arolina  Law  Journal,  217, 
held,  at  an  early  day,  that  where    a  cor- 
poration, not  prof(  Bsing  to  have  any  fixed 
capital,  made  a  by-law  by  whicli  each  of 
the  corporators  were  bound  to  contribute 
equally  or  ratably   to    f.ll    expenses   in- 
curred, the  corporators  were  liable  per- 
Bonally. 

*  In    California,    under   sections   331, 
833,  of  the  Civil  Code,  a  corporation  may 


assess  its  members  to  any  extent,   "  for 
the    purpose    of  paying   expenses,    con- 
ducting business,  or  paying  debts."  Santa 
Cruz  R.  R.  Co.  v.  Spreckles,  65  Cal.    193 
(1884).     A  better  construction  of  such  a 
statute   prevails  in  Vermont.     Under   a 
charter  provision  that  "  if  at  any  time 
the  stock  paid  into  said  corporation  shall 
be  impaired  by  losses  or    otlu  rwise,  the 
directors  shall  forthwith  repair  the  same 
by  assessment,"  a  receiver  was  not  al- 
lowed to    assess,   since   the   provision  is 
only  to  prevent   a   continuance    of  busi- 
ness with  an  impaired    capital.     Dewey 
V.   St.   Albans   Tiust   Co.,    59    Vt.    332 
(1886).     In  Pennsylvania  it  is  held    that 
though    the    corporation    has  ]ioAver    to 
assess  beyond  tlie  par  value  of  the  stock, 
yet  such  power  may  be  restricted  by  by- 
law.    Price's  Appeal,    106  Pa.    St.    421 
(1884). 

^  Gardner  V.  Hope  In3.  Co.,  9  R.  I. 
194  (1869);  Meadow  Dam  Co.  i'.  Cray,  30 
Me.  547  (1849). 

239 


§243.]         PARTNERSHIP   LIABILITY   OF   STOCKHOLDERS.      [oH.  XIU. 


subscriptions  have  not  been  taken  to  that  amount.  They  are  not 
liable  either  for  the  untaken  stock,  or  on  the  ground  of  false  rep- 
resentations, since  the  capital  stock  is  understood  to  represent  what 
the  corporation  hopes  to  obtain  in  snbscriptious.^  An  oral  promise 
to  pay  corporate  debts  is  void  by  the  Statute  of  Frauds.^  Partners, 
by  becoming  incorporated,  do  not  thereby  cease  to  be  partners  as 
to  all  the  debts  of  the  former  partnership.^  A  stockholder  is  not 
liable  as  a  partner  by  reason  of  misrepresentations  that  the  cor- 
poration is  solvent,  though  probably  he  would  be  liable  in  dam- 
ages for  false  representations.'*  Clpon  the  dissolution  of  the  cor- 
poration the  liability  of  the  stockholder  ceases.  If  the  business 
is  carried  on  thereafter  by  the  agents,  no  liability  therefor  at- 
taches to  the  former  stockholders,^  unless  they  expressly  authorize 
it.®  Persons  who  purchase  a  railroad  at  an  execution  sale  thereof 
cannot  continue  to  run  it  in  the  name  of  the  old  railroad  corpora- 
tion, and  thereby  be  protected  from  liability  as  partners.''  They 
do  not  succeed  to  its  corporate  character,  although  they  purchase 
its  property.  It  all  cases,  however,  in  which  the  members  of  an 
association  might  have  been  held  liable  as  partners,  the  right  of 
the  creditor  to  enforce  that  liability  is  barred  by  his  bringing 
suit  and  obtaining  judgment  against  the  supposed  corporation.^ 


»  First  Nat'l  Bk.  v.  Almy,  117  Mass. 
476  (1875);  Wakeman  v.  Dalley,  51  N. 
Y.  27,  30;  Evans  v.  Coventry,  25  L.  J. 
(Ch.)  489  (1856) ;  Crease  v.  Babcoek,  51 
Mass.  525,  557  (1846).  Conlra,  Haslett 
V.  Wotherspoon,  8trob.  Eq.  (S.  C.)  209, 
229  (1847).  In  Illinois  there  is  a  statu- 
tory liability  in  a  case  like  this.  Stat,  of 
IlL^ch.  32,  s".  18. 

-  Trustees  of  Free  School  v.  Flint,  54 
Mass.  539  (1868). 

'''  Broyles  v.  McCoy,  5  Sneed.  (Tenn.) 
602  (1858).  The  case  of  Martin  v.  Few- 
ell,  79  Mo.  401,  412  (1883),  holds  also 
that  "  for  the  debts  incurred  after  Ibey 
become  a  corporation,  tlieir  liability  will 
depend  upon  the  fact  of  actual  notice  of 


their   incorporation    to  the  plaintiffs    at 
tlietime  such  debts  were  incurred." 

*  Searight  r.  Payne,  2  Tenn.  Ch.  175. 
-'•  Central  City  Sav.  Bk.  v.  Walker,  66 

N.  Y.  424  (1876),  affi  'g  5  Hun,  34. 

*  Nat'l  Union  Bk.  of  Watertown  v. 
Landon,  45  N.  Y.  410  (1871). 

'  Chaffe  V.  Ludeling,  27  La.  Ann.  607 
(1875). 

^Cresswell  v.  Oberly,  17  Brad.  (111.) 
281  (1885);  Pochelu  v.  Kemper,  14  La. 
Ann.  308  (1859).  The  partners  herein 
cannot  bring  an  action  at  law  against 
each  other.  Their  remedy  is  in  equity. 
Crow  V.  Green,  17  W.  N.  C.  409  (Penn. 
1886).  See  also  Chapter  on  Joint  Stock 
Companies. 


240 


CHAPTER  XIV. 


LIABILITY   OF   TRUSTEES,   EXECUTORS,   AGENTS,   &c. 


244.  The  liability  of  trustees,  execu- 
tors, pledgees,  &c. 

The  apparent,  though  not  the  real 
owner  of  shares,  is  liable  alike 
to  the  corporation  and  to  corpo- 
rate creditors. 

The  liability  of  a  trustee  of  stock. 

The  liability  of  a  pledgee  of  shares. 

248.  The  liability  of  an  executor  or 

administrator. 

249.  The  liability  of  an  agent  as  trans- 

ferrer or  transferee. 


245. 


246 
247 


§  250.  The  liability  of  infants  and  mar- 
ried women  as  transferrers  or 
transferees. 

The   liability  of  the   corporation 
itself. 

The  liability  of  legatees,  assignees 
in  insolvency,  and  joint  owners 
of  shares. 
253.  The  liability  upon  nominal  and  fic- 
titious transfers. 


251. 


252. 


§  244.  The  liahility  of  trustees,  executors,  i)ledgees,  <&g. — 
"Where  the  apparent  owner  of  shares  is  not  the  real  owner,  the 
registered  title  to  the  stock  being  in  one  person,  and  the  equitable 
or  real  ownership  being  in  another,  various  intricate  questions 
have  arisen  involving  the  matter  of  liability  for  unpaid  subscrip- 
tions, and  liability  under  the  statute.  The  cases,  which  are  very 
numei'ous,  jDresent  every  variety  of  ownership,  and  every  phase 
of  liability,  including  many  instances  of  transfer  for  the  purpose 
of  avoiding  liability.  Yet,  although  the  principles  and  rules  of 
law  governing  this  branch  of  the  subject  are  somewhat  numer- 
ous and  complicated,  they  are,  nevertheless,  comparatively  well 
settled. 

§  245.  The  apparent,  though  not  the  real  owner,  is  liable  alike 
to  the  corporation  and  to  corporate  creditors. — A  person  in  whose 
name  stock  is  recorded  on  the  corporate  books,  is  liable  on  such 
stock,  as  though  he  w^ere  the  absolute  and  legal  owner,  althougli, 
as  a  matter  of  fact,  he  holds  stock  which  belongs  to  anotlier.^ 


'  Mitchell's  Case,  L.  R.,  9  Eq.  363 
(1870);  King's  Case,  L.  R.,  6  Chan.  196 
(1871);  Newry,  &c.,  R.  R.  Co.  v. 
Moss,  14  Bcav.  64  (1851);  Shipman's 
Case,  L.  R.,  5  Eq.  219  (1868);  Buclian's 
Case,  L.  R.,4  App.  Cas.549(1879);  Chap- 
man <fe  Barker's  Case,  L.  R.,  3  Eq.  361 
(1866);   William's  Case,   L.   R.,  1   Chan. 


Div.  576  (1875);  Hoare's  Case,  2  John.  <fc 
11.  229  (1862);  Leifchild's  Case,  L.  R.,  1 
Eq.  231  (1865);  Adderly  i^.  Storm,  6  Hill, 
624  (184J);  Mann  v.  Ctirrie,  2  Harb.  2'.>4 
(1848);  Worrull  v.  Judson,  5  Id.  210 
(1849);  Roscvclt  ?;.  Brown,  11  N.  Y.  148 
(1854);  Matter  of  the  Empire  City  Bank, 
18   Id.    199,  225  (1858);  Crease  v.  Bab- 


16] 


241 


§  246.]  LIABILITY   OF   TRUSTEES,   PLEDGEES,   &c.         [CH.  XIV. 

This  rule  is  based  on  a  wise  public  policy  which  protects  corpo- 
rate creditors  and  the  corporation  itself  against  transfers  which 
seem  to  convey  complete  title,  while  in  reality  the  transferee  has 
but  an  equitable  title.  He  who  assumes  the  appearance  of  a  real 
owner  is  obliged  to  bear  the  burdens  of  real  ownership.  As 
regards  the  corporation  itself,  it  is  a  serious  question  whether  it 
is  obliged  to  enter  upon  its  corporate  books  the  fact  that  a  trans- 
feree holds  as  a  pledgee,  or  in  some  other  special  capacity.  It 
undoubtedly  is  obliged  so  to  do,  when  the  transferee  requests 
registry  on  the  corporate  books  as  a  trustee  of  the  stock.^ 

§  246.  Liability  of  trustee. — A  trustee  of  stock,  who  is  re- 
corded on  the  corporate  books  as  a  stockholder  is,  it  seems,  at 
common  law,  liable  on  such  shares,  as  though  he  were  the  abso- 
lute owner  of  the  same.  This  appears  to  be  the  rule,  even  though 
he  is  recorded  on  the  corporate  books,  not  as  an  absolute  owner, 
but  as  a  trustee  of  the  stock. 

The  law  requires  that  liability  should  attach  to  some  one  for 
every  sliare  of  stock  that  is  issued.^  And  to  such  an  extent  is- 
this  principle  of  law  insisted  on  that  the  liability  of  the  trustee 
is  not  limited  by  the  amount  of  the  trust  property.^  In  the 
case  of  two  or  more  trustees,  the  liability  is  that  of  joint  owners, 
and  each  is  liable  for  the  whole,  and  not  pro  rata,  and  where 
there  is  a  single  trustee  he  is  liable  primarily  and  simply  to  the 


cock,  10  Mete.  525  (1846);  Grew  v.  Breed,  stockholder,  as  a  trustee  in  respect  of  his 

10    Id.    569   (184(5);    Holyoke   Bank   v.  shares,  even  tliough  he  be  described  as 

Burnham,  11  Cush.  183  (1853).     In  Ship-  such  in  the  corporate  books.     Muir  v. 

man's  Case,  L.  R.,  5  Eq.  219  (1868),  where  City  of  Glasgow  Bank,  L.  R.  4  App.  Cas. 

one  transferred  his  shares  to  an  irrespon-  337  (1879).     Cf.   Hemming  v.  Maddick, 

sible  person,  and  the   transfer  was   not  L.   R.,  9  Eq.  175  (1870);  Ez  parte  Ori- 

registered,  it  was  held   that,  upon  the  ental  Commercial  Bank,  L.  R.,  3  Chan, 

winding  up,  the  transferrer  must  contri-  791   (1868);  Holt's  Case,  1  Sim.  (N.  S.) 

bute,  but  that  if  the  transferee  had  been  389  (1851);  Ind's  Case,  L.   R.,  7  Chan, 

solvent  it  would  have  been   otherwise.  485  (1872). 

In  Cutting  v.  Damerel,  88  N.  Y.  410,  415  ^  Bransom  v.  Oregonian  Ry.  Co.,  10 

(1882),  the  rule  that  entries  in  the  corpo-  Oreg.  278;  Henkle  v.  Salem  Mfg.  Co.,  39 

rate  books  are  conclusive  as  to  the  owner-  0.  bt.  547;  William's  Case,  L.  R.,  1  Ch. 

ship  of  shares  as  against  corporate  credit-  D.  576;  Sichell's  Case,  L.  R.,  3  Ch.  119; 

ors   was    essentially   qualitied,    and   the  Bugg's  Case,  2  Dr.  &  ^m.  452. 
earlier  New  York  cases,  cited  supra,  lim-  ^  Chapman's  Case,  L.  R.,  3  Eq.  361 

ited  and  distinguished,  so  that  it  cannot  (1866);  Leifchild's  Case,  L.  R.,  1  Eq.  231 

now  be  said  that  the  rule  as  laid  down  in  (1865)  ;  Hoare's  Case,  2  John.  &  H.  229 

the  text  is,  in  the  absence  of  statutory  pro-  (1862);  Muir  v.  City  of  Glasgow  Bank, 

visions,  the  common  law  rule   in   New  L.  R.,  4  App.   Cas.   337(1879);  Grew  jr. 

York.  Breed,  10  Mete.  569  (1846).     Cf.  KSales  v. 

>  See  Ch.  XIX.     In  England,  the  cor-  Bates,  6  East.  Rep.  703  (R.  L  1886). 
poration  is  not  bound  to  recognize  the 

242 


Cfl.  XIV.]  LIABILITY   OF  TRUSTEES,  PLEDGEES,   &c. 


[§  247. 


full  extent  of  the  liability.^  However,  although  it  is  the  policy 
of  the  law  to  impose  upon  trustees  the  full  liability,  it  is  held 
that  a  trustee  may  accept  the  transfer  with  a  stipulation  that  he- 
is  not  to  be  charged  as  owner,  and  such  a  stipulation  will  be 
enforced.^  It  is  well  established  that  the  cestui  que  trust,  or 
beneficiary,  cannot  be  charged  in  respect  of  the  shares,  either 
by  the  corporation  or  by  the  corporate  creditors,  when  the  stock 
stands  on  the  corporate  register  in  the  name  of  a  trustee.^  But 
the  trustee  who  has  been  compelled  to  meet  a  charge  npon  the 
stock  held  by  him  as  trustee,  may  have  recourse  to  the  amount  of 
his  expenditure  from  the  cestui  que  trust.* 

§  247.  The  liability  of  a  pledgee  of  shares. — A  pledgee  of 
stock,  that  is,  one  to  whom  the  stock  has  been  transferred  in 
pledge  or  as  collateral  security,  and  who  has  had  the  stock  trans- 
ferred into  his  own  name  on  the  corporate  books,  is  liable  to  tlie 
creditors  of  the  corporation  as  though  he  were  the  absolute 
owner  of  the  stock.^     This  rule  has  frequently  been  enforced  ia 


■  Cuninghame  v.  City  of  Glasgow 
Bank,  L.  K.,  4  App.  Cas.  607  (1879); 
Griswold  v.  Seligman,  72  Mo.  110(1880). 
In  New  York,  liowever,  by  statute,  in  the 
case  of  shires  in  railway  and  manufac- 
turing corporations,  trustees  in  possfissioa 
of  shares  are  released  from  this  liability, 
and  the  trust  estate  is  expressly  charged. 
Session  Laws,  1850,  chap.  140,  §  11  ; 
Idem,  1848,  chap.  40,  §  13.  And  there 
IS  a  like  provision  in  the  Revised  Statutes 
of  the  United  States,  §§  5151,  5152,  in 
favor  of  trustees  of  shares  of  stock  in  the 
National  Banks.  Davis  v.  Essex  Baptist 
Society,  44  Conn.  582  (1877);  Irons  v. 
Manufacturers  National  Bank,  6  Biss.  301 
(1884). 

2  Saunder's  Case,  2  De  G.,  J.  &  S.  101 
(1864);  Gray's  Case,  L.  R.,  1  Chan.  Div. 
664  (1876):  In  re  City  Terminus  Hotel 
Co.,  L.  It.,  14  Eq.  10  (1872).  Cf.  Chap- 
man &  Barker's  Case,  L.  R.,  3  Eq.  361 
(186ft). 

"  kx  parte  Bugg,  2  Drew.  &  Sm.  452 ; 
William's  Case,  L.  R.,  1  Chan.  Div.  576 
(1875);  Sichell's  Case,  L.  R.,  3  Chan.  119 
(1867);  King's  Case,  L.  R.,  6  Chan.  196 
(1871);  Mitchell's  Case,  L.  R.,  9  Efj.  863 
(1870);  Newry,  <fec.,  R.  11.  Co.  v.  Moss, 
14  Beav.  64  (1851);  Shijiniaii's  Case,  L. 
R.,  5  Eq.  219  (1868);  iloare's  Case,  2 
John.  <fe  H.  229  (1862).  Cf.  Hemming  v. 
Maddick.  L.   R.,  9  Eq.   175  (1870);   Een- 


wick's  Case,  1  De  G.  <fe  Sm.  557  (1849)1 
In  re  National  Financial  Co.,  L.  R.,  Z 
Chan.  791  (1868);  James  w.  May,  L.  R.,  6 
H.  L.  328  (1873);  Cox's  Case,  4  De  G., 
J.  &  S.  63  (1863);  Chinnock's  Case, 
John.  (Eng.  Chan.)  714  (1860);  Pugh  <fe 
Sharmau's  Case,  L.  R.,  13  Eq  566  (1872) ; 
Fanning  v.  Insurance  Co.,  37  Ohio  St. 
339  (1881). 

*  James  v.  May,  L.  R.,  6  H.  L.  328 
(1873);  Hemming  v.  Maddock,  L.  R.,  7 
Chan.  App.  395  (1872);  Cruse  v.  Paine,. 
L.  R.,  6  ?:q.  641  (1868);  Butler  v.  Cump- 
ston,L.R.,7Eq.  16  (1868);  Mitchell's  Case, 
L.  R.,  9  Eq.  363  (1870) ;  Ex  parte  Ov'mni&l 
Commercial  Bank,  L.  R.,  3  Chan.  791 
(1868) ;  Hughes— Hallett  v.  Indian  Mam- 
moth, &.C..,  Co.,  L.  R.,  22  Clian.  Div.  661 
(1882);  Hoare's  Case,  2  John.  &  H.  22& 
(1862).  See  also  Shaw  v.  Fisher,  5  De 
G.,  M.  &  G.  596;  Evans  v.  Wood,  L.  R., 
6  Kq.  9;  Hawkins  v.  Maltby,  L.  R.,  4  Ch. 
200;  Morris  v.  Cannan,  4  De  G.,  F.  &  J. 
581  ;  Wynne  v.  I'rice,  3  Do  G.  &  Sm.  310; 
Kellogg  II.  Stockwell,  76  111.  68;  Cheale- 
V.  Ken  ward,  3  De  G.  <fe  J.  27.  As  to  the 
liability  for  charges  on  the  stock  upon 
the  winding  up,  sec  Re  National  Finnncial 
Co.,  L.  R.,  3  Chan.  791  (1868). 

'>  Moore  V.  Jones,  3  Woods,  53  (1877); 
Pullman  v.  Upton,  96  U.  S.  328  (1877); 
Crease  v.  Babcock,  10  Mete.  525  (184f,); 
Holyoke  Bank  v.  Burnham,  11  Cush.  183- 

24a 


2iT.] 


LIABILITY   OF  TRUSTEES,  PLEDGEES,   <fec.         [CH.  XIV. 


the  case  of  a  pledge  of  shares  of  stock  in  a  national  bank.^  But 
there  seems  to  be  a  tendency  to  limit  its  application,  and  to  allow 
a  pledgee,  under  proper  limitations,  to  hold  shares  as  security  for 
his  debt,  without  assuming  any  liability  on  the  stock  as  owner.^ 


(1853):  Johnson  v.  Somerville  Dyeing, 
(fee,  Co.,  15  Gray,  216  (I860) ;  Melvin  v. 
Lamar  Insurance  Co.,  80  111.  446  ;  Adder- 
ly  V.  Storm,  6  HilL  624  (1844);  Rosevelt 
V.  Brown,  11  N.  Y.  148  (1854) ;  Matter  of 
The  Empire  Bank,  18  Id.  199  (1858); 
Grew  V.  Breed,  10  Mete.  569  (1846); 
Price  &  Brown's  Case,  3  De  G.  &  Sm. 
146  (1850);  Addison's  Case,  L.  R.  5 
Chan.  294  (18*70);  Royal  Bank  of  India's 
Case,  L.  R.  7  Eq.  91  (1868);  s.  c.  L.  R.  4 
Chan.  252(1869);  Weikerslieim's  Case,  L. 
R.  8  Chan.  831  (187^).  Cf.  Richardson 
V.  Ahendroth,  43  Barb.  162  (1864).  For 
the  rule  in  Louisiana  see  Haynes  v. 
Palmer,  13  La.  Ann.  240  (1858).  And 
the  pledgee  is  liable  upoti  the  stock 
even  after  the  debt  has  been  paid  and 
the  certificate  handed  back  to  the  pledg- 
or, if  tlie  retransfer  is  not  properly  en- 
tered on  the  corporate  books.  Bowdell 
V.  The  Farmers  &  Merchants'  National 
Bank  of  Baltimore,  25  Nat.  Bank.  Reg. 
405  (1877). 

1  Magruder  v.  Colston,  44  Md.  349 
(1875);  Wheelock  v.  Kost,  77  111.  296 
(1875);  Hall  v.  Walker,  31  Iowa,  344 
(1871);  Barre  National  Bank  v.  Hingham 
Manfg.  Co.,  127  Mass.  563  (1879)";  Na- 
tional Bank  v.  Case,  99  U.  S.  628  (1878). 
Upon  this  general  question  as  affecting  a 
pledge  of  sliares  in  a  national  bank,  see 
Dickinson  v.  Central  National  Bank,  129 
Mass.  279  (1880);  s.  c.  37  Am.  Rep.  351, 
and  the  learned  annotation  by  Mr.  Irving 
Browne.  As  to  what  passes  title  in  such 
a  pledge  of  shares,  see  Koons  v.  First 
Natl.  Bank  of  Jeflfersonville,  89  Ind. 
178. 

■^  Thus  we  find  in  New  York  that  the 
General  R:iilroad  Act  of  1850  provides 
that  no  person  who  holds  stock  in  the 
railway  corporations  of  that  State  as  col- 
lateral security,  shall  be  personally  lia- 
ble as  a  shareholder,  but  that  such  lia- 
bility shall  attach  exclusively  to  the 
person  who  owns  and  has  pledged  the 
shares.  New  York  Laws  of  1850,  chap. 
140,  §  11.  See  McMahon  v.  Macy,  51  N. 
Y.  155(1872).  Cf.  Guest  v.  Worcester, 
&c.,  Ry.  Co.,  L.  R.  4  C.  P.  9.  A  simihir 
provision  is  found  in  the  New  York 
Manufacturing  Companies  Act  of  1848. 
New  York  Laws  of  1848,  chap.  40,  §  16. 

244 


See  Stover  v.  Flack,  30  N".  Y.  64  (1864); 
s.  c.  41  Barb.  162.  Cf.  Case  of  the  Re- 
ciprocity Bank,  22  N.  Y.  9,  17  (1860 1. 
And  a  similar  provision  has  been  enact- 
ed in  Maryland.  Matthews  v.  Albert,  24 
Md.  527.  In  Missouri,  however,  it  is 
held  that  the  act  does  not  operate  to 
discharge  a  person  to  whom  shares 
hare  been  originally  issued  by  the 
corporation  as  collateral  security  for 
monev  advanced  to  it.  Griswold  v. 
Scligman,  72  Mo.  110  (1880).  In  Bur- 
gess V.  Seligman,  107  U.  S.  20  (1882),  the 
Supreme  Court  of  the  United  States  de- 
clined to  put  that  construction  upon  the 
Missouri  statute, and  held  that  the  pledgees 
were  not  liable  to  corporate  creditors 
upon  the  shares  so  held  by  them.  See 
also  Melvin  v.  Lamar  Ins.  Co.,  80  111. 
446  (1875);  Wheelock  v.  Kost,  77  111. 
298.  In  England,  Chapman's,  Ac,  Case, 
L.  R.  3  Eq.  865;  Re  Anglesea  Col- 
liery Co.,  L.  R,  2  Eq.  379 ;  Inds'  Case, 
L.  R.  7  Ch.  485,  were  under  the  Com- 
panies Act.  In  a  late  Massachusetts  case 
it  is  said  that  the  pledgee  is  liable  on 
the  stock  as  owner  only  when  the  cer- 
tificate fails  to  show  that  the  shares  are 
held  merely  as  collateral.  Barre  National 
Bank  v.  Hingham  Manfg.  Co.,  127  Mass. 
563  (1879);  s.  p.  Davis  v.  Essex  Baptist 
Society,  44  Conn.  582  (1877).  Upon  the 
question  of  the  responsibility  of  the  sev- 
eral parties  to  the  tran>action  when  one 
who  liolds  certificates  of  shares  in  his 
own  name  as  "  trustee,"  pledges  the  stock 
as  security  for  his  own  debt,  see  Shaw 
V.  Spencer,  100  Mass.  382  (1868).  Mr. 
Justice  Strong,  in  National  Bank  v.  Case, 
99  U.  S.  628,  631  (1878),  said:  "It  is 
thoroughly  established  that  one  to  whom 
stock  has  been  transferred  in  pledge,  or 
as  collateral  security  for  money  loaned, 
and  who  appears  on  the  books  (;f  the 
corporation  as  owner  of  the  stock,  is 
liable  as  a  stockholder  for  the  benefit  of 
creditors.  .  .  .  For  this  several  lea- 
sons  are  given.  One  is  that  he  is  e.~topped 
from  denying  his  liability  by  voluntari- 
ly holding  himself  out  to  the  public  as 
the  owner  of  the  stock,  and  his  denial 
of  ownership  is  inconsistent  with  the 
representations  he  has  made;  another  is 
that  by  taking  the  legal  title  he  has  re- 


CH.  XIV.]  LIABILITY  OF  TRUSTEES,   PLEDGEES.    «fec. 


[§  248. 


§  248.  Tlie  Uahility  of  an  executor  or  administrator. — The 
estate  of  a  deceased  person  is  liable  upon  the  stock  held  and  owned 
by  the  decedent  in  tlie  same  way  and  to  the  same  extent  that  the 
shareholder  was  liable  in  his  lifetime.  Accordingly  an  executor 
or  administrator  of  the  estate  of  a  deceased  shareholder  is  charge- 
able upon  the  shares  of  the  decedent  to  the  extent  of  the  property 
that  comes  into  his  hands,  as  the  personal  representative  of  the 
deceased.^  The  executor  or  administrator  becomes  personally 
liable,  however,  upon  the  stock,  if  lie  pay  away  the  assets  of  the 


leased  the  former  owner;  and  a  third  is 
that,  after  has-ing  taken  the  apparent  own- 
ership, and  thus  become  entitle:!  to  re- 
ceive dividends,  vote  at  elections,  and 
enjoy  all  the  privileges  of  ownership,  it 
would  be  inequitable  to  allow  him  to 
refuse  the  responsibilities  of  a  stockhold- 
er." But  in  the  later  case  of  Anderson, 
Receiver  t'.  Philadelphia  Warehouse  Co., 
Ill  U.  S.  479  (1883),  it  is  held  that  a 
pledgee  of  shares  of  stock  in  a  national 
bank,  who  in  good  faith,  and  with  no 
fraudulent  intent,  takes  the  security  for 
his  benefit  in  the  name  of  an  irrespon- 
sible person,  as  trustee,  for  the  avowed 
purpose  of  avoiding  individual  liability 
as  a  shareowner,  and  who  exercises  none 
of  the  rights  or  powers  of  a  sharehold- 
er, incurs  no  liability  which  can  be  en- 
forced by  creditors  of  the  bank  in  case 
of  its  failure.  Anderson  v.  Philadelphia 
AVarehouse  Co.,  Ill  U.  S.  479,  485 
(1883).  See  also  Henkle  v.  Salem  Manfg. 
Co.,  39  Ohio  St.  .547  (1883).  A  transfer 
of  shares  by  one  who  holds  them  merely 
as  collaterid  secuiity,  for  tlie  purposj  of 
avoiding  liability  tiiereon,  is  not  a  con- 
version. Hiatt  V.  Griswold,  a  Fed.  Rep. 
673  (1881);  Otis  v.  Gardner,  105  111. 
436.  And  in  Manchester  Financial  Cor- 
poration Company's  Case,  22  Week.  Rep. 
41  (1875),  it  is  said  that  the  holder  of 
shares  issued  as  fully  paid  up,  merely  as 
collateral  security,  cannot  be  held  liable 
as  though  the  holder  of  unpaid  shares. 

'  Thomas'  Case,  1  r>e  G.  &  Sm,  579 
(1849);  Biird'.^  Case.  L.  U.  5  Chan.  725 
(1870);  ^5te wart's  Trustee  v.  Evans,  9 
Scotcii  Ct.  of  Ses.  Cas.  (3d  series),  810 
(1871);  Kvans  v.  Coventry,  25  L.  J. 
Chan.  489  (185;);  Blakeley's  Case,  13 
Beav.  133  (1850);  /iz /wr/e  Goutliwaite, 
3  Mac.  <fe  G.  1 87  ( 1 85 1 );  Er.  pxrU-  Doyle,  2 
Hall  tfe  T wells  (Eng.  Chan.)  221  (1850); 
Ezpirte  Hall,  1  .Mac.  &  G.  307(1849); 
Uamer's  Devisees'  Case,  2  De  G.,  M.  <fe  G. 


366(1852);  Robinson's  Executor's  Case, 
6  Id.  672  (1856);  Ness  y.  Armstrong,  3 
De  G.  <fe  Sm.  38,  note  (1849) ;  Buchan's 
Case,  L.  R.  4  App.  Cas.  549  (1S791; 
Hoare's  Case,  2  John.  <fe  H.  229(1862); 
Bulmer's  Case,  33  Beav.  433;  Gouth- 
waite's  Case,  3  De  G.  &  Sm.  258  (1850); 
Taylor  v.  Taylor,  L.  R.  10  Eq.  477  (1870); 
Alexander's  Case,  15  Sol.  Jour.  788, 
(1871);  Hamer's  Case,  3  De  G.  (fe  Sm.  279 
(1850);  Grew  v.  Breed,  10  Mete.  569 
(1846) ;  New  England  Commercial  Bank 
V.  Stockholders  of  the  Newport  Steam 
Factory,  6  R.I.  154  (1859);  Crandall  y. 
Lincoln,  52  Conn.  73  (1884);  Bailey  v. 
HoUister,  26  N.  Y.  112  (1862);  Chas.^  v. 
Lord,  77  Id.  1  (1879)  ;  Witters  i-.  Sawles, 
25  Fed.  Rep.  168  (1885),  relative  to  the 
liability  of  an  executor  under  the  Federal 
statute  governing  national  banks.  Sehou- 
ler  on  Executors, ;;  380 ;  New  York  Laws 
of  18.50,  chap.  140,  §11;  1848,  chap. 
40,  §  13.  Some  of  the  earlier  Mas- 
sachusetts cases  are  in  apparent  con- 
flict with  the  rule  declared  in  the  text. 
Child  V.  Coffin,  17  Mass.  64;  Gray  v.  Cof- 
fin, 9  Gush.  200 ;  Ripley  v.  Sampson,  10 
Pick.  371  ;  Andrews  v.  Callender,  13  Id. 
484;  Dane  v.  Dane  Manfg.  Co.,  14  Gray, 
489 ;  Grew  v.  Breed,  10  Mete.  569.  In 
Buchan's  Case,  L.  R.  4  App.  Cas.  549,  588 
(1879),  the  court  said:  "An  executor 
whose  testator  has  held  shares  in  a  joint- 
stock  company,  has  generally  one  of  two 
courses  open  to  him.  He  may  have  the 
shares  transferred  into  his  own  name  and 
become  to  all  intents  and  purj)ose3  a 
partner  in  the  company.  He  may,  on 
the  other  hand,  not  wish  to  have  the 
shares  transferre  1  into  his  name,  and  he 
ought  in  that  case  to  have  a  reasonable 
time  allowed  him  to  Rell  the  sli  ires  and 
to  produce  a  purcdiaser  who  will  take  a 
trans'er  of  them."  See  also  Rr  Che-iiire 
Balking  Co.,  51  L.  T.  Itep.  558  (1880). 

245 


§§  249,  250.]  LIABILITY    OF   TRUSTEES,  PLEDGEES,  &c.  [CH.  XIV. 

estate  in  legacies  without  making  provision  to  meet  the  liability 
on  the  stock,-  When  the  executors  accept  a  transfer  in  their  own 
names  they  make  themselves  personally  lial)le  on  the  stock.^ 

§  249.  The  liaMUtij  of  an  agent  as  transferrer  or  transferee. 

— Sometimes  a  subscription  for  stock  is  made  by  one  person  as 
-the  agent  of  another,  and  the  stock  is  entered  on  the  corporate 
books  ill  the  name  of  the  agent.  In  such  a  case  it  is  the  rule 
that  corporate  creditors  may  hold  either  the  principal  or  the  agent 
responsible  on  the  stock.^  But  an  agent  who  is  compelled  to  as- 
sume and  pay  charges  on  the  stock  may  recover  from  his  principal 
the  amount  so  paid."*  .  Where  a  transfer  is  made,  not  to  the  prin- 
cipal himself,  but  to  an  agent,  the  latter  is  but  a  nominal  holder, 
and  is  subject  to  the  rules  applicable  to  such.  The  transferee  of 
an  agent,  when  suit  is  brought  by  corporate  creditors,  to  enforce 
a  demand  against  the  stock,  cannot  set  up  that  the  agent  had  no 
power  to  transfer  the  stock  to  him.  If  he  has  received  the  cer- 
tificates and  appears  as  a  stockholder  on  the  books  of  the  corpora- 
tion, he  is,  as  between  himself  and  creditors  of  the  corporation, 
.a  shareholder.^ 

§  250.  The  UahiUty  of  infants  and  married  women  as  trans- 
ferrers or  transferees. — It  has  already  been  shown  that  an  infant 
cannot  be  held  liable  upon  a  subscription  to  stock,®  and  any  per- 


1  Taylor  v.  Taylor,  L.  R.   10  Eq.  477  (1867).     C/".  Russell's  Executor's  Case,  15 
({1870);  Jefferys  v.  Jefferys,  24  L.  T.  Rep.  Sol.  Jour.  79(t  (1871). 
((N.  S.)  177(1871).     In  Stewart's  Trustees  •'  Alexander's  Case,  15  Sol.  Jour.  788 
v.    Evans,    9    Scotch  Ct.   Ses.   Cas.  (3d  (1871).     In  New  York  it  is  held  that  an 
series)   810  (1871),  it  is  held  that  where  action  to  charge  an  executor  on  the  stock 
executors  pay  away  the  estate  bona  fide,  of  the  estate  need  not  be  joined  with  an 
they   are    not,    after   a   lapse   of  sixteen  action  to  enforce  an  individual   subscrip- 
years,  liable  personally  for  a   deficit   on  tion  by  the  executor.     Erie,  <fec.,  Ry.  Co. 
shares.     Cf.  Witters  v.  Sawles,  25  Fed.  v.  Patrick,  2  Keyes,  256  (1865).     A  spec- 
Rep.    168   (1886).     An  executor  who  ac-  ial    Statute  of  Limitations   applicable  to 
cepts  for  the  estate   new  shares,  which  executors  will    apply  to  an  executor's  lia- 
the  corporation  offers  upon  specified  con-  bility  on  stock.     Sales   v.   Bates,  6  East, 
ditions   to  the  holders  of  its  stock,  even  Rep.  703  (R.  I.  1886). 
.though  it   be  done  for  the  benefit  of  the  •'  Burr  v.  Wilcox,  22  N.  Y.  551  (1860); 
.estate,  and  in   good  faith,  makes  himself  Stover  v.    Flack,   30  Id.  64  (1864).     See 
.personally  liable  for  any  charge   to   the  also  §§  64,  65. '  Cf.  Grangers  Market  Co. 
.estate  growing  out  of  the  ownership  of  v.  Vinson,  6  Oregon,  172. 
;auch    new   or  additional   shares,  and  he  ■•  Orr  v.  Rigelow,  14  K  Y.  556  (1856); 
cannot  indemnify  himself  out  of  the  funds  affirming  s.  c.  20  Barb.  21  (1854). 
of  the  estate  for  any  loss   he  may  sustain  s  Wakefield  v.   Fargo,  90  N.  Y.    213 
thereby  in  liis  individual  capacity.  Fearn-  (1882).     Upon  the  liability  of  agents  or 
side  OS  Dean's  Case,  L.  R.  1  Chan.  231  trustees  in  tliese  cases,  see  Crandall  v. 
<1 866 );Spence's  Case,  17  Beav.  203  (1853);  Lincoln,  52  Conn.  73  (1884). 
Jackson  v.  Turquand,  L.  R.  4  H.  L.  305  «  See  §  63. 
^(1866);  Mallorie's  Case,  L.  R.  2  Chan.  181 

246 


CH.  XIV.]  LIABILITY   OF   TRUSTEES,   PLEDGEES,    <fec. 


[§  250: 


son  subscribing  for  shares  in  the  name  of  an  infant  renders  him- 
self personally  chargeable  thereon.  So,  likewise,  when  shares  are 
assigned  or  transferred  to  infants  as  a  contrivance  to  escape  liabil- 
ity, the  transferrer  remains  liable.^  In  such  a  case  the  transfer  to 
the  infant  is  a  mere  nullity,  and  the  position  of  the  parties  is  not 
thereby  changed.'"^  And  this  is  the  rule,  as  to  an  infant  transferee, 
although  the  transfer  was  bona  fide,  and  even  in  ignorance  of  the 
infancy  of  the  transferee.^  The  infant  may,  however,  upon  at- 
taining his  majorit}^,  ratify  or  acquiesce  in  a  transfer  of  shares  to 
him  during  his  infancy  and  thereby  render  himself  liable  on  the 
stock.^  The  plea  of  infancy  in  these  cases  must,  however,  allege 
repudiation  within  a  reasonable  time  after  attaining  majority.^ 


'  Capper's  Case,  L.  R.  3  Chan.  458 
•(1868);  Mann's  Case,  Id.  459,  note  (1861); 
Weston's  Case,  L.  R.  5  Chan.  614  (1870); 
Richardson's  Case,  L.  R.  19  Eq.  588 
(187.5);  Roman  v.  Fry,  5  J.  J.  Marsh.  634 
(1881);  Castleman  v.  Hjlmes,  4  Id.  1 
(1830). 

-  Upon  the  winding  up,  unless  the 
transferrer  of  shares  can  "show  that  at 
some  time  or  other  there  was  a  transferee 
of  his  upon  the  register  who  could  be 
made  liable  in  respect  of  those  shares," 
he  is  himself  liable.  Curtis'  Case,  L.  R. 
6  Eq.  455  (1868);  Reid's  Case,  24  Beav. 
S18  (1857).  Cf.  Mann's  Case,  L.  R.  3 
Chan.  459,  note  (1867). 

•''  Thus  a  broker  purchasing  shares  for 
the  account  of  an  infant,  was  held  liable 
as  holder  of  the  stock,  not  even  his 
broker's  agencj'  availing  to  protect  him. 
Ruchizky  v.  Du  Haven,  97  Penn.  St. 
202  (1881);  Mann's  Case,  supra.  In 
this  case  it  seems  that  stock  was  regis- 
tered in  the  name  of  a  pledgee,  and  upon 
payment  of  the  debt,  the  pled.;ee  by  or- 
der of  the  pledgor,  translerred  the  shares 
into  the  name  of  a  minor,  not  knowing, 
however,  that  he  was  transferring  to  a 
minor.  Upon  the  winding  up  the  pledgee 
was  held  a  contributory,  on  the  ground 
that  it  was  not  more  the  duty  of  the  com- 
pany than  of  the  transferrer,  to  look  into 
the  matter  of  the  age  of  one  named  as 
a  transferee.  And  in  Weston's  Case,  L. 
R.  5  Chan.  614  (1870),  it  is  held  that  a 
transferrer  is  liable,  in  sufhacase,  "even 
.  .  .  where  he  was  entirely  innocent 
of  [a  fraudulent  intent  in]  the  transac- 
tion, and  not  aware  tiiat  the  shaies  were 
being  transferred  to  a  minor."     In  Nick- 


alls  V.  Merry,  L.  R.  1  H.  L.  530  (1875),  a 
stock  jobber  was  held  liable,  where,  in  a 
suit  to  recover  calls  on  stock  sold  by  him 
for  the  Stock  Exchange,  it  turned  out 
that  the  idtimate  transferee  of  the  shares 
was  a  minor,  and  his  transferrer  had,  in 
consequence,  been  compelled  to  pay  the 
calls. 

■*  Lumsden's  Case,  L.  R.  4  Chan.  31 
(1868).  In  this  case,  whei-e  an  infant 
held  stock  for  six  months  after  attaining 
his  majority,  the  stock  having  been  trans- 
ferred to  him  daring  his  infancy,  and 
then  sold  part  of  it,  he  was,  upon  a  wind- 
ing up,  held  to  be  a  contributory,  the 
court  saying:  "The  transaction  original- 
ly appears  to  have  been  voidable,  not 
void,  for  a  deed  will  pass  an  interest  to 
an  infant,  even  when  coupled  with  a  lia- 
bility, if  it  be  for  his  benefit  to  accept  it." 
Accordingly,  where  an  infant,  after  be- 
coming of  age,  permits  his  name  to  re- 
main on  the  registry  as  a  shareholder,  he 
is  held  to  have  ratified  the  antecedent 
transfer  to  him  during  his  minority. 
Cork,  <fec.,  Ry.  Co.  v.  Oazenovc,  10  Q.  B. 
935  (1847). 

*  Dublin,  Ac,  Ry.  Co.  v.  Black,8  Exch. 
181  (1852).  Cf.  Birkenhead,  Ac,  Ry.  Co. 
V.  Pilcher,  5  Exch.  24  (1850).  Where  an 
infant  transferee  became  of  age  ten  montiis 
before  the  winding  up,  he  was  held  lialde 
ad  a  contributory  by  acquiescence,  i'.b- 
bett's  Case,  L.  R.  6  Chan.  302  (1870). 
But  in  a  case  where  the  winding  up  camo 
just  before  an  infant  transferee  became 
of  age,  it  was  held  tiiat  no  affirmative  re- 
pudiation was  necessary,  but  tiiat  some 
distinct  act  of  affirinali(m  alont;  would 
avail  to  render  him  liable  after  majority. 

247 


§  250.] 


LIABILITY   OF   TRUSTEES,   PLEDGEES,    <fec.  [CH.  XIV. 


What  is  a  reasonable  time  within  which  the  infant  must  re- 
pudiate the  contract  in  order  to  escape  chargeability,  is  in  ,2;eneral, 
a  question  of  law,  and  it  will  vary  with  the  particular  circum- 
stances of  each  individual  case.  In  general  it  is  the  rule  that  the 
transferee  on  coming  of  age  must  disaffirm  promptlj.  Laches 
will  bar  his  right  to  repudiate.^ 


Wilson's  Case.  L.  R.  8  Eq.  240  (1869). 
Where  the  winding  up  occurs  just  before 
or  just  after  the  infant  transferee  becomes 
of  age,  it  is  said  that  he  need  not  express- 
ly repudiate  in  order  to  escape  liability 
"because  he  cannot  tell  whether  the  com- 
pany intends  to  enforce  their  claim  against 
him,  and,  therefore,  he  is  not  bound  till 
some  steps  are  taken  to  re-ist  his  being  a 
shareholder  in  the  company."  Mitchell's 
Case,  L.  R.  9  Eq.  363  (1870). 

It  seems,  also,  that  a  repudiation  dur- 
ing infancy  may,  under  certain  circum- 
stances, avail  to  discharge  an  infant  share- 
holder from  liability  to  pay  calls  which 
are  made  after  he  attained  the  age  of  twen- 
ty-one years.  Newry  and  Enniskillen  Ry. 
Co.«.Coombe,3  Exch.  565,678(1849).  The 
court  in  speaking  to  this  point,  said  :  "  He 
became  a  shareholder  by  contract  during 
infancy,  and  during  infancy  he  disaffirmed 
the  contract;  therefore,  in  my  opinion, 
he  ceased  to  be  a  shareholder  liable  to  be 
sued  for  calls. " 

But  where  the  infant  transferee,  com- 
ing of  age  after  the  winding  up  had  been 
commenced,  offered  to  affirm  the  con- 
tract, it  was  held  that  the  liquidators 
might,  in  the  interest  of  the  creditors, 
refuse  to  accept  the  offer,  and  might  in- 
stead hold  the  transferrer  liable.  Symon's 
Case,  L.  R.  6  Chan.  298  (1870). 

'  In  one  English  case  we  find  it  held 
that  two  years  delay  after  coming  of  asje 
is  a  ratification  of  the  contract.  Mitchell's 
Case,  L.  R.  9  Eq.  363  (1870),  and  in  an- 
other case  ten  months  is  held  sufficient. 
Ebbett's  Case,  L.  R.  5  Chan.  302  (1870). 
While  in  a  third  case  a  lapse  of  tliree 
years  was  held  not  to  amount  to  an  affirm- 
ance of  the  contract.  Hart's  Case,  L.  R. 
6  Eq.  512  (1868).  In  this  case  the  infant 
sliareliolder  came  of  age  six  months  after 
the  proceeditigs  to  wind  up  the  company 
had  been  commenced.  He  was  served 
with  notice  of  these  proceedings  shortly 
before  his  majority.  Two  years  after,  a 
list  of  shareholders  liable  as  contribu- 
tors, which  included  his  name,  was  filed, 
and  a   year  later   a  notice  of  a  call  was 

248 


served  on  him.  He  resisted  the  collection 
of  the  amount  of  that  call  and,  although 
his  resistance  was  made  three  years  af- 
ter he  came  of  age,  the  court  held  that  he 
was  liable.  But  after  a  repudiation  of 
the  contract  on  attaining  majority,  it  is 
held  that  rendering  aid  in  holding  the 
transferrer  liable,  is  not  a  waiver  by  the 
infant  of  his  formal  repudiation  of  the 
transfer  to  him,  of  which  the  corporate 
creditors  can  take  advantage,  when  for 
any  reason  they  fail  to  make  their  claim 
against  the  vendor  of  the  infant.  Baker's 
Case,  L.  R.  7  Chan.  115  (1871).  If  a 
father  transfers  shares  of  stock  to  his 
minor  son,  though  in  good  faith,  he  is, 
upon  the  winding  up,  liable  upon  the 
stock  as  thouoh  no  transfer  had  been  at- 
tempted, if  the  son  repudiates  the  trans- 
action. Litchfield's  Case,  3  De  G.&  Sm.l41 
(1850);  Weston's  Case,  L.  R.  5  Chan.  614 
(1870).  Cf.  Roman  v.  Fry,  5  J.  J.  Marsh. 
634  (1831).  And  a  director  in  an  in- 
corporated company  who  induces  his 
minor  children  to  take  stock  in  the  com- 
pany in  their  own  names,  is  liable  upon 
the  winding  up  for  a  breach  of  trust,  in 
case  the  children  are  still  minors.  -Ec 
pnrie  Wilson  L.  R.  8  Chan.  45  (1872). 
But  if  a  father  buy  shares  in  the  name 
and  for  the  benefit  of  his  son,  who  is  a 
minor,  and  when  the  transfer  is  made  in- 
forms the  broker  of  the  vendor  of  the 
minority  of  the  transferee,  the  father,  up- 
on the  winding  up,  is  not  liable  on  the 
stock,  but,  the  transferee  continuing  a 
minor  when  the  right  of  action  accrues, 
the  corporate  creditors  may  look  to  the 
transferer.  Maitland's  Case,  38  L.  J.  Chan. 
554  (1869).  So  also  where  the  vendor  of 
shares  allows  the  certificate  to  be  made 
to  the  minor  son  of  his  vendee,  and  the 
son  upon  attaining  his  majority  repudiates 
the  transaction,  the  vendor  and  not  the 
vendee  is  liable  upon  the  winding  up. 
Hennessey's  Case,  3  De  G.  &  Sm.  191 
(1850).  But  where  a  shareholder  trans- 
feiTed  to  an  infant,  and  this  infant  to  an- 
other infant,  who  in  his  turn  transferred 
to  an  adult  capable  of  responding  upoa 


CH.  XIV.]  LIABILITY    OF   TRUSTEES,  PLEDGEES,   *fec. 


[§  251. 


No  general  rule  can  be  laid  down  as  regards  the  effect  of  a 
transfer  of  stock  to  a  married  woman.  Bj  the  law  of  most  of 
the  States,  she  may  contract  as  a  feme  sole  in  respect  to  her 
separate  estate,  and  doubtless  may  become  a  transferee  of  stock.^ 
In  such  cases  she  wouhi  also  have  power  to  transfer  her  stock 
without  the  consent  of  her  husband. 


§  251.  Tlie  Uahility  of  the  corporation  itself.— When  the  cor- 
poration becomes  the  purchaser  of  its  own  stock,  and  the  shares, 
as  is  generally  the  case,  are  transferred  into  the  name  of  a  trustee 
for  the  corporation,  it  is  the  rule,  both  here  and  in  England,  that 
the  trustee  is  personally  liable  in  respect  of  all  the  shares  so 
standing  in  his  name.^  The  transferrer  also,  if  he  knew  that  the 
transferee  took,  as  trustee  for  the  corporation,  is  liable  upon  the 
stock.^     But  when  this  knowledge  is  not  imputable  to  the  trans- 


the  stock,  all  the  transfers  having  been 
duly  registered,  it  was  held  that  the  last 
vendee  wns  a  contributory,  and  that  the 
intermediate  transfers  could  not  be  avoid- 
ed. Gooch's  Cuse,  L.  R.  8  Chan.  266  (1872). 
It  beems,  therefore,  tiiat  the  act  of  the  in- 
fant in  transferring  shares  is  valid  and  ef- 
fectual to  pjiss  the  title,  and  to  discharge 
himself  from  liability  on  the  stock. 

'  See  §  62  ;  also  Jolinson  v.  Gallagher, 
8  De  G.,  F.  <k  J.  494;  Mrs.  Matthewman's 
Case,  L.  R.  3  Eq.  781;  Luard's  Case,  1 
De  G.,  F.  &  J.  533 ;  Queen  v.  Carnatic  R. 
Co.,  L.  H.  8  Q.  B.  299.  In  Angus's  Case, 
1  De  G.  &  Sm.  560,  the  constitution  of 
the  corporation  prevented  such  a  trans- 
fer. See  also  Matter  of  Reciprocity  H!:., 
22  N.  Y.  9.  In  England  the  husband  is 
liable  on  stock  owned  by  his  wife  when 
he  married  her.  Burlinson's  Case,  3  De 
G.  &  Sm.  18;  Sadler's  Case,  Id.  36; 
White's  Case.  LI.  Ihl.  But  is  liable  only 
fiir  subsfquent  liabilities  of  the  company. 
Klulit's  Case,  Id.  210.  See  also  Butler  v. 
Cumpston,L.  R.  7  Eq.  10,  where  (he  wife 
was  a  cedui  (jue.  tnist. 

A  husband  has  been  held  linble  on 
stock  which  was  given  to  his  wife  after 
their  marriage  hy  way  of  legacy,  and 
was  accepted  by  her.  Thomas  v.  City  of 
Glas;row  Hk.,  6  Scotch  Ct.  df  Sess.  (4th 
Beries),  007  (1879).  A  married  woman  is 
herself  liable  for  tlic  statutory  liability 
on  stock,  where  she  ha^  power  to  be  a 
Btockholdcr.   Sales  v.  Bates,  6  East.  Rep. 


703  (R.  I.,  1886).  The  case  Simmons  «. 
Dent,  16  Mo.  App.  288  (1884),  holds  that 
under  a  statute  whereby  a  married  wo- 
man may  become  a  stockholder,  a  trans- 
fer ol'  stock  from  the  husband  to  the  wife 
is  valid,  and  relieves  him  from  liability 
on  the  stock  the  same  as  though  he  had 
transferred  to  any  other  person. 

'^  Wilson  V.  Proprietors  of  Central 
Bridge,  9  R.  I.  590  (1870);  Matter  of  the 
Empire  City  Bank,  18  N.  Y.  199,  226 
(1858);  Allibone  v.  Eager,  46  Penn.  St. 
48  ;  Crandall  v.  Lincoln,  52  Conn.  73 
(1884).  Of.  Sanger  v.  Upton,  91  U.  S. 
56,  60  (1875).  To  the  same  effect  are  tlie 
English  cases.  In  re  St.  Marylebone 
Banking  Co.,  5  De  G.  &  Sm.  21  (1849). 
In  re  National  linancial  Co.,  L.  R.  3 
Chan.  791  (1868);  Chapman  &  Barker's 
Case,  L.  R.  3  Eq  361  (1866);  Ind's  Case, 
L.  R.  7  Chan.  485  (1872);  Hoiire's  Case, 
2  Johns.  &  11.  229  (1862);  Ex  parte  Hen- 
derson, 19  Beav.  107;  Eyre's  Case,  31 
Beav.  177;  Muut's  Case,  22  Id.  55;  Rich- 
mond's Case,  3  De  G.  &  Sm.  96;  Walter's 
Case,  Id.  244;     See  also  Chap.  XIX. 

■■  Lawe's  Case,  1  De  G.,  M.  A  G.  421 
(1852);  NMcol's  Case,  3  De  G.  A  J.  387, 
4:i3(1859);  Walter's  Second  Case,  8  De 
G.  &  Sin.  244  (1850);  Dauiell's  Case,  22 
Beav.  43  (185ti).  ('/■.  Johnson  v.  Laflin, 
5  Dill.  65  (1878);  s.  o.  Thompson  N.il. 
Bank  Cases  331  ;  s.  c.  103  U.  S.  800(1880); 
and  particularly  Crandall  v.  Lincoln,  52 
Conn.  73(1884). 

249 


§  252.] 


LIABILITY   OF   TRUSTEES,   PLEDGEES,    &o.  [CH.  XIV. 


ferrer,  he  is  not  liable.^  l^or,  of  course,  is  he  liable  when  the  cor- 
poration has  power,  by  charter  or  otlierwise,  to  deal  in  its  own 
shares.^  Where  the  owner  of  stock  transfers  it  directly  to  the 
corporation  itself,  without  the  intervention  of  a  trustee,  the  trans- 
ferrer is  not  released  from  his  liability  on  the  stock,  but  remains 
as  fully  chargeable  as  though  no  transfer  had  been  attempted.^ 

§  252.  The  liaMUty  of  legatees,  assignees  in  insolvency,  and 
joint  oiimers. — A  legatee  of  shares  of  stock  may,  of  course,  if  he 
thinks  proper,  decline  to  receive  his  testator's  gift.  But,  if  he 
accepts  the  legacy,  it  is  well  settled  that,  as  specific  legatee,  he  is 
bound  to  pay  all  calls  made  npon  the  stock  after  the  decease  of 
the  testator.*  He  must  also  pay  all  calls  voted  before,  but  not 
due  and  payable,  in  the  regular  course  of  business,  until  after  the 
testator's  death.^ 

An  assignee  of  the  estate  of  a  bankrupt  is  not  liable,  person- 
ally or  as  assignee,  upon  the  bankrupt's  shares  of  stock.  He  is 
not  bound,  as  assignee,  to  accept  as  part  of  the  estate,  property 


1  Holhvev's  Case,  1  De  G.  <fe  Sm.  Ill 
(1849);  Nicol's  Case,  3  De  G.  <fe  J.  387 
(1859);  Johnson  v.  Laflin,  103  U.  S.  800 
(1880). 

In  the  recent  and  very  authoritative 
decision  by  the  Supreme  Court  of  Errors 
of  Connecticut,  in  the  case  of  Crandall  v. 
Lincoln,  62  Conn.  73  (May  Term,  1S84), 
it  is  held — and  in  the  judgment  of  the 
author  upon  sound  jirounds  of  justice 
aud  public  policy — where  a  corpora- 
tion, the  capital  of  which  was  impaired, 
was  buying  in  its  own  stock  through 
an  agent  who  did  not  disclose  to  the 
sellers  the  name  of  the  party  for  whom 
he  was  buying,  but  where  the  sales 
were  in  fact  direct  to  the  corporation, 
that  this  arrangement  did  not  protect  the 
sellers,  since  they  had  in  fact  received 
monev  from  the  capital  stock  of  the  cor- 
poration, and  were  not  only  bound  to 
make  inquiry,  but  were  bound  to  find  out 
wiio  was  the  transferee  of  their  several 
shares,  and  that  they  were  chargeable 
wiili  the  knowledge  of  the  agent,  who  be- 
came their  agent  for  the  purpose  of  the 
sale  and  transfer. 

2  Grady's  Case,  1  De  G.,  J.  &  S.  488 
(1863);  Lane's  Case,  Id.  504  (1863). 
Sometimes,  by  agreement  between  dis- 
contented stockholders  and  the  directors 
of  the  corporation,  transfers  are  made  b}"^ 

250 


such  shareholders  as  desire  to  be  released 
from  their  obligation  as  shareholders  to 
nominees  of  the  directors,  with  the  intent 
tliereby  to  relieve  themselves  from  lia- 
bility upon  the  stock.  In  such  cases  it  is 
held  that  the  action  of  the  directors  in 
permitting  or  sanctioning  such  a  transfer 
was  ultra  vires,  and  tliat  in  consequence 
the  transferrer  is  still  liable.  Morgan's 
Case,  1  De  G.  &  Sm.  7.iO  (1849);  Ben- 
nett's Case,  5  De  G.,  M.  &  G.  284  (1854). 
In  re  Patent  Paper  M an fg.  Co.,  L.  R.  5 
Chan.  291  (1870);  Nathan  v.  Whitlock,  9 
Paige,  152  (1841). 

^  Case  of  the  Reciprocity  Bank,  22  N. 
Y.  9  (1860);  Currier  v.  Lebanon  Slate 
Co.,  66  N.  H.  262  (1875);  Johnson  v. 
Laflin,  5  Dill.  65  (1878);  s.  c.  6  Central 
Law  Jour.  124;  103  U.  S.  800  (1880); 
Walter's  Second  Case,  3  De  G  (fe  Sm. 
241  (1850).  Compare  Zulueta's  Claim, 
L.  R.  5  Chan.  444  (1870);  South  East^ra 
Ry.  Co.'s  Claim,  L.  R.  14  Eq.  10  (1872); 
Iti  re  Patent  Paper  Manfg.  Co.,  L.  R.  5 
Chan.  294  (1870). 

4  Day  V.  Day,  6  Jur.  (N^.  S.)  365  (I860). 
Cf.  Witters  v.  Sawles,  25  Fed.  Rep.  168 
(1885). 

5  Addaras  v.  Ferick,  26  Beav.  384 
(1859).  For  a  more  complete  statement 
of  the  law  relative  to  legacies  of  stock, 
see  Chap.  XVIIL 


CH.  XIV.]  LIABILITY   OF  TRUSTEES,   PLEDGEES,    &c. 


[§  253. 


of  this  nature,  when  it  is  of  an  onerous  or  unprofitable  char- 
acter.^ 

Upon  the  death  of  one  who  is  joint  owner  with  another  or  oth- 
ers, of  shares  of  stock,  the  liability  thereon  attaches  only  to  the  sur- 
viving owners,  and  the  estate  of  the  deceased  owner  cannot  be 
charged.^ 

§  253.  The  liability  upon  nominal  and  fictitious  transfers. — 

Where  one  allows  himself  to  be  made  the  nominal  owner  of  stock, 
that  is  to  say,  when  one  permits  stock  to  be  entered  on  the  corpo- 
rate books  and  the  certificate  to  be  issued  in  his  name,  when  in 
reality  he  is  not  the  actual  owner  of  the  stock,  it  is  the  well 
settled  rule  that  he  thereby  renders  himself  liable  as  a  stockholder 
to  corporate  creditors  to  the  same  extent  that  any  hona  fide 
stockholder  is  liable.  He  will  not  be  heard  to  allege  that  he  has 
perpetrated  a  fraud  upon  the  creditors  of  the  corporation  by 
holding  himself  out  as  owner,  when  in  fact  he  was  not.^  It  has 
been  held,  however,  that  in  the  case  of  a  nominal  ownership  of 
stock,  the  object  of  the  real  owner  being  to  escape  liability,  the 
law  will  disregard  the  nominal  owner  and  will  hold  the  real  owner 
liable  on  the  stock.*     Whenever  it  appears  that  the  transferee  of 


'  American  File  Co.  v.  Garrett,  110 
U.  S.  288  (1883);  Amory  v.  Lawrence,  3 
Cliff.  523  ;  Ru;^e]y  &  Harrison  v.  Robin- 
son, 19  Ala.  404;  Streeter  n.  Sumner,  31 
N.  H.  542;  South  Staffor(L=ihire  Hy.  Co. 
V.  Burnside,  3  Exch.  129  ;  Ex  parte  Davis, 
L.  R.  3  Chan.  Div.  463;  Furdoonjee's 
Case,  Id.  268.  And  where  a  corporation 
itself  assigned  shares  of  its  ov/n  stocli  to 
an  assignee  for  the  bcnelit  of  corporate 
creditors,  it  was  held  that  the  assignee 
was  not  liable,  personally  or  as  assignee, 
thereon.  In  re  City  Terminus  Hotel  Co., 
L.  R.  4  Eq.  10  (1872). 

It  has  been  held  otherwise,  however, 
in  a  case  where  the  assignment  was  abso- 
lute, and  the  assignee  was  also  a  creditor. 
Protection  Life  Insurance  Co.  v.  Osgood, 
93  111.  69. 

It  has  been  held  that  one  who  makes 
an  assignment  for  the  benefit  of  creditors 
is  thereby  released  from  liabiliiy  on 
stock,  even  thoui^h  the  transfer  has  not 
been  recorded  in  the  corporate  books. 
Sales  V.  Bate.s,  6  East.  Rep.  703  (R.  I., 
1886). 

'  Re  Maria  Anna,  <fec.,  Coal  <fe  Coke 
Co.,  44  L.  J.  Chan.  423  (1876). 


3  Wakefield  v.  Fargo,  90  N.  Y.  213 
(1882);  Case  of  the  Reciprocity  Bank,  22 
Id.  9  (I860);  Slee  v.  Bloom,  19  John.  456 
(1821);  Fisher  v.  Seligman,  75  Mo.  13 
(1881);  Griswold  v.  Seligman,  72  Id.  110 
(1880);  Erskine  v.  Lowenstein,  11  Mo. 
App.  595  (1882);  Dane  v.  Young,  61  Me. 
160  (1872);  Wheelock  v.  Kost,  77  111.  296 
(1875);  Appeal  of  Miller,  1  Penii.  Sup. 
Ct.  120(1881);  Graff  v.  Pittsburgh,  <fec., 
R.  R.  Co.,  31  Penn.  St.  489  (1858);  Mc- 
Hose  V.  Wheeler,  45  Id.  32  (1863);  Ault- 
man's  Appeal,  98  Id.  5i)5  (1881);  Nation- 
al Bank  v.  Case,  99  U.  S.  628  (1878); 
Price  «fe  Brown's  Case,  3  De  G.  tk  Sm.  146 
(1850);  Barrett's  Case,  4  De  G.,  J.  &  S. 
416  (1864) ;  Straffon's  Executor's  Case,  1 
De  G.,  M.  (fe  G.  576  (1852);  Gower's 
Case,  L.  R.  6  Eq.  77  (1668).  Cf.  Fox  v. 
Clifton,  6  Bing.  (Eng.)  776  (1830). 

Cases  of  this  class  are  very  similar  in 
their  character  to  cases  of  stock  regis- 
tered in  the  name  of  a  trustee.  The  same 
rules  of  law  apply  to  both  classes  of 
cases. 

•»  Cox's  Case,  4  Do  G.,  J.  cfe  S.  53.  Cf. 
King's  Case,  L.  R.  6  Ch.  196.  See  also 
§  249. 

251 


§253.]  LIABILITY   OF  TRUSTEES,   PLEDGEES,   <fec.  [CH.  XIV. 

shares  is  a  fictitious  and  not  a  real  person,  the  transferrer,  or  the 
real  owner  of  the  shares,  will  be  held  liable.^  It  is  also  held  that 
such  an  assumed  transfer  is  a  mere  imllity,  and  that  the  position 
of  the  parties  is  in  no  way  changed  thereby.^ 

1  Puo-h  <fe  Sharman's  Case,  L.  R.  13  purchase,  shares  for  an  infant,  and  took 

Eq   566''(1872).     Cf.  Maitland's  Case,  38  the  certificate  in  the  name  of  an  imagi- 

L     J     Chan.    554   (1869);    Richardson's  naryperson.it  was  held  that  by  such  a 

Case  L  R   19  Eq.  588.  transaction  the  purchaser  did  not  become 

"'Arthur  v.  Midland  Ry.  Co.,  3  Kay  &  liable  upon  the  shares,  nor  was  the  ven- 

J    204  (1857)-  Muskingum  Vnllev  Turn-  dor  released.     Maitland's  Case,  38   L.J. 

pike  Co.  V.  Ward,  13  Ohio,  120^(1844).  Chan.  554  (1869). 
So  where  one  purchased,  or  assumed  to 


•252 


CHAPTER  XV. 

LIABILITY  AS  AFFECTED  BY  TRANSFERS. 


254.  Liability  upon  transferred  shares 

of  stock. 

255.  Liability  of  the  transferrer  on  un- 

paid subscriptions. 

256.  Liability  of  the  transferee  on  un- 
paid subscriptions. 

Knowledare  that  the  shares  are 
not  fully  paid  up,  how  far  im- 
putable to  a  transferee. 

Liability  after  transfer,  but  before 
registry. 

259.  Liability  of  transferee  to   trans- 

ferrer herein. 

260.  At  what  time  the  statutory  liabil- 


257. 


258. 


ity  for  a  debt  attaches  to    the 
shares. 
§  261.  Transferrer  not  liable  for  debts  in- 
curred after  the  registry. 

262.  Transferrer  can  claim  exemption 

from  liability  for  corporate  in- 
debtedness only  after  the  regis- 
try of  the  transfer. 

263.  The  transferee's  statutory  liabil- 

ity. 

264.  Liability   of  transferee   to  trans- 

ferrer by  way  of  indemnity. 

265.  A  transfer  to  an  insolvent  to  es- 

cape liability. 

266.  The  rule  in  E'ngland. 


§  254.  LiaMlity  upon  transferred  shares  of  stocTc.—V^hen 

shares  of  stock  are  transferred  from  one  owner  to  another,  or 
pass  from  the  possession  of  one  owner  to  that  of  another,  it  at 
once  may  become  an  important  matter  to  determine,  who  is  liable 
upon  nnpaid  subscriptions,  and  who  must  assume  the  liability 
imposed  by  statute.  The  difficulty  is  increased  by  the  rule  of  law 
that  no  transfer  is  complete  until  it  is  duly  entered  or  recorded 
in  the  transfer  book  of  the  corporation.  The  complication  is 
usually  greatest  in  cases  involving  the  question  of  statutory  lia- 
bility, since  generally  each  case  stands  by  itself  in  respect  to  the 
determination  of  this  question,  turning  more  or  less  upon  the  par- 
ticular words  of  the  statute  by  which  the  liability  is  imposed. 
There  are,  however,  many  rules  which  are  general  in  their  charac- 
ter and  application,  governing  the  liability  of  shareholders  as 
affected  by  transfer,  and  these  are  the  subject  of  this  chapter. 

§  255.  LiahiUty  of  the  transferrer  on  unpaid  subscriptions. 

— Transfers  of  shares  may  be  made  at  any  time  after  the  con- 
tract of  subscription  is  made,  and  before  any  part,  or  after  only 
a  part  of  the  subscription  price  lias  been  paid.  The  well  estab- 
lished and  general  rule  of  law  in  such  cases  is  that  where  a  stock- 
holder makes  an  absolute  transfer  of  his  stuck  in  good  faith,  and 

253 


255.] 


LIABILITY   AS    AFFECTED   BY   TRANSFERS. 


[CH. 


XV. 


the  transfer  is  consummated  by  the  record  of  the  transfer  in  the 
corporate  stock  book,  the  transferrer  is  thereby  wholly  discharged 
from  all  further  liability  upon  the  unpaid  subscription  price  of 
the  stock.  He  is  entirely  absolved  from  any  responsibility 
thereupon,  whether  part  or  nothing  at  all  had  been  paid  on  the 
stock  previously  to  the  transfer.^  This  is  the  rule,  although  the 
corporate  officers  enter  the  transfer  against  the  protest  of  the 
transferee.^  But  the  transferrer  is  liable  for  calls  payable  before 
the  transfer  is  raade,^  and  perhaps  for  calls  made  before,  but  pay- 
able after  the  transfer.*  Upon  this  latter  point  there  can  be  no 
fixed  and  inflexible  rule  as  to  whether  one,  after  a  transfer  of  his 
shares,  in  good  faith,  to  a  solvent  person,  remains  liable  for  calls 


1  Johnson  v.  Laflin,  5  Dill.  65  (1878) 
(by  Dillon,  J.);  Huddersfield  Canal  Co. 
V.  Buckley,  7  Term  Rep.  36  (1796)  (by 
Lord  Kenyon) ;  Executors  of  Gilmore  v. 
Bank  of  Cincinnati,  8  Ohio,  62,  71  ;  Bil- 
lings V.  Robinson,  94  N.  Y.  415  (1884); 
affirming  s.  c.  28  Hun,  122  (1882) ;  Wake- 
field V.  Fargo,  90  N.  Y.  213  (1882); 
Cowles  V.  Cromwell,  25  Barb.  413  (1857); 
Colez'.  Ryan,  52  Id.  168(1868);  Isham 
V.  Buckingham,  49  N.  Y.  216  (1872); 
Chouteau  Spring  Co.  v.  Harris,  20  Mo.  382 
(1855) ;  Miller  v.  Great  Republic  Ins.  Co., 
50  Id.  55  ;  Allen  v.  Montgomery  R.  R. 
Co.,  11  Ala.  437,  451  (1847);  Haynes  v. 
Palmer,  13  La.  Ann.  240  (1858);  Hart- 
ford, &c.,  R.  R.  Co.  V.  Boorman,  12  Conn. 
530  (1838) ;  Bend  v.  Susquehanna  Bridge, 
&c.,  Co.,  6  Harr,  &  J.  128(1825);  Hall  v. 
United  States  Ins.  Co.,  5  Gill  (Md.),  484 
(1847);  Webster  v.  Upton,  91  U.  S.  65 
(1875);  Aylesbury  Ry.  Co.  v.  Mount,  5 
Scott's  New.  Rep.  127  (1842)  ;  Weston's 
Case,  L.  R.,  4  Chan.  20(1868)  ;  McKenzie 
V.  Kittridge,  24  Upp.  Can.  C.  P.  1  (1874). 
The  mere  fact  that  the  transferrer,  after 
the  registry,  paid  a  call  does  not  estop 
him  from  f'enying  his  liability  for  subse- 
quent calls.  Provincial  Ins.  Co.  v.  Shaw, 
19  U.  C.  (Q  B.)  533  (1860).  Compare  in 
general  WintriDgham  v.  Rosenthal,  25 
Hun,  580(1881);  Shellington  v.  Howland, 
53  N.  Y.  371,  376  (1873);  Wateihouse  v. 
Jamieson,  L.  R.,  2  Se.  App.  29  (1870); 
Spargo's  Case,  L.  R.,  8  Chan.  407  (1873). 
In  re  Hoylake  Ry.  Co.,  L.  R.,  9  Chan. 
257  (1874).  It  is  not  necessary  to  the 
validity  of  the  transfer  that  there  should 
be  a  consideration  moving  from  trans- 
eree  to  transferrer,  and  so  where  one  gives 
his   share  away  absolutely  and  in  good 

254 


faith,  the  same  rule  as  to  liability  pre- 
vails. In  re  European  Bank,  Master's 
Case,  41  L.  J.  Chan.  501  (1872).  Neither 
does  it  alter  the  rule  that  no  certificates 
of  stock  have  been  issued,  and  that  in 
consequence  no  certificates  have  been 
transferred.  In  such  a  case  where  the 
transaction  is  in  good  faith  and  abso- 
lute, the  transferee  equally  becomes  liable 
on  the  stock,  and  the  transferrer's  liability 
is  at  an  end.  Burke  v.  Smith,  16  Wall. 
390(1872);  Brigham  v.  Mead,  10  Allen, 
245  (1866);  Thorp  v.  WoodhuU,  1  Sandf. 
Chan.  411  (1844).  See  also  Upton  v. 
Burnham,  3  Biss.  431,520  (1873);  First 
National  Bank  v.  Giiford,  47  Iowa,  575, 
583.  Cf.  Midland,  <fec.,  Ry.  Co.  v. 
Gordon,  5  Railway  &  Canal  Cases,  76 
(1847);  s.  c.  16  Mee.  &  W.  804  ;  Isham  v. 
Buckingham,  49  N.  Y.  216  (1872).  See 
also  Shellington  v.  Howland,  53  N.  Y. 
371,  376  (1873). 

2  London,  <fec.,  Ry.  Co.  v.  Fairclough, 
2  Man.  &  G.  674,  706(1841);  Upton  v. 
Burnham,  3  Eiss.  520  (1873);  Webster  v. 
Upton,  91  U.  S.  65  (1875).  In  a  proceed- 
ing in  equity  a  transferee  will  be  com- 
pelled to  pay  calls  made  after  transfer  of 
the  certificate  and  before  registry  of  the 
same.     Webster  v.  Upton,  supra. 

3  Vicksburg,  <fec.,  R.  R.  Co.  v.  Mc- 
Kean,  14  La.  Ann.  724  (1859). 

''  North  American  Colonial  Associa- 
tion V.  Bentley,  19  L.  J.  (Q.  B.)  427  (1850) ; 
Schenectady,  &c.,  Plank  Road  Co.  v. 
Thatcher,  li  N.Y.  102, 113(1854).  Contra, 
West  Philadelphia  Canal  Co.  v.  Innes,  3 
Wharton,  198  (1838);  Aylesbury  Rail- 
way Co.  V.  Mount,  4  Man.  &  G.  651  ;  s.  c. 
5  Scott's  New.  Rep.  127  (1842). 


CH.  XV.]  LIABILITY   AS   AFFECTED   BY   TRANSFERS. 


[§  256. 


made  before  the  transfer,  but  becoming  due  and  payable  after- 
wards. The  decision  will  generally  depend  either  upon  the  terms 
of  the  contract  between  the  transferrer  and  the  transferee,  or  upon 
the  express  provisions  of  the  statute  under  which  the  liability  is 
imposed.^ 

§  256.  LiaUlity  of  tlie  transferee  on  unpaid  subscriptions. 

—When  a  transfer  of  stock  is  made,  and  the  transfer  is  duly  re- 
corded in  the  corporate  stock  book,  the  transferee  thereupon 
becomes  liable  for  any  balance  of  the  subscription  price  remain- 
ing unpaid  at  the  time  of  the  transfer.  Since  the  transfer  releases 
the  transferrer  it  charges  the  transferee.  The  latter  is  in  the  situ- 
ation of  an  assignee  and  assumes  this  liability  of  his  assignor. 
Hence  it  is  the  well  established  rule  that  the  transferee  of  shares 
is  liable  for  calls  made  after  he  has  been  registered  in  the  corpo- 
rate transfer  book  as  a  stockholder,  and  being  thus  liable  there  is 
an  implied  promise  that  he  will  pay  calls  subsequently  made  upon 
the  stock.*^    Under  the  rule  in  Pennsylvania,  by  which  the  trans- 


'  Schenectady,  <fec  ,  Plank  Road  Co.  v. 

Thatcher,  11  N.  Y.  102.     See  Morawetz 

on  Corporations  (2d  ed.),§  161;  Thompson 

on  Liabilities  of  Stockholders,  §  210.     In 

New  York  no  stock  in  either  railroad  or 

manufacturing   corporations,   created  by 

the  laws  of  that  fetate,  can   be  lawfully 

transferred   while  there  are  calls  unpaid 

upon  the   shares.     N.  Y.   Session    Laws, 

1850,  chiip.  140,  §  8;  N.  Y.  Session  Laws, 

1848,  chap.  40,  §  8.     So  in  California  as 

to  railroad  stock,  Brewster  v.  Hartley,  87 

Cal.    15.     In  Tennessee   it   is   held   that 

upon    a   valid  transfer,  the  transferrer  is 

releasi'd,  not  only  upon  his  liability  for 

unpaid   subscriptions,  but  also  as  to  all 

the  existini;-  debts  of  the  corporation,  and 

this  is  the  general  rule.     Jackson  v.  Slif^o 

Manfir.    Co.,  1    Lea,  210  (1878).     So   in 

Alabama,  Allen  v.  Montgomery  R.  R.,  11 

Ala.  437.     But  in  Pennsylvania,  by  way 

of  exception   to    the  prevailing  rule,  the 

courts  held  ifn  original  subscriber  to  the 

capital    slock  of   a  corporation,    formed 

under  the  General  Railroad  Act  of  that 

State  of  Febrnary    19,    1849,   liable   per- 

Bonally  for  any  amount  remaining  unpaid 

upon  the  subscription,  notwithstanding  a 

transfer  of  the   shares.      The    transfer  is 

not  allowed  to   operate  to  discharge  the 

stockholder  from  his    liability,  althoui^h 

made   in  good   faith,  and    although    the 

transferee   is   solvent.     Pittsburgh,  <fec., 


R.  R.  Co.  V.  Clarke,  29  Penn.  St.  146 
(1857);  Graff  v.  Pittsburgh,  &c.,  R.  R. 
Co.,  31  Id.  489  (1858).  Cf.  Frank's  Oil 
Co.  V.  McCleary,  63  Id.  317  (1809); 
Messersmith  v.  Sharon  Savings  Bank,  96 
Id.  440  (1880);  Aultman's  Appeal,  98  Id. 
505(1881);  Pittsburgh,  <fec.,  Iron  Co.  v. 
Ottersou,  4  Week.  Notes  Cas.,  545  (1878). 
In  Maryland  also  the  ordinary  statutory 
provisions  holding  stockholders  liable 
until  the  capital  stock  is  fully  paid  in,  is 
held  to  render  the  shareholder  liable, 
even  though  he  have  transferred  his 
shares.  Hager  v.  Cleveland,  36  Md.  476 
(1872).  These  anomalous  decisions,  how- 
ever, are  in  general  restricted  to  original 
subscribers  and  subsequent  transferees 
are  held  to  be  discharged  by  a  transfer. 
West  Philadelphia  Canal  Co.  v.  Innes,  3 
Wharton,  198(1838);  Aultman's  Appeal, 
98  Penn.  St.  505  (1881);  Bunn's  Appeal, 
105  Id.  49  (1884). 

2  Webster  v.  Upton,  95  IJ.  S.  65 
(1875);  Pullman  v.  Upton,  96  Id.  328 
(1877);  Upton  v.  Ilansbrough,  3  Biss. 
417  (1873);  Foreman  v.  lUgelow,  4  Cliff. 
50S  (1878);  Mann  v.  Currie,  2  Barb.  294 
(1848);  Cole  v.  Ryan,  52  Id.  108  (1808); 
Hall  V.  United  States  Ins.  Co.,  5  Gill 
(Md.),  484  (1817);  Bend  «;.  Susquehanna 
Bridge  (•<).,  OHar.  A  J.  128,(1825);  Mer- 
rimac  Mining  Co.  v.  Bagley,  14  Midi.  501 
(1800);   Brigham  «;.  Mead,"lO  Allen,  246 

255 


§258.]  LIABILITY    AS    AFFECTED   BY   TR1N3FER3.  [CH,  XV. 

ferrer,  if  he  be  an  orisrinal  subscriber  for  shares,  is  not  released 
from  liability  as  to  unpaid  balances  of  subscription,  it  seems 
that  the  transferee  incurs  no  liability  in  that  respect,  by  tlie 
transfer.  Inasmuch  as  the  transferrer  is  not  released  the  trans- 
feree is  not  charged.^  TTliere  by  statute,  or  a  by-law  of  the  cor- 
poration, no  yalid  transfer  can  be  made  while  there  are  calls  due 
and  unpaid,  it  is  held  that  a  transfer  without  such  payment  will 
not  render  the  transferee  liable  thereon." 

§  257.  Knowledge  that  the  shares  are  not  fuJhj  paid  up,  how 
far  imputahJe  to  a  transferee. — The  question  whether  the  pur- 
chaser of  shares  is  bound  to  take  notice  that  the  stock  he  pur- 
cliases  is  not  fully  paid  for,  is  a  serious  and  complicated  one. 
The  better  opinion,  and  the  one  most  in  accord  with  the  usages 
and  analogies  and  demands  of  trade,  is  that,  where  one  buys 
stock  in  open  market,  in  good  faith,  without  notice  that  the  sub- 
scription price  thereof  has  not  been  paid  up,  such  a  purchaser 
cannot  be  held  liable  to  pay  the  unpaid  balance  of  subscription.^ 

§  258.  Liahility  after  transfer,  hut  he/ore  registry. — Until  a 
transfer  is  only  recorded  in  the  transfer  book  of  the  corporation, 
the  transferee,  not  being  duly  recogaized  as  a  stockholder,  is  not 
chargeable  either  with  corporate  debts  or  unpaid  balances  of    the 

(1865);  Hartford,  <fec.  R.  R.  Co.,  v.  Boor-  prohibition  to  transfer  in  articles  of  as- 

man,    12    Conn.    520   (1838);  Moore  v.  sociation  of  a  bank,  organized  under  the 

Jones,  3  Woods,  53  (1877);  In  re  South  General    Bankin;^    Act    of  1833    of   the 

Mountain,  <i:c.,  Mining  Co.,  7  Sawyer,  30  State  of  Xew  York.     In  re  Bachman,  12 

(1881");  Merrimac  Mining  Co.   I'.'LevT,  Nat.  Bank.  Reg.  223  (1875). 
54  Penn.   St.   227   (1867) ;  Huddersfield  ^  Certificates  of    stock  have    become 

Canal  Co.  v.  Buckley,  7  Term  Rep.   36  such  important  factors  in  trade  and  credit, 

(1796);  Evans  I'.  Wood,  37  L.J.  Chan,  and   gener.d   investment  by   all    classes, 

159(1868).     See  also   Seymour  v.   Star-  that  the  law  is  steadily  tending   towards 

ges,  26  Jf.  Y.  134  (1862)."  the   complete  protection    of  a   bona  fide 

'Pittsburgh,  <fec.,  R.  R.  Co.  v.  Clarke,  purchaser  of  them  in  open  market,  and 
29  Penn.  St.  146  (1875):  Messersmith  i'.  without  notice  of  facts  which  will  de- 
Sharon  Savings  Bank,  96  Id.  440  (1380);  crease  the  apparent  value  of  the  stock. 
Palmer  v.  Ridge  Mining  Co.,  34  Id.  The  constant  tendency  of  the  courts  to 
288;  Franks  Oil  Company  v.  McCleary,  increase  the  negotiability  of  certificates 
63  Id.  317(1869);  Pittsburgh  Iron  Co.  V.  of  stock  will  probably,  at  some  time 
Otterson,  4  Week.  Xotes  Cas.  545  (1878);  hereafter,  allow  any  liability  on  un- 
Delaware  Canal  Co.  v.  Sansom,  1  Binn.  paid  subscriptions  to  be  enforced  against 
70(1803).  ty.  West  Philadelphia  Canal  a  t-ansferrer  only  when  such  liabil- 
Co.  V.  Innes,  3  Wharton,  198  (1838);  ity  is  stated  on  "the  face  of  the  certifi- 
Merrimac  Mining  Co.  v.  Levy,  54  Penn.  cate  itself.  At  present,  however,  it 
St.  227  (1867);  Aultman's'  Appeal,  98  would  seem  that  a  purchaser  of  the  cer- 
Id.  505  (1881).  tificate  is  bmnd  to    inquire   and    know 

nVatsonv.  Eales,  23  Beav.  294(1856);  whether  the  stock  is  issued  as  paid  up 

McCready  v.  Rumsey,  6   Duer,  574  (New  stock  or  not.     See  §  50. 
York  Super.  Ct.)  (1857),  in  a  case  under  a 

256 


CH.  XV.]  LIABILITY    AS   AFFECTED   BY   TRANSFERS. 


[§  258. 


subscription.  Whatever  may  be  bis  liability  to  the  transferrer,  he 
is  not,  until  registry,  liable  either  to  the  corporation  or  to  corpo- 
rate creditors  upon  any  claim  or  demand  growing  out  of  the 
ownership  of  the  shares  transferred  to  him.-'  The  transferrer  is 
not  released  from  liability  until  the  transfer  is  duly  registered  in 
the  corporate  books.^  The  stock  book  of  the  corporation  is  kept 
largely  for  the  purpose  of  informing  the  corporation  and  corpo- 
rate creditors  who  the  stockholders  are  and  who  is  liable  on  the 
stock.  Accordingly  he  in  whose  name  the  stock  is  registered  at 
a  particular  time,  is  liable  for  obligations  arising  on  the  stock 
during  that  time.^ 

The  corporation,  after  receiving  and  recognizing  the  trans- 
feree as  a  shareholder,  cannot  afterwards  repudiate  the  transfer 
for  informalities  and  hold  the  transferrer  liable.*  And  when  the 
formalities  of  transfer  are  waived,  either  expressly  or  by  plain  im- 
plication, the  transfer  may  be  valid  and  operate  to  bind  the  trans- 
feree without  any  record  of  the  transfer  on  the  corporate  books.' 


'  Marlborough  Manfg.  Co.  v.  Smith,  2 
Conn.  679  (1818);  Louisiana  Insurance 
Co.  V.  Gordon.  8  La.  Rep.  lU  (1835); 
Midland,  &c.  Ry.  Co.  v.  Gordon,  16  Mee. 
<fe  W.  804  ( 1847).  In  Indiana  it  lias  been 
held  that  in  no  event  will  a  statute  be 
construed  so  as  to  make  both  transferrer 
and  transferee  liable  directly  for  the 
same  indebtedness.  ^Yilliams  v.  Hanna, 
40  Ind.  r>-S5  (1872). 

'■^  Shellington  v.  Ilowland,  53  N. 
Y.     371     (1873);     Worrall    v.  Judson, 

5  Barb.  210,  Dane  v.  Young,  61 
Me.  160;  Davis  v.  Essex,  &c.  Society,  44 
Conn.  582  (:  877);  Kellogg  i;.  Stockwell, 
75  111.  68  ;  Rosevelt  v.  Brown,  11  N.  Y. 
148  (1854);  Loudon,  &c.  Ry.  Co.  v.  Fair- 
clough,  2  Man.  &  G.  674(1841);  Humble 
V.  Lani^ston,  7  Mee.  tt  W.  517;  McEueu 
V.  Wes-t  London  Wharves,  (fee.  Co.,  L.  U. 

6  Chan.  655;  h^ayies  i;.  Blane,  19  L.J  (Q. 
B.)  19;  s.  c.  6  Eng.  Ry.  Cases,  79.  The 
liability  as  between  transferrer  and  trans- 
feree after  transfer  and  before  registry  is 
sometimes  fixed  precisely  by  statute. 
"Mo  transfer  of  stuck  shall  be  valid  for 
any  purpose  whatever,  except  to  render 
the  person  to  whom  it  shall  be  trans- 
ferred liable  for  the  debts  of  the  com- 
pany, according  to  the  provisions  of  this 
act,  until  it,  shall  have  been  entered  there- 
in [/'.  e.,  in  the  corporate  stock  book] 
as  required  by  this  section,  by  an  entry 
showiut;  to  and  from  whom  transferred." 


New  York  Session  Laws  1848,  chap.  40, 
§  25.  See,  construing  this  section.  Ber- 
ries v.  Piatt,  13  Hun,  492  (1878)  ;  John- 
son V.  Underbill,  52  N.  Y.  203  (1873). 

^It  has  been  held,  however,  that  so 
far  as  tlie  unpaid  subscription  is  con- 
cerned, there  need  not  necessarily  be  a 
registry'  of  the  transfer,  but  that  a  recog- 
nition of  the  trant-feree  as  a  stockholder 
by  the  corporation  is  sufficient.  Tluis  in 
a  late  New  York  case,  where  it  appeared 
that  the  stock  was  transferred  by  a 
blank  endorsement,  though  not  trans- 
ferred on  the  corporate  books,  and  divi- 
dends were  p;iid  to  the  transferee  for  a 
peiiod  of  four  yenrs,  the  entries  in  the 
dividend  book  and  in  the  corporate  led- 
ger beinir  in  their  names,  and  the  trans- 
ferees having  become  corporate  officers, 
it  was  held  that  the  transferrers  were  not 
liable  for  unpaid  subsci  iptions,  and  that 
an  action  by  the  receiver  against  them 
would  not  lie.  Cutting  v.  Daaierel,  88 
N.  Y.  410  (1882).  Cf.  Johnson  v.  Undcr- 
hill,  52  Id.  203  (1873).  But  cf.  Bosan- 
quet  V.  Shi.i-tiidge,  4  Exch.  699"(185ii). 

■*  Isliam  V.  Bucldngliam,  49  N.  Y.  216 
(1872);  Cnttinir  v.  Datnerel,  88  Id.  410 
(1882);  Chambersburg  Ins.  Co.  v.  Smith, 
11  Peim.  St.  120  (1849)  ;  Murray  v.  Bush, 
L.  R.  6  House  of  Lords,  37  (1873).  Cf. 
Taylor  v.  Hughes,  2  Jones  <fe  Lat.  (Irish 
Chan.)  24. 

'  Upham    V.    Burnham,    3    Biss.    431 


[17] 


257 


:§  259.] 


LIABILITY   AS   AFFECTED   BY   TRANSFERS.  [CH.  XV. 


§  259.  Hahility  of  transferee  to  transferrer  lierein. — A  trans- 
fer of  stock  may  be  said  to  involve  three  distinct  acts,  all  of  which 
may  take  place  at  one  and  tlie  same  time,  or  each  at  a  different 
time.  There  is,  first,  the  agreement  of  sale,  by  which  the  right  to 
the  stock  passes  from  the  transferrer  to  the  transferee ;  second,  the 
formal  transfer  of  the  certificate  of  stock  ;  third,  a  registry  of  the 
transfer,  by  an  entry  on  the  corporate  transfer  book.  It  fre- 
quently happens  that  the  registry  is  not  made  until  some  time  af- 
ter the  agreement  of  sale,  and  that  during  the  interim,  calls  on  the 
subscription  are  made  or  corporate  creditors'  rights  attached. 
The  law  then  holds  liable  the  tranferrer  whose  transfer  has  not 
been  registered.  But  in  reality  his  transferee  ought  to  meet  that 
liability.  Hence  the  rule  that  for  liabilities  arising  after  a  sale  of 
stock,  but  before  a  registry  of  the  same  on  the  corporate  books, 
the  vendee  is  liable  to  the  vendor  when  such  liabilities  are  paid 
by  the  latter.^  The  transferrer  in  these  cases  may  have  recourse 
to  the  real  and  not  the  nominal  transferee.^  In  case  of  several 
■successive  transfers,  the  transferrer,  who  has  paid  an  assessment  or 
corporate  debt,  may  look  to  his  immediate  transferee,  although 
there  be  another  one  in  the  series  who  will  ultimately  be  charged.' 
In  general  the  transferrer  who  has  paid  may  seek  his  relief  at  law," 
or  by  a  suit  in  equity.^ 


(18'73).     See  also   Isham  v.  Buckingham, 

49  N.  Y.   216   (1872);  Bernard's  Case,  5 

De  G.  &  Sm.  283  (1852).  See  note,  supra. 
'  Lord  V.  Hutzler,  3  Atlantic  Rep.  891 

<1886);  Johnson  v.  Underhill,  62    N.  Y. 

"203  n873);  Kellogg  v.  Stockwell,  75  111. 

■m  (1874);  Hutzler  v.  Lord,  64  Md.  534 

(1885);  Brigham  v.  Mead,  10  Allen,  245 
(1865);  Walkers.  Bartlett,  18  C.  B.  845, 
overruling  Humble  v,  Langston,  7  Mee. 
&  W.  517  ;  Chapman  v.  Shepherd,  L.  R. 
2  C.  P.  228  ;  Giissell  v.  Bristowe,  L.  R. 

5  C.  P.  112;  Davis  v.  Haycock,  L.  R.  4 
Exch.  373;   Howring  v.   Sliepherd,  L.  R. 

•6  Q.  B.  309  ;  Kellouk  v.  Enthoven,  L.  R. 

•9  Q.  B.  241;  s.  c,  L.  R.  8  Q.  B.  458.  The 
Statute  of  Limitations  does  not  begin 
to  run  against  the  transferrer  until  the  as- 
sessment is  paid  by  him.  Hutzler  v. 
Lord,  supra.  For  cases  relative  to  the 
transferrer's  right  to  indemnitor  for  statu- 
tory liabilities  paid  by  him,  see  infra. 
So,  also,  when  shares  are  sold  for  future 
delivery,  but  before  the  time  for  delivery 
the  seller,  in  order  to  save  the  stock  from 

.forfeiture,   is    compelled    to   pay  assess- 

258 


ments  duly  levied  upon  it,  the  seller  may 
refuse  to  deliver  until  he  is  repaid  the 
amount  of  such  assessments.  Whitney  v. 
Page  (N.  Y.  Super.  Ct.),  Daily  Register, 
March  31,  1885. 

^  Castellan  v.  Hobson,  L.  R.  10  Eq. 
Cas.  47  (1870),  but  see  Shaw  v.  Fisher,  2 
De  G.  &  Sm.  11  (1848);  s.  c.  5  De  G.,  M. 
<feG.  596  (1855). 

3  Kickalls  V.  Eaton,  23  L.  T.  (K  S.) 
689  (1871),  or  he  may  look  to  the  final 
transferee,  even  though  the  call  was  made 
before  the  latter  purchnsed.  Hawkins  v. 
Maltby,  L.  R.  3  Ch.  188  (1867). 

*  See  the  cases  generally  cited  in  the 
preceding  notes. 

5  Wynnes.  Price,  3  De  G.  <fe  Sm.  310 
(1849);  Cheale  v.  Kenward,  2  De  G.  <fe 
J.  27  ;  Morris  v.  Caunan,  4  De  G.,  F.  & 
J.  581 ;  Hawkins  v.  Maltby,  L.  R.  4  Ch«n. 
200  (1868);  Butler  v.  Cumpston,  L.  R. 
7  Eq.  16;  Evans  v.  Wood,  L.  R.  5  Eq.  9 
(1867);  Cruse  v.  Paine,  L.  R.  6  Id.  641; 
s.  c,  4  Id.  441;  Shaw  v.  Fisher,  2  De  G. 
<fe  Sm.  11  (1848);  s.  c.  5  De  G.,  M.  &  G. 
596  (1855);  James  v.  May,  L.  R.  6  House 


CH.  XV.]  LIABILITY   AS   AFFECTED    BY  TRANSFERS.  [§  260. 

§  260.  At  tvhat  time  the  statutory  liaMUty  for  a  debt  attaches 
to  the  shares. — When  the  question  of  statutory  liability  is  consid- 
ered there  is  more  difficalty,  as  between  transferrer  and  trans- 
feree, in  determining  who  is  to  be  charged.  Frequently  the 
statute  itself  prescribes  when  the  liability  is  to  attach.^  The 
most  important  question  which  arises  herein,  is  whether  the  corpo- 
rate debt  raises  a  liability  against  him  who  was  a  stockholder 
when  the  corporation  entered  into  the  contract  leading  to  the 
debt,  or  against  him  who  was  a  stockholder  when  the  debt  itself 
became  due  and  payable  to  the  corporate  creditor,  or  against  him 
who  was  a  stockholder  w4ien  suit  is  brought  by  the  corporate 
creditor  against  the  coi*poration  to  collect  the  debt.^  In  certain 
cases  it  has  been  held  that  those  shareholders  would  be  held  liable 
who  were  such  at  the  time  when  the  execution  against  the  corpo- 
ration was  returned  nulla  hona.^ 

Many  cases  hold  that  where  the  individual  liability  of  a  share- 
holder is  unlimited,  and  similar  to  that  of  a  partner,  in  an  unin- 
corporated company,  he  will,  while  not  liable  for  debts  contracted 
before  he  became  a  shareowner,  remain  liable  for  all  debts  con- 
tracted during  his  membership,  even  though  he  may  transfer  his 
stock."  Formerly  in  JSTew  York,  and  still,  it  seems,  in  California 
and  Indiana,  the  exceptional  rule  prevails  that  the  test  of  liabil- 
ity is  whether  the  shareholder  was  such  at  the  time  the  debt  was 


of  Lords,  328 ;  Webster  v.  Upton,  91  U.  S.  was  contracted,  but  had  transferred  their 

65  (1875).  stock  absolutely  and  in  good  faith  before 

'  This  is  the   case  in  the   California  the  commencement  of  the  suit  against  the 

statute,  under  which  raining  corporations  corporation,  are  not  to  be  held  liable  un- 

are    created.     Larrabee   v.    Baldwin,    35  der  the  statute.     Middletowu  Bank  v.  Ma- 

Cal.    155  (1868);  Cal.  Statutes,    1853,  p.  gill,  5  Conn.  28  (1823);   Child  v.  Coffin, 

90,  §  16;  p.  92,  g  27.  17  Mass.  64  (1820);  Curtis  v.  Harlow,  12 

'^  Liability  always  attaches    to   those  Mete.  3  (1846);  Southmayd?>.  Kuss,  3  Conn, 

who  were  such  at  the  time  of  dissolution  62  (1819). 

or    winding  up.     Castello's  Case,  L.  K.  8  *  Chesley    v.   Pierce,    32   N.    II.    388 

Eq.    5(i4  (1869);  Symon's  Case,  L.  R.  5  (1855);    CasUeman    v.    Holmes,    4  J.   J. 

Chan.  298(1870).  Marsh.  1  (1839);  Mill  Dam  Foundery  v. 

•' Mxon  V.   Green,  11    Exch.  550,   af-  Ilovey,    21    Pick.   417  (18;i9);    llolyoke 

frmed  25  L.  J.  Exch.  209  (1856);  Dodg-  Bank  v.  Burnha.n,  11  Cush.    183   (1S53); 

son  y.  Scott,  2  Exch.  457(1848);   Longley  Soulhmayd  v.  Uur-s,  3  Conn.  52   (1819); 

V.  Little,  26  Me.  162(1846);   Bond  z^.  Ap-  Williams  v.  llanna,   40  Ind.  535  (1872); 

plcton,  8  Mass.  472  (1812);  McClaren  v.  Larrabee  v.  Baldwin,  35  Cal.  l.^S  (1868); 

Franciscus,  43  Mo.  452  (1869);    Doucliy  Mokelumne  Hill  Canal,  <fec.,  Co.  «.  VVood- 

V.   Brown,   24    Vt.    197.     Cf.  Doming  w.  burv.  14  Fd.  265  (1859) ;  Moss  z/.  Oakley, 

Bull,  10    Conn.    409    (1835).     Under  the  2  11111,265(1842);   Judson  j;.  Kossic  Ga- 

provision   of  a  charter  that  stockholders  lona  Co.,    9  Paige,    598  (1842);    McCul- 

Bhould  "at  all  times  be  liable  for  all  debts  lough  v.  Moss,  5  Denio,  507  (1846).      '"-/. 

due  by  said  corporation,"  it  was  held  that  Rosevelt  v.  Brown,  11  N.  Y.  148(1854); 

those  who  were  members  when  the  debt  Cutting  v.  Damorel,  88  Id.  410  (1882). 

259 


§  261.] 


LIABILITY  AS   AFFECTED  BY   TRANSFERS.  [cH.  XV. 


contracted.^  In  New  York,  by  statute,  shareholders  in  manufac- 
turing corporations,  who  have  transferred  their  shares,  are  liable  on 
debts  existing  at  the  time  of  the  transfer  only  when  suit  is  com- 
menced against  them  within  two  years  from  the  date  of  the  tran&- 
fer.2 


§  261.  Transferrer  not  liable  for  debts  incurred  after  the  reg- 
istry.— It  is  a  well  settled  rule  of  law  that  a  transferrer  of  stock 
cannot  be  charged  with  corporate  indebtedness  incurred  after  the 
transfer  has  been  regularly  made  and  duly  recorded  in  the  corpo- 
rate books.^     This  rale  follows  as  a  matter  of  course,  from  the 


'  Moss  V.  Oakley,  2  Hill,  265  (1842); 
Judson  V.  Rossie  Galena  Co.,  9  Paije, 
598  (1842);  MoCullougb  v.  Moss,  5  De- 
nio,  567  (1846);  Tracy  v.  Yates,  18  Barb. 
152  (1854);  Adderly  v.  Storm,  6  Hill, 
624  (1844);  Freeland  v.  McCulloiigh,  1 
Denio,  414  (1845);  Harger  v.  McCul- 
loiigh, 2  Id.  119  (1846);  Mokelumne  Hill 
Canal  Co.  v.  Woodbury,  14  Cal.  265 
(1859);  Davidson  v.  Rankin,  34  Id.  50-3 
(1868);  Larrabee  t).  Baldwin,  35  Id.  155 
(1868);  Williams  v.  Hanna,  40  Ind.  535 
(1872).  Ace.  Brown  v.  Hitchcock,  36 
Ohio  St.  667  (1881).  It  is  not  always 
clear  precisely  when  a  given  indebted- 
ness may  be  held  to  have  been  "  con- 
tracted." Whftn  a  corporate  note  has 
been  renewed  it  is  doubtful  whether  the 
renevpal  operates  to  create  a  new  indebt- 
edness, or  to  continue  and  perpetuate 
that  indebtedness  for  which  the  original 
note  was  given.  In  Ohio  it  is  held  that 
a  renewal  which  is  a  paj'ment  or  extin- 
guishmt-nt  of  the  debt,  discharges  the 
shareholders  who  were  bound  under  the 
old  note.  Wheeler  v.  Faurot,  37  Ohio 
St.  26  (i881).  And  in  Maine  the  date 
of  the  sei-ond  or  renewed  note  is  taken 
as  tiie  time  when  the  indebtedness  ac- 
crued, Milliken  v.  Whitehouse,  49  Me. 
527  (1860).  While  in  Massachusetts  the 
debt  IS  said  to  be  contracted  when  the 
corporation  accepts  a  bill  of  exchange. 
Byers  v.  Franklin  Coal  Co.,  106  Mass. 
131  (1870).  Cf.  Freeland  v.  McCullouzh, 
1  Denio,  414,  42ti  (1845).  It  hns  been  held 
that  the  debt  does  not  accrue,  as  against 
"the  shareholder,  at  the  time  judgment 
thereon  is  recovered  against  the  corpo- 
ration. Larrnbee  v.  Baldwin,  35  (.  al. 
155,  168  (1868).  In  this  case  Sawyer, 
C.  J.,  said  :  "  The  claim  of  the  respond- 
ent, that  the  judgment  is  itself  a  con- 
tract creating  a    new    debt,   within    the 

260 


meaning  of  the  statute,  for  which  all  who 
were  stockholders  at  the  date  of  the  ren- 
dition of  the  judgment  are  personally 
liable,  is  too  absurd  to  require  argument 
to  refute  it.  That  a  judgment  is  a  con- 
tract of  record,  in  a  certain  legal  sense, 
may  be  conceded,  but  it  creates  no  such 
new  liability  as  the  statute  in  question 
contemplates.  The  judgment  only  merges 
and  puts  in  a  new  form,  against  the  will 
of  both  corporation  and  stockholders,  an 
indebi:cdness  which  has  already  been 
contracted.  If  this  is  to  be  consti'ued 
as  the  creation  of  a  new  liability,  there 
would  be  no  way  for  a  stockholder  to 
escape  personal  liability  for  all  debts 
which  had  before  been  incurred,  and  tlie 
limitation  provided  for  by  section  16  of 
tlie  act  concerning  corporations  for  min- 
ing companies  would  be  utterly  nugato- 
ry." As  to  when  a  debt  may  be  deemed 
to  have  been  contracted  for  the  purpose  of 
the  action  against  shareholders,  see,  in  ad- 
dition to  the  cases  in  the  preceding  notes, 
Castleman  v.  Holmes,  4  J.  .J.  Marsh.  1 
(1889);  Freeland  v.  McCullough,  1  Deuio, 
414,426(1845);  Mill  Dam  Foundery  ».  IIo- 
vey,  21  Hck.  417  (1839);  Holyoke  Bank 
«.  Eurnham,  11  Cush.  183  (1853);  Garri- 
son V.  Howe,  17  N.  Y.  458,  464  (1858). 

•2  N.  Y.  Laws  of  1848,  ch.  40,  §  24. 

^  Chouteau  Spring  Co.  v.  Harris,  20  Mo. 
382  (1855);  McClaren  v.  Franciscus,43  Id. 
452  (1869);  JVliller  v.  Great  Republic  Ins. 
Co.,  50  Id.  55;  Moss  v.  Oaklev,  2  Hill, 
265  (1842);  C.>wles  v.  CromwelC  25  Barb. 
413  (1857);  Cole  v.  Ryan.  52  Id.  168 
(1868):  Johnson  v.  Underbill,  52  N.  Y. 
203  (1873);  Middletown  Bank  r.  Magill,  5 
("onn.  28  (1823);  Johnson  ?'.  Laflin,  5  Dill. 
65  (1878);  Grissell  v.  Bristowe,  L.  R.  3  0. 
P.  112  (1868);  Huddersfield  Coal  Co.  v. 
Buckley,  7  Term  Rep.  S6  (1796);  Crox- 
ton's  Case,  1   De  G.,  M.  &  G.  600  (1852)  ; 


CH.  XV.]  LIABILITY    AS   AFFECTED   BY   TRANSFERS.  [§  262. 

fact  that,  after  registry  of  a  transfer,  not  only  lias  the  transferrer 
ceased  to  have  an  interest  in  the  corporation,  but  by  the  registry 
he  has  given  notice  to  all  future  creditors  of  the  corporation  that 
they  cannot  look  to  him  as  security  for  their  debts. 

§202.  Transferrer  can  claim  exemption  from  liability  for 
corporate  indehtedness  hy  reason  of  the  transfer  only  after  areg- 
istry  of  tlie  transfer. — The  transferrer  of  stock  is  not  released  by 
the  transfer  from  any  statutory  liability  existing  at  the  time  of  the 
transfer,  and  up  to  the  time  of  a  due  and  regular  registry  of  the 
same.^  This  rule  is  based  in  justice  and  a  proper  regard  for  the 
rights  of  corporate  creditors.  They  ha  ve  a  right  to  presume  that  the 
registered  stockholders  are  the  real  stockholders,  and  to  hold  them 
liable  as  such.  Until  a  registry  is  obtained,  the  transferrer  allows 
himself  to  appear,  on  the  corporate  books,  as  a  stockholder  in  the 
corporation,  and  corporate  creditors  are  protected  in  contracting 
vrith  the  coi-poration  on  that  appearance.  Hence,  where  an  owner  of 
ehares  transfers  them  in  the  usual  way,  by  an  endorsement  of  the 
certificate,  with  power  of  attorney  to  the  transferee  to  have  them 
transferred  to  the  latter  upon  the  corporate  records, but  the  transfer 
is  not  so  recorded,  the  transferrer  continues  to  be  liable  to  corporate 
creditors  as  though  no  transfer  had  been  attempted.  Until  the 
transfer  is  duly  recorded,  it  is  ineifectual  to  discharge  the  transferrer 
from  liability  to  corporate  creditors.  x\s  to  them,  it  will  be  deemed 
to  have  been  made  only  at  the  date  of  the  record  thereof  in  the 
corporate  stock    book.^     Such    also   is   the   rule  of  the  Euglish 

Mayhew's  Case,  5   Id.   83Y  (1854);  Sut-  '^  Shellington  j;.  Howland,  53  N.  Y.  371 

ton's  Case,  3  De  G.  &  Sm.  262  (1850).    See  (1873) ;  Johnson  v.  Underhill,  52  Id.  20:i 

Nixon  V.  Green,  11  Exch.  550:  s.c.  affi'd,  (1873);  Veiller    v.  Brown,   18  Hun,  571 

25  L.  J.  Exch.  209  (18515).     C/.  Bond  v.  (1879);    Richardson    v.    Abendroth,    43 

Appleton,  8  Mass.  472  (1812);  Marcy  v.  Barb.  162  (18C.4);  Worrall  v.  Judson,  5 

Clark,  17    Id.  330  (1821);   Curtis  i^.  liar-  Id.  210  (1849);  Matter   of  The    Empire 

low,    12    Mete.    3   (1846);     Willinms    v.  Bank,  18   N.  Y.  200  (1858);  Adderly  v. 

Hanna,    40    Ind.    535    (1872;;    Ilager   v.  Storm,  6  Hill,  624  (1844) ;  Dane  v.  Youn?, 

Cleveland,  36  Md.  476  (1872);   Holyoke  61  Me.  160   (1872);   Skowegan    Bank  v. 

Bank   v.  Eurnham,  11    Cush.   183   (1853),  Cutler,  49  Id.  315  (1860);  Fowler  )'.  I.ud- 

under  peculiar  statutes.  wig,  34  Id.  455  ( 1852);  Stanlej^   v.  Stan- 

'  Wheeler  v.  Faurot,  37  Ohio  St.  26  lev,  26  Id.  191  (1846);   Wehrman  v.  Rca- 

(1881);  Brown  v.  Hitchcock,  36   Id.  667  kirt,  1  Cinn.  Super.  Ct.  230  (1^71);  State 

(1881);  Wehrman  ?;..Rcakirt,  1  Cirm.  Su-  v.  Ferris,42  Conn.  660  (1875);  Jcihiiaon  v. 

per.  (,'t.  230  (1871).     (Jf.  .Inckson  v.  Sligo  Lnflin,  5  Dill.  65  (1878);   ('rease  ».  Bab- 

Manfg.,    (fee,    Co.,    1     Lea   (Tenn.),    210  cock,  10  Melc.  525  ( 1846) ;  Grew  c  Breed. 

(1878).    In  nn  action  to  charge  a  transfur-  10  Id.  569  (1846) ;  Holyoke  Bank  v.  Burn- 

rer  for  corporate  debts  incurred  between  ham,  11  Cush.  183  (1853);  Irons  v.  Manu- 

transfer  and  registry,  the  transferee  is,  in  facturers'  Natl.    Bk.,   27    Fed.    licp.   591 

Ohio,  a  necessary  party.    Wheeler  »».  Fan-  (1886);    i'rice   ?;.  Whitney,   28    Fed.  Kep. 

rot,  37  Ohio  St."26  (1881).  297  (1886). 

2G1 


§  262.] 


LIABILITY   AS   AFFECTED   BY  TRANSFERS.  [CH.  XV. 


courts.^  The  corporate  creditor  need  not  show  that,  in  determin- 
ing who  were  shareholders,  he  relied  on  the  corporate  stock 
book.^ 

Where,  however,  the  corporation  accepts  the  transferee  as  a 
stockholder,  and  treats  him  as  such,  the  corporation  is  estopped 
to  deny  that  he  is  such,  and  cannot  hold  the  transferrer  liable  for 
calls,  even  though  no  registry  of  the  transfer  has  been  made.* 
There  is  also  to  be  found,  a  line  of  cases  liolding  that  when  the 
transferrer  has  done  all  in  his  power  to  complete  the  transfer,  and 
is  guilty  of  no  laches,  his  liability  to  corporate  creditors  is  thereby 
determined,  and  that  accordingly  he  is  discharged  as  though  the 
registry  had  been  made.* 


'  Marino's  Case,  L.  R.  2  Chan.  596 
(1867);  Musgrave  &  Hart's  Case,  L.  R.  5 
Eq.  lyS  (1867);  Walker's  Case,  L.  R.  6 
Eq.  30  (1868);  McEuen  v.  West  London 
Wharves,  &c.,  Co.,  L.  R.  6  Chan.  655 
(1871);  Gower's  Case,  L.  R.  6  Eq.  77 
(1868);  Price  &  Brown's  Case,  3  De  G.  & 
Sm.  146  (1850);  Humby's  Case,  5  Jur.(N. 
S.)  215  (1859);  Barrett's  Case,  4  De  G., 
J.  &  S.  416  (1864) ;  Head's  Case,  L.  R.  3 
Eq.  84  (1866);  White's  Case,  L.  R.  3  Eq. 
86  (1866) ;  Shepherd's  Case,  L.  R.  2  Chan. 
16(1866);  .Straffon's  Executor's  Case,  1 
DeG..  M.  &  G.,  576(1852). 

2  Man;ruder  v.  Colston,  44  Md.  349,  356 
(1875).  Cjr.  Fisher  v.  Seligman,  75  xMo.  13 
(1881);  Adderly  v.  Storm,  6  Hill,  624 
(1844);  Crease  v.  Babcoct,  10  Mete.  525 
(1846);  Matter  of  The  Empire  City  Bank, 
18  N.  Y.  200,  224  (1858)  ;  Holyoke  Bank 
V.  Burnham,  11  Cu~h.  183,  187  (1853). 

•'*  Isham  V.  Buckingham,  49  N.  Y.  216 
(1872);  Cutting  v.  Damerel,  88  Id.  410 
(1882);  Strange  v.  H.  &  T.  C.  R.  R.  Co., 
53  Texas.  162  (1880);  Upton  v.  Burnham, 
3  Biss.  431,  520  (1873).  The  shareholder 
cannot  set  up  for  defense  to  an  action  by 
a  corporate  creditor,  that  some  third  per- 
son had  contracted  to  purchase  his  sli.'.ires, 
or  a  portion  of  them,  but  that  with  the 
consent  of  the  corporate  authorities,  it 
had  been  agreed  that,  until  that  third 
person  had  paid  the  notes  given  for  the 
purchase  ))rice  of  the  stock,  the  transfer 
should  not  be  made  on  the  corporate 
stock-book.  Phoenix  Warehousing  Co.  v. 
Badger,  67  N.  Y.  294  (1876);  affirming 
8.  c.''6  Hun,  293  (1875).  Nor  is  it  a  de- 
fense for  the  transferrer,  that  he  had  at- 
tempted in  good  faith  to  have  the  trans- 
fer recoided.  He  is,  in  general,  dis- 
charged only  when  the  transfer  is  actually 

262 


recorded,  and  duly  recorded  in  the  stock- 
book,  and  when  all  the  prescribed  con- 
ditions of  a  valid  transfer  have  been  duly 
complied  with.  McEuen  v.  West  London 
Wharves,  <fec.,  Co.,  L.  R.,  6  Chan,  655 
(1871);  Midland,  (fee,  Ry.  Co.  v.  Gordon, 
16  Mee.  &  W.  804(1847);  Saylesi'.  Blane, 
19  L.  J.  (Q.  B.)  19  (1849);  Ex  parte  Hall, 
5  Railway  &  Canal  Cases,  624  (1849); 
Cartmell's  Case,  L.  R.,  9  Chan.  691  (1874); 
Heritage's  Case,  L.  R..  9  Eq.  5  (1869); 
Hennessy's  Executor's  Case,  3  De  G.  & 
Sm.  191  (1850);  Ex  parte  Henderson,  19 
Beav.  107  (1854).  See  also  Bank  v, 
Lanier,  11  Wall.  369  (1870);  Johnson?;. 
Laflin,  5  Dill.  65,  and  the  note,  page  86 
(1878).  But  see  also  contra,  Bargate  v. 
Shortridge,  5  H.  L.  Cas.  297 ;  Evans  v. 
Smallcombe,  L.  R.,  3  House  of  Lords,  249 
(1868).  That  the  failure  to  record  the 
transfer  is  the  fault  of  the  corporation  it- 
self, or  of  the  officer  thereof  whose  duty  it 
is  to  make  the  entries  in  the  stock-book,  is 
not  sufficient  to  relieve  the  shareholder 
who, having  transferred  his  shares,  fails  to 
see  to  it  that  the  proper  entry  is  actually 
and  duly  made.  In  re  Bachman,  12  Nat. 
Bank.  Reg.  223  (1 875).  Cf.  Ex  parte  Hen- 
derson, 19  Beav.  107  (1864). 

••  Fyfe's  Case,  L.  R.,  4  Chan.  768 
(1869);  s.  c.  L.  R.,  9  Eq.  589  (1870); 
Nation's  Case,  L.  R.,  3  Eq.  77  (1866); 
Hill's  Case,  L.  R.  4  Chan.  769  (note) 
(1869);  Ward  &  Garfit's  (Jase,  L.  R.,  4 
Eq.  189  (1867);  Ward's  Case,  L.  R.,  2 
Eq.  226  (1866);  Ex  parte  Henderson,  19 
Beav.  107  (1854);  Shortridge  v.  Bosan- 
quet,  16  Beav.  84  (1852);  overruling  s.  c. 
siib  nom.  Bosanquet  v.  Shortridge,  4  Kxch. 
699  (1850).  In  White's  Case,  L.  R.,  3  Eq. 
86  (18661,  a  transferrer  was  held  not  dis- 
cliarged  because  of  laches. 


CH.  XV.]  LIABILITY    AS   AFFECTED   BY  TRANSFERS.  [§  263^ 


§  263.  Tlw  transferee  s  statutorij  liaWity. — Tlie  transferee 
of  stock  who  has  been  accepted  b}'  the  corporation  as  a  share- 
holder, and  whose  name  has  been  duly  entered  on  the  stock-book 
as  a  shareholder,  becomes  tliereupon  liable  on  the  stock  to  corpo- 
rate creditors  whose  debts  were  contracted  by  the  corporation 
subsequently  to  the  registry  of  the  transfer.  As  the  discharge  of 
the  transferrer  dates  from  the  formal  record  of  the  transfer,  so- 
the  chargeability  of  the  transferee  arises  out  of  the  same  for- 
mality. The  registry  which  operates  to  release  the  transferrer,, 
at  the  same  time  operates  to  charge  the  transferee.^  It  is  not 
material,  that  no  certificate  had  been  issued  to  the  transferee,  or 
that  the  corporation  had  not  issued  certificates  to  any  of  the 
shareholders.^  jSTor  will  the  transferee  be  heard  to  allege  as 
defense  against  an  action  to  enforce  the  statutory  liability,  that 
he  was  induced  by  fraudulent  representations  to  purchase  the 
shares.^  But  the  statutory  liability  does  not  attach  to  a  share- 
holder, in  respect  of  debts  contracted  before  he  became  a  mem- 
ber of  the  corporation.^  It  has  been  held,  also,  that  a  purchaser 
of  stock  may  be  held  liable  to  creditors,  upon  the  liability  im- 
posed by  statute,  although  the  transfer  is  not  recorded.^ 


'  Webster  v.  Upton,  91  U.  S.  63 
(1875);  Chubb  v.  Upton,  93  Id.  665 
(1877);  De  Pass's  Case,  4  De  G.  <fe  J.  644 
(1859);  Cape's  Executor's  Case,  2  De  G., 
M.  &.  G.  562  (1852);  Mann  v.  Currie,  2 
Birb.  294  (1848);  Chesley  w.  Pierce,  32 
N.  H.  388  (1855). 

«  Mitchell  V.  Beckman,  64  Cal.  117; 
8.  c.  16  Hep.  586  ;  Aj^ricultural  Bank  v. 
Wilson,  24  Me.  273  (1844). 

2  Oakes  v.  Turquand,  L.  R.,  2  House 
of  Lords,  325  (1867);  Houldsworth  v. 
Citv  of  (ilasi^ow  Bank,  L.  R.,  5  App.  Cas. 
317"  (1880);  Tcnnent  v.  City  of  Glas2:o\v 
Bank,  L.  R.,  4  App.  Cas.  615  (1879),  and 
see  Chapter  IX.  Cj.  Slater's  Case,  35 
Beav.  391  (1866). 

■«  Tnicy  V.  Yates,  18  Barb.  152  (1854). 

'  Laing  i.  Builey,  Ml  111.  591  (1882); 
Brown  v.  liitciicock,  36  Ohio  St.  667 
(1881);  /m  re  South  Mountain,  <fee.,  Min- 
ing Co.,  7  Sawyer,  30  (1881).  Where  a 
certificate  of  stock  was  issued  to  one  by 
a  wronf^  cliristian  name  hy  mistake,  in  an 
action  to  enforce  his  liability  as  a  stock- 
hold(;r,  the  creditor  may  introduce  parol 
evidence  to  show  tlie  Tnir<take.  'Cleveland 
V.  BurnliJim,  53  Wis.  598  (1885).  The 
court  wil!  determine  the  liability  as  be- 
tween  the  transferrer  and  transferee,  in 


connection  with  the  corporate  creditor's^ 
suit,  brought  to  enforce  that  liability. 
Mason  v.  Alexander,  18  Am.  &  Eng.  Corp. 
Cases,  54  (Oh'o,  1886).  Transferees  of 
stock  in  New  Fork  manufacturing  corpo- 
rations, are  liable  under  the  Laws  of 
1848,  eh.  40,  §  24,  which  is  as  follows: 
"No  stockholder  shall  be  personally 
liable  for  the  payment  of  any  debt  con- 
tracted by  any  company  formed  under 
this  act,  wliich  is  not  to  be  ])aid  within 
one  year  from  the  time  tlie  debt  is  con- 
tracted, nor  uidess  a  suit  for  the  collec- 
tion of  such  debt  shall  be  brought  against 
such  company  within  one  year  alter  the 
debt  sliall  become  due ;  and  no  suit  shall 
be  brought  against  any  stockholder  who 
shall  cease  to  be  a  stockholder  in  any  such 
company, for  any  debt  so  contracted, unless 
the  same  shall  be  commenced  within  two 
years  from  the  time  he  sliall  have  ceased 
to  be  a  stockholder  in  such  company,  nor 
until  an  execution  against  the  company 
shall  have  been  retuiMieiJ  unsatislied  in 
whole  or  in  part."  See  1  lastings  v.  Drew, 
76  N.  Y.  9  (1879);  .Shelliniitoii  v.  IIi)w- 
land,  53  N.  Y.  371  ;  dlamly  v.  Drnpi  r,  89 
N.  Y. 334(1882);  Frceland  o.  McCullough, 
1  Denio.  414,  426;  Veiler  v.  Hrown.  18 
JIuii,  571 ;  Fisher  V.  Marvin,  47  Harb.  159. 

20o 


§§264-5.]      LIABILITY   AS   AFFECTED   BY   TRANSFERS  [CH.  XV. 

§  2G4.  Liability  of  transferee  to  transferrer  hy  tvay  of  in- 
demnity.— In  every  contract  for  the  sale  of  stock,  there  is  an 
implied  undertaking,  in  the  absence  of  an  express  provision  to 
the  contrary,  npon  the  part  of  the  purchaser,  to  assume  and  be 
responsible  for  all  subsequent  liability  attaching  to  the  stock. 
It,  however,  frequently  happens,  general!}'  because  of  a  failure 
to  register  the  transfer,  that  the  vendor  or  transferrer  of  the  stock 
is  obliged  to  pay  a  charge  upon  tl>e  stock  which  accrued  after  tlie 
sale  was  made.  In  such  a  case,  it  is  the  well  established  rule  that 
the  transferrer  may  have  indemnity,  to  the  full  extent  of  what  he 
is  compelled  to  pay,  from  the  purchaser  and  transferee  of  the 
shares.^ 

§  265.  A  transfer  to  an  insolvent  to  escape  liability. — In  the 
United  States  a  transfer  of  shares  in  a  failing  concern,  made  by 
the  transferrer,  with  the  intention  and  for  the  purpose  of  escaping 
liability  as  a  shareholder,  to  a  person  who  for  any  cause  is  inca- 
pable of  responding  in  respect  of  such  liability,  is  void,  both  as  to 
creditors  of  the  company  and  as  to  other  shareholders,  and  that, 


(1866).  Under  the  Mass.  Mfg.  Act,  "the 
liability  extends  to  all  persons  who  were 
stockholders  when  the  debt  sought  to  be 
enforced  wf>s  contracted,  and  also  to  all 
persons  who  are  stockhnlders  when  the 
liability  is  sought  to  be  enforced,  although 
they  may  have  become  such  since  the 
debt  was  contracted,  but  it  does  not  ex- 
tend to  persons  wiio  had  become  stock- 
holders after  the  debt  was  contracted,  and 
had  ceased  to  be  such  before  the  debt  be- 
came payable  and  action  was  broughr." 
Sales  «.  Bate.s  2  N.  E.  Rep.  m?i  (K,.  I. 
1886). 

'-  Johnson  v.  Underbill,  52  N.  Y.  203 
(ISYS);  Hutzlerv.  Lord  (Maryland,  1886), 
4  East.  Rep.  809;  Kellogg  v.  Stockwell, 
75  111.  68 ;  Castellan  v.  Hobson,  L.  R.,  10 
Eq.  47  (1870);  Wynne  v.  Price,  3  De  G. 
&  8m.  310  (1849);  Walker  v.  Bartlett.  36 
Eng.  Law  &  Eq.  368  (1856);  Grissell  v. 
Bri>towe,  L.  R.,  3  C.  P.  1 12  (1868) ;  Eyans 
V.  Wood,  L.  R.,  5  Eq.  9  (1867);  Kellock 
V.  Enthoven,  L.  R.,  9  Q.  B.  241  (1873); 
Eowring  v.  Shepherd,  L.  R.,  6  Q.  B.  309 
(1871);  Hawkins  v.  Maltby,  L.  R.,  6  Eq. 
605  (1868);  Allen  v.  Graves,  L.  R.,  5  Q. 
B.  478  (1870);  Shaw  v.  Rowley,  16  Mee. 
&  W.  810  (1847).  Cf.  Sayles  v.  Blayne, 
14  Q.  B.  206  (1849);  Coles  v.  Bristowe, 
L.  R.,  4  Chan.  3  (1868);  Humble  v.  Langs- 

264 


ton,  7  Mee.  &  W.  517  (1841).  "A  ven- 
dor of  shares,"  says  Morawetz,  "may,  by 
bill  in  equity,  compel  the  purchaser  to  do 
all  things  necessary  to  be  done  on  his 
part  to  obtain  a  complete  transfer  of  the 
shares,  and  to  indemnify  the  vendor  on 
account  of  his  liability  to  the  corporation 
and  its  creditors."  Morawetz  on  Corpo- 
rations (2d  edition),  §  175.  Such  a  suit 
is  said  to  be  in  the  nature  of  a  suit  to 
enforce  specific  performance.  Paine  v. 
Hutchinson,  L.  R.,  3  Eq.  257  (1866)  ; 
t-ihaw  V.  Fisher,  2  De  G.  &  Sm.  11  (1848); 
s.  c.  5  De  G.,  M.  &  G.  596  (1855);  Cheale 
V.  Kenward,  3  De  G.  <fe  J.  27.  In  Ohio, 
under  the  act  creating  statutory  liability 
on  the  part  of  shareowners,  transferees 
are  liable,  as  between  themselves  and 
their  vendors,  for  all  indebtedness  of  the 
corporation,  whether  incurred  before  or 
after  the  transfer,  "  as  if  they  had  owned 
the  stock  from  the  organization  of  the 
company."  Wheeler  v.  Faurot,  37  Ohio 
fet.  26  (1881) ;  Brown  v.  Hitchcock,  36  Id. 
667  (1881),  a  case  wherein  the  question  of 
statutory  liability  is  very  fully  and  satis- 
factorily discussed.  See  also  Cape's  Case, 
2  De  G.,  M.  <fe  G.  562  (1852).  That  a 
transferrer  may  compel  the  transferee  to 
register  the  transfer  see  Ch.  XXII. 


CH, 


XV.] 


LIABILITY   AS   AFFECTED   BY   TRANSFERS. 


[§  ^QQ- 


too,  although,  as  between  the  transferrer  and  transferee,  the 
transaction  may  have  been  absolute  and  no  secret  trust  involved/ 
But,  on  the  other  hand,  if  the  transfer  is  bona  fide,  and  the  trans- 
ferrer is  ignorant  of  the  insolvency  of  the  transferee,  the  transfer 
is  valid,  and  the  transferrer  is  released  from  liability.^  The  cred- 
itor's remedy  to  enforce  the  liability  of  a  shareholder  who  has  in 
this  way  fraudulently  assigned  or  transferred  his  stock,  is  in  a 
Court  of  Chancery.^ 

§  2GG.  The  rule  in  England.— The  rule  in  England  is  that 
a  shareholder  may  transfer  his  shares,  when  the  company  is  in  a 
failino-  condition,  to  a  man  of  straw  for  a  nominal  consideration, 
and  that  althougli  the  sole  purpose  of  such  a  transfer  be  to  escape 
liability,  if  it  be  out  and  out,  and  not  merely  colorable  and  col- 


1  Nathan  v.  Whitlock,  3  Edw.  Chnn. 
(N.  Y.)  215  (1838);  s.  c.  9  Piiise,  152 
(1841);  Veiller  v.  Brown,  18  Hun,  571 
(1879),  by  Daniels,  J.,  a  well  considered 
case.  McLaren  v.  Francisciis,  43  Mo.  4r)2 
(1869):  Miller  v.  Great  Republic  Ins.Co., 
50  Id.  55  (1872);  Provident  Savings  In- 
stitution V.  Jackson  Place  Skating  and 
Bathing  Rink,  52  Id.  557  (1873);  Chou- 
teau Spring  Co.  v.  Harris,  20  Id.  382 ; 
Mandion  v.  Fireman's  Ins.  Co.,  11  Rob. 
(La  )  177  (1845);  In  re  Bachman,  12  Nat. 
Bank.  Reg.  223  (1875);  Marcy  w.  Clark, 
17  Mass.  330  (1821);  Central  Agricultur- 
al, <fec.,  Association  v.  Alabama  Cold 
Life,  <fec.,  Co.,  70  Ala.  120  (1881);  Gaff  u. 
FIesh(^r,  33  Ohio  St.  107(1877);  Union 
Mutual  Ins.  Co.  v.  Frear  Stone  Manufg. 
Co..  97  111.  537,  549  (1881);  Douchy  w. 
Brown,  24  Vt.  197;  Aultnian's  Appeal, 
98  Penn.  St.  505  (1881);  Everhart  v. 
West  Chester,  &c.,  R.  R.  Co.,  28  Id.  33'.) 
(18.j7);  Rider  v.  Morrison,  54  Md.  429 
(1880);  Paine  v.  Stewart,  33  Conn.  516 
(186(i);  Roman  v.  Fry,  5  J.  J.  Marsh.  634 
(1831);  Bowdeii  v.  .santos,  1  Hughes  (U. 
S.),  158  (1877);  Johnson  v.  Laflin,  5  Dill. 
65  (1878);  s.  c.  6  Central  Liw  Jour.,  124; 
Wehrman  jj.  IJeakirt,  1  Cin.  Super.  Ct. 
230  (1871);  National  Bank  v.  Case,  99 
U.  S.  628,632  (1878);  Bowden  »'.  John- 
son, 107  Id.  251  (1882);  Davis  v.  Stevens, 
17    Blatclif.   259  (187')).      Cf.  Sawyer  v 


Hill,  624,  628  (1844);  Billings  v.  Robin- 
son, 28  Hun,  122  (1882);  affi'd,  94  N.  Y. 
415  (18S4). 

It  is  also  held  that  the  owner  of  stock 
cannot  escape  liability  by  transferring  it 
to  his  infant  children,  or  by  taking  it  or- 
iginally in  their  name.  Roman  v.  Fry,  5 
J^  J.  Marsh.  634  (1831).  Nor  is  it  any 
defense  to  show  that  the  holder  took  and 
held  the  stock  as  agent  of  the  corporation 
to  sell  for  its  benefit.  AUibone  v.  Hager, 
46  Penn.  St.  48.  It  has  been  held  also 
that  no  transfer  made  in  anticipation  of 
a  judgment  against  the  corporation,  and 
for  the  purpose  of  escaping  liability,  is 
valid,  and  shareholders  who  make  such 
a  transfer  will  be  held  liable.  McClaren 
V.  Franciscus,  43  Mo.  452  (1869);  Marcy 
V.  Clark,  17  Mass.  330(1821). 

■^  Miller  v.  Great  Republic  Ins.  Co., 
50  Mo.  55  (1872).  Cf.  Billings  v.  Robin- 
son, 9t  N.  Y.  415  (1884);  s.  c.  28  Hun, 
122  (1882). 

A  stockholder  who  promises  a  corpo- 
rate creditor,  at  a  time  when  the  com- 
pany's affairs  are  involved,  that  he  will 
not  transfer,  thereby  inducing  him  not  to 
sue  to  collect  his  drbt,  is  liable  to  such 
creditor  in  case  he  does  transfer.  Paino 
V.  Stewart.  33  Conn.  516  (1866).  But  a 
transfer  vvill  be  held  valid,  it  seems,  when 
it  is  made  pursuant  to  an  anteccdont  op- 
tion agreement,  although  the  transfer  ia 


Iloag,   17  Wall.    610   (1H73);  Johnson   v.     really  made  in  order   to  avoid  liability 

Soutnwestern    Railroad    Rank,  3  Strobh. 

Eq.   (S.  C.)  263   (1848);    Allen  v.    Mont- 

gomery  R.  R.  Co.,  11   Ala.  457  (1817); 

Melvin  v.   Lamar    Ins.   Co.,   80    111.   446 

(1875) ;  Zirkel  v.  Joliet  Opera  Home  Co., 

79   Id.   331  (1875);   Add'-rly  ?•.   Storm,  6 


Ilolyoke  Hank  v.  Burnham,  11  Cush.  188 
(1853);  Magruder  v.  Colston.  44  Md.  349 
(1875).     C/.  Chapman  r.  Shei)herd,  L.  H. 

2  C.  P.  2is(1867). 

^  Johnson   v.   Southwestern    Railroad 
Bank,  3  Strobh.  Eq.  (S.  C.)  263  (1848). 


§  266.] 


LIABILITY  AS    AFFECTED   BY   TRANSFERS. 


[CH, 


XV. 


Insive  with  a  secret  trust  attached,  it  is  valid,  and  the  transferrer 
is  thereby  released  from  liability,  both  as  to  corporate  creditors 
and  the  other  shareholders.^  But  if  the  transfer  is  merely  color- 
able, and  there  seems  to  exist  a  secret  trust  in  favor  of  the  trans- 
ferrer as  to  the  stock  conveyed,  or  if,  in  fact,  the  transferee  be 
merely  a  nominee  of  the  transferrer,  so  that  as  between  the  par- 
ties there  has  been  no  hona  fide  transfer,  but  the  object  appears 
to  have  been  to  secure  the  shares  to  the  transferrer  in  the  event 
that  the  concern  becomes  prosperous,  but  to  leave  them  to  the 
transferee  if  there  is  a  winding  up,  the  transferrer's  name  will 
be  put  in  the  list  of  contributories,  and  the  pretended  transfer  be 
wholly  set  aside.^ 

The  right  to  transfer  shares  in  England  seems  to  exist  up  to 


'  De  Pass's  Case,  4  De  G.  <fe  J.,  644 

(1859)  ;  Weston's  Case,  L.  R.  4  Chan.  20 
(1868);  Harrison's  Case,  L.  R.  6  Chan. 
286  (1871)  ;  Master's  Case,  L.  R.  7  Chan. 
292  (1872) ;  Hakim's  Case,  L.  R.  7  Chan. 
296,  n.  ( 1872);  Bishop's  Case,  Id.  (1872); 
William's  Case,  L.  R.  1  Chan.  Div.  576 
(1875);  King's  Case,  L.  R.  6  Chan.  196 
(1871) ;  Chvnoweth's  Case,  L.  R.  15  Chan. 
Div.  13  (1880);  Jessopp's  Case,  2  De  G. 
&  J.  638  (1858);  In  re  Taurine  Co.,  L.  R. 
25  Chan.  Div.  118  (1883);  Moore  w.  Mc- 
Laren, 11  Up.  Can.  C.  P.  534  (1862); 
Battles'  Case,  39  L.J.  Chan.  391  (1870). 
Of.  Bunn's  Case,  2  De  G.,  F.  &  J.  275 
(186(1.) 

Thns,  in  De  Pass's  Case,  4  De  G.  &  J. 
544  (1859),  the  facts  were  that  De  Pass, 
owning  two  hundred  and  fifty  shares  of 
stock  in  the  Mexican  &  South  American 
Company,  for  which  he  had  paid  £1,750, 
upon  learning  that  the  concern  was  in- 
volved, handed  the  certificate  to  his  clerk, 
without  having  previously  spoken  to  him 
of  the  matter,  saying  that  he  might  have 
the  stock  for  a  sovereign,  which  the  clerk 
instantly  paid,  and  at  the  same  time  ac- 
cepted the  shares.  In  about  three  weeks 
this  clerk  sold  the  shares  to  another  per- 
son in  the  employ  of  De  Pass.  Upon  the 
winding  up  of  the  company,  which  was 
ordered  within  a  few  daj'S  after  the  sale 
by  De  Pass  to  his  clerk,  although  it  was 
shown  that  the  shares  at  the  time  of  that 
sale  were  worth  considerably  more  than 
a  sovereign,  still,  inasmuch  as  the  trans- 
action appeared  to  have  been  absolute, 
although  confessedly  made  to  escape  pos- 
sible liability,  it  was  held  that  the  trans- 
fer might  stand,  and  that  De  Pass  was 

266 


not  liable  in  respect  of  the  shares  after 
the  date  of  the  sale  to  the  clerk.  So  in 
Master's  Case,  L.  R.  7  Chan.  292  (1872), 
a  transfer  of  two  hundred  and  eighty 
shares  of  stock,  on  which  £15  per  share 
had  been  paid,  for  a  nominal  consider- 
ation to  an  irresponsible  son-in-law  of  the 
transferrer,  the  transfer  being  made  only 
for  the  purpose  of  escaping  liability  upon 
the  si) ares,  was  held  to  discharge  the 
transferrer. 

2  Budd's  Case,  3  De  G.,  F.  <fe  J.  297 
(1861);  Payne's  Case,  L.  R.  9  Eq.  223 
(1869);  Kintrea's  Case,  39  L.  J.Chan.  193 
(1869);  s.  c.  L.  R.  5  Chan.  95;  Chin- 
nock's  Case,  Johns.  (En^.  Chan.)  714 
(1860);  Costello's  Case,  2  De  G.,  F.  &  J. 
302(1860);  Hyam's  Case,  1  Id.  75(1859); 
Lund's  Case,  27  Beav.  465  (1859);  Ex 
jDaWe  Bennett,  18  Id.  339(1853);  Daniell's 
Case,  22  Id.  43  (1856);  Eyre's  Case,  31 
Id.  177  (1862);  Munt's  Case,  22  Id.  55 
(1856);  Slater's  Case,  35  Id.  391  (1866); 
Hank  of  Michigan  v.  Gray,  1  Up.  Can.  Q. 
B.  422  (1834);  ('ox's  Case,  33  L.  J.  Chan. 
145  (1864);  William's  Case,  L.  R.  9  Eq. 
225,  n.  (1869);  Capper's  Case,  L.  R.  3 
Chan.  458  (1868);  Mann's  Case,  Id.  459, 
n.  (1868);  Mitchell's  Case,  L.  R.  9  Eq. 
363  (1870);  Ex  parte  Hatton,  31  L.  J. 
Chan.  340  (1862);  Pugh  <fe  Sharman's 
Case,  L.  R.  13  Eq.  566  (1872);  Lankestcr's 
Case,  L.  R.  6  Chan.  905,  n.  (1871);  Gil- 
bert's Case,  L.  R.  5  Chan.  559  (1870).  Cf. 
Castellan  v.  Hobson,  L.  R.  10  Eq.  47 
(1870);  Maynard  v.  Eaton,  L.  R.  9  Chan. 
414  (1874);  Colquhoun  v.  Courtenay,  43 
L.  J.  Chan.  338  (1874);  Richardson's 
Case,  L.  R.  19  Eq.  588(1875). 


CH.  XV.]  LIABILITY   AS    AFFECTED   BY   TRANSFERS. 


[§  266. 


the  time  the  company  is  ordered  to  be  wound  up  and  business  is 
suspended.^  But  after  that  time  the  right  is  gone,  and  it  is  the 
duty  of  the  management  to  refuse  to  allow  a  transfer."^  The 
stockholders,  under  the  English  rule,  may  not,  it  is  very  clear,  col- 
lude with  the  directors  to  evade  the  rules  governing  transfers 
for  the  purpose  of  evading  liability.^  Persons  to  whom  shares 
have  been  transferred  without  their  knowledge  or  assent  are  not 
estopped,  when  the  knowledge  is  brought  to  them,  from  repudiat- 
ing and  denying  the  stockholdership.^ 


'  De  Pass's  Case,  supra,  and  the  cases 
generally  in  the  preceding  notes. 

"^  Mitchell's  Case,  L.  R.  4  App.  Cas. 
548  (1879);  Weston's  Case,  L.  R.  4  Chan. 
20,  30  (1868);  Ex  parte  Parker,  L.  R.  2 
Chan.  685  (1867);  Chappell's  Case,  L.  R. 
6  Chan.  902  (1871). 

In  this  country  directors  have  in  gen- 
eral no  power  to  refuse  or  prevent  trans- 
fers, such  as  inheres  in  such  boards  of 
management  in  English  companies. 

3  Eyre's  Case,  31  Beav.  177  (1862); 
Bennett's  Case,  5  De  G.,  M.  &  G.,  284 
(1854).  Xur  may  a  director  make  use  of 
his  position  as  director  to  transfer  his 
stock,  and  thus  escape  cliarceability  upon 
it.  Hunt's  Case,  22  Beav.  55  (1856). 
Nor  will  a  stockholder  be  allowed  to  re- 
lieve himself  when  he  learns  of  the  prob- 
able insolvency  of  the  concern  by  induc- 
ing the  directors  to  postpone  their  applica- 
tion for  an  order  to  wind  up,  until  he  have 
time  to  transfer  his  sliares  to  a  pauper  or 
other  irresponsible  person.  Ex  parte 
Parker,  L.  R.  2  Chan.685(1867);  Gilbert's 
Case,  L.  R.  5  Chan.  559  (1870);  Allin's 
Case,  16  Eq.  449  (1873).  And  a  director 
who  transfers  shares  standing  in  his  name, 
to  a  person  already  holding  all  the  shares 
any  one  person  is  allowed  to  hold,  will 
not  thereby  escape  liability.  Ex  parte 
Brown,  19  Beav.  97  (1854).  In  general, 
moreover,  a  transferrer  is  not  exempt 
from  liability  by  reason  of  a  transfer,  un- 
less the  transferee  has  the  present  capa- 
city to  assume  the  liability.  Nickalls  v. 
Merry,  L.  R.  7  H.  L.  530(1875);   Browne 


V.  Black,  L.  R.  8  Chan.  939  (1873); 
Mann's  Case,  L.  R.  3  Chan.  459,  n.  (1868). 
Cf.  Johnson  v.  Laflin,  5  Dill.  65,  81 
(i878);  Case  of  the  Reciprocity  Bank,  22 
N.  Y.  9  (1860).  Accordingly,  a  transfer 
to  an  infant  for  the  purpose  of  escnping 
liability  is  futile.  Symon's  C;ise,  L.  R.  5 
Chan.  298  (187i>);  Weston's  Case,  Id.  614 
(1870);  Curtis'  Case,  L.  R.  6  Eq.  455 
(1868);  Castello's  Case,  L.  R.  8  Eq.  504 
(1869);  Walsh  v.  The  Union  Bank,  5 
Quebec,  L.  R.  289(1879). 

4  Birch's  Case,  2  De  G.  <fe  J.  10(1857); 
Fox's  Case,  3  De  G.,  J.  <fe  S.  465  (1863); 
Higg's  Case,  2  Hem.  &  M.  657  (1865); 
Som'erville'sCase,L.R.  6Chan.266(1870). 
Cf.  Bullock  V.  Chapman,  2  De  G.  &  Sm. 
211  (1848).  And  see  also  case  of  the 
Reciprocity  Bank,  22  N.  Y.  9  (1860).  A. 
colorable  transfer,  .is  has  apfieared,  will 
not  opeiate  to  dischari'e  the  transferrer 
where  shares  were  coUusively  assigned 
to  a  servant  for  the  purpose  of  evad- 
ing liability.  Hence  when  the  servant, 
upon  the  concern  becoming:  solvent,  at- 
tempted to  claim  the  shnres  as  though 
the  transfer  had  been  out  nnd  out,  tlie 
court,  having  ])reviously  decided  against 
the  boiiafdcs  of  the  transaction,  iield  the 
owner  entitled  to  a  declaration  that  tlie 
servant  held  the  shares  in  trust  for  him. 
Colquhoun  v.  Courtenay,  43  L.  J.  Chan. 
338  (1874).  As  to  a  transfer  made  in  ig- 
norance of  the  fact  tliat  a  winding  up  has 
been  commenced,  see  Emmerson's  Case, 
L.  R.  1  Ch.  433  (1866). 


207 


CHAPTEK  XVI. 

ISSUE^OF  PREFERRED  STOCK  AND  STOCK  UPON  WHICH 
INTEREST  IS  GUARANTEED. 


§^267.  What  is  preferred  stock. 

268.  Power  to  issue  preferred  or  guar- 
anteed stock. 
General  rights  of  preferred  stock- 
holders. 
Preferred  shareholders  are  not 
creditors,  and  are  entitled  to 
dividends  only  from  profits. 

271.  The  discretion  of  directi  rs  with 
respect  to  declaring  dividends 
on  preferred  stock. 

272.  Arrears  of  preferred  dividends,  to 


269. 


270. 


what     extent     payable     subse- 
quently. 

273.  The  option  to  exchange  common 

for  preferred  shares. 

274.  Eights  of  the  assignee  or  trans- 

feree   of    preferred     shares    in 
arrears  of  dividends. 

275.  Special  stock  in  Massachusetts. 

276.  Remedies  of  shareholders  herein. 

277.  Interest-bearing  stock. 

278.  Rights   of  preferred  shareownera 

on  dissolution. 


§  267.  What  is  i)ref erred  stock. — By  preferred  stock  is  to  be 
understood  stock  which  entitles  the  holder  to  receive  dividends 
from  the  earnings  of  the  company  before  the  common  stock  can  re- 
ceive a  dividend  from  such  earnings/  or  stock  entitled  to  dividends 
from  the  income  or  earnings  of  the  corporation  before  any  other 
dividend  can  be  paid.^  The  relation  of  debtor  and  creditor  does 
not  exist  between  the  preferred  stockholders  and  the  corporation, 
and  the  right  to  a  preferred  or  guaranteed  dividend  is  not  a  debt 
until  the  dividend  is  declared.  A  dividend  is  money  paid  out  of 
profits  by  a  corporation  to  its  shareholders.  A  preferred  dividend 
is  nothing  more  than  that  which  is  paid  to  one  class  of  share- 
holders in  priority  to  that  to  be  paid  to  another  class.^ 


'  Totten  V.  Tison,  54  Ga.  139  (1875). 
Such  stock  is  called  indifferently  pre- 
ferred, preference,  preferential  or  guaran- 
teed stock.  Henry  v.  Great  Northern, 
<fec.,  Ry.  Co.,  4  Kay  &  J.  1  (1857). 

•'  Chaffee  v.  Rutland  R.  R.  Co.,  55  Vt. 
110(1882). 

3  Belfast,  &c.,  R.  R.  Co.  v.  Belfast,  77 
Me.  445  (1886) ;  Taft  v.  Hartford,  Ac,  R. 
R.  Co.,  8  R.  I.  310,  333  (1866)  ;  Chaffee 
V.  Rutland,  Ac,  R.  R.  Co.,  65  Vt.  110 
(1882).  In  Burt  v.  Rattle,  31  Ohio  St. 
116  (1876),  it  was  held  that  the  holder  of 
preferred  stock  was  a  creditor,  but  that 

268 


was  a  case  where  there  had  been  practi- 
cally a  loan  on  mortgage.  The  mortgagees 
were  only  nominally  preferred  sharehold- 
ers and  did  not  have  any  right  to  vote 
at  corporate  meetings,  and  were  not  liable 
for  corporate  debts.  The  prevailing  rule, 
it  is  believed,  is  correctly  stated  in  the 
text.  A  preferred  dividend  has  also  been 
defined  as  "  substantially  interest  charge- 
able exclusively  on  profits."  Henry  v. 
Great  Northern  Ry.  Co.,  1  De  G.  &  J 
606,  637  ;  Crawford  ?>.  North  Eastern, 
Ac,  R.  R.  Co.,  3  Jur.  (N.  S.)  1093  (1856). 
And  preferred  shares  entitle  the  holder 


OH.  XVI.] 


PREFERRED  STOCK. 


[§  268. 


In  the  United  States  the  terms  "  preferred,"  and  "  guaranteed," 
as  applied  to  stock,  are  essentially  convertible,^  although  in  Eng- 
land they  distinguish  guaranteed  stock  as  stock  that  is  entitled  to 
arrears,  and  preferred  or  preference  stock  as  stock  not  soentitled.** 
Accordingly  in  this  country  a  guaranteed  or  preferred  dividend, 
like  a  preferred  dividend  in  England,  is  said  to  be  "  a  pledge  of 
the  funds,  legally  applicable  to  the  purposes  of  a  dividend.^ 

§  268.  Poiver  to  issue  preferred  or  guaranteed  stoch.— The 
issue  of  preferred  stock  is  not  usually  incidental  to  the  ordinary 
exercise  of  corporate  functions.  It  is  not  the  regular  and  ordinary 
course  of  business.  On  the  contrary  it  is  an  unusual  and  extra- 
ordinary course  to  be  resorted  to  only  when  particular  reasons  or 
emergencies  render  it  necessary.  The  right  or  power  of  the  cor- 
poration to  issue  such  stock  has  been  the  subject  of  much  contro- 
versy. When  it  is  expressly  granted  in  the  charter  by  which  the 
company  is  incorporated  then,  as  of  course,  there  is  no  question 
as  to  the  legality  of  the  issue.^  Sometimes  a  statute  provides  for 
the  exchange  under  prescribed  conditions  of  common  for  pre- 
ferred stock.^     But  it  is  plainly  the  law  that  the  corporation,  of 


to  say,  "  nobody  shall  have  any  portion 
of  the  profits  of  the  company  until  I  have 
been  paid  my  dividend."  Henry  v.  Great 
Northern  Ry.  Co.,  4  Kay  &  J.  1,  32 
(1857). 

'  Taft  V.  Hartford,  &c.,  R.  R.  Co.,  8 
R.  I.  310,  333,  334,  335  (1866). 

"^  Henry  v.  Great  Northern  Ry.  Co.,  4 
•Kay  &  J.  1,  12,  21  (1857). 

»  Taft  V.  Hartford,  &c.,  R.  R.  Co.,  8  R. 
I.  310,  335  (1856). 

*  Everhart  v.  West  Chester,  <fec.,  R.  R. 
Co.,  28  Penn.  St.  339  (1857);  Rutland, 
<fec.,  R.  R.  Co.  V.  Thrall,  35  Vt.  638,  545 
(1863).  Cf.  Davis  v.  Proprietors,  (fee,  49 
Mass.  32]  (1844);  Williston  v.  Michigan, 
(fee.  R.  R.  Co.,  95  Id.  400  (1866).  And 
when  such  power  is  e;iven  by  legislative 
enactment  it  is  Ijeld  that  a  single  stock 
holder  cannot  prevent  an  issue  there- 
under, which  is  to  sny  that  when  the 
legislature  confers  powers  in  this  respect 
upon  the  managers  of  u  corporation,  with 
the  assent  of  Mie  shareholders,  no  one 
ehareliolder,  by  refusing  his  absent,  can 
hinder  the  exercise  of  the  power.  Curry 
V.  Scott,  54  Penn.  St.  270  (1867).  Under 
a  power  to  increase  capital  stock  "  in  8u<!h 
manner,  .'md  witli  and  subject  to  such 
rules,   regulations,  privileges,  and  condi- 


tions," as  the  company  may  see  fit,  it  has 
been  held  that  preferred  stock  may  be 
issued.  Harrison  v.  Mexican,  (fee,  R.  R. 
Co.,  L.  R   IV)  Eq.  Cas.  358(1875). 

5  Webb  V.  Earle,  L.  R.,  20  Eq.  556 
(1875)  ;  New  York  Session  Laws,  1880 
ch.  225.  Under  the  powers  conferred 
by  the  statute,  30  &  31  Vict.,  c.  127, 
various  plans  have  been  devised  by 
English  companies  on  the  verge  of  in- 
solvency to  raise  funds,  and  a  favorite 
device  is  the  issue  of  preferred  shares  of 
stock.  Thus,  for  example,  that  there  should 
be  five  kiiids  of  preference  shares,  some 
with  a  "  preferential  dividend "  out  of 
working  profits,  some  witli  "preferential 
dividends,"  and  others  with  "  a  preferen- 
tial interest  or  dividend."  Corry  v.  London- 
derry, (fee,  Ry.  Co.,  29  Beav.  2C.3  (1860). 
See  also,  by  way  of  illustration  as  to  these 
various  methods  in  England  of  raising 
funds  by  the  issue  of  preferred  shares, 
Matthews  v.  Great  Northern,  (fee,  Uy. 
Co.,  28  L.  J.  Ciian.  375  (1859);  lie  Cam- 
brian Ry.  C!o.,  L.  R.,  3  Chan.  278  (1868) ; 
Jie  Potteries,  (fee,  Ry.  Co.,  Id.  67  (1867) ; 
Webb  V.  Earle,  L.  R.,  20  Eq.  556  (,1875); 
Steven.T  v.  Midland,  (fee,  Uy.  Co.,  L.  R., 
8  Chan.  1064(1873);  i?« Bristol,  (fee,  Ry. 
Co.,  L.  R.,  6  Eq.  448  (1868);  Jie  Devou, 

269 


268.1 


PREFERRED   STOCK. 


[CH.  XVI. 


itself,  lias  no  implied  power,  either  at  the  time  of  its  organiza- 
tion/ or  at  any  subsequent  time,  to  issue  preferred  stock.  The 
power  exists  only  when  expressly  conferred  by  the  charter  or  by 
statute.^ 


<fec.,  Ry.  Co.,  Id.  610  (1868)  ;  Munas  v. 
Isle  of  Wight  Ry.  Co.,  L.  R.,  8  Eq.  665 
(1869)  ;  Be  East  &  West,  ckc,  Ry.  Co., 
Id.  87(1869);  London,  &c.,  Association 
V.  Wrexham,  <fec.,  Ry.  Co.,  L.  R.,  18  Eq. 
566  (1874);  He  Anglo  Danubian,  Ac, 
Co,  L.  R.,  20  Eq.  339  (1875);  Midland 
Ry.  Co.  V.  Gordon,  16  Alee.  &  W.  804 
(1847).  In  Kan.-as,  in  1873,  it  was  en- 
acted, "  That  it  shall  be  lawful  for  any 
railroad  company  created  by  or  existing 
under  the  laws  of  this  State,  from  time  to 
time,  to  purchase  and  hold  stock  and 
bonds,  or  either,  or  to  guaranty  the  pay- 
ment of  the  principal  and  interest,  or 
either,  of  the  bonds  of  any  other  railroad 
company  or  companies,  the  line  of  whose 
railroad,  constructed  or  being  construct- 
ed, connects  with  its  own."  See  Atchi- 
son, Ac,  R.  R.  Co.  V.  Fletcher,  Kansas, 
April,  1886. 

'  kcmhle  contra,  in  Kent  v.  Quicksil- 
ver Mining  Co.,  78  N.  Y.  159,  178 
(1879). 

-  Hutton  V.  Scarborough,  Ac,  Co.,  4 
De  G.,  J.  &  S.  672  (1865);  Sturge  ?;. 
Eastern,  Ac,  R.  R.  Co.,  7  DeG.,  M.  &  G. 
158  (1855).  Li  re  National,  <fec.,  Co.,  4 
Drew.  529  (1859);  Guinness  v.  Land  Cor- 
poration of  Ireland,  22  L.  R.  Ch.  Div. 
349  (1882);  Moss  v.  Syers,  11  Week. 
Rep.  1046  (1863);  s.  c.  32  L.  J.  Chan. 
711;  Melhado  v.  Hamilton,  28  L.  T.  (N. 
S.)  578  (1873);  s.  c  29  Id.  364;  Taylor  v. 
South,  Ac,  R.  R.  Co.,  4  Woods.  575 
(1882).  Cf.  Kent  v.  Quicksilver  Mining 
Co., 78  N.  Y.  159(1879);  Bates i/.  Andros- 
coggin, Ac,  R.  R.  Co.,  49  Me.  491  (1860); 
Hazlehuist  v.  Savannah,  Ac,  R.  R.  Co., 
43  Ga.  IS  (1871)  ;  Fielden  v.  Lancashire, 
Ac,  Uy.  Co.,  2  De  G.  A  Sm.  531  (1848); 
The  Railway  Companies  Act,  1867,  30  A 
31  Vict.,  ch.  127,  §§  6-17.  It  has,  how- 
ever, been  held  that  where  the  power  to 
increase  the  capital  stock  exists,  preferred 
stock  may  be  issued  by  a  majoritj'  vote, 
the  le""ality  of  such  an  issue  being  based 
upon  the  corporate  power  to  borrow 
money.  City  of  Covington  v.  Covington, 
Ac,  Co.,  10  Bush,  69,  76  (1873) ;  Harrison 
r.  Mexican,  Ac,  R.  R.  Co.  19  L.  R.  Eq. 
Cas.  358  (1875).  See  also  Rutland,  Ac, 
R.  R.  Co.  V.  Thrall,  35  Vt.  536  (1863). 
Contra,  Kent  v.  Quicksilver  Mining  Co., 
78    N.    Y.    159    (1879).     In  this  case  it 

270 


is  vigorously  argued  that  the  issue  of  this 
stock  cannot  derive    validity   from   the 
power  to  borrow  money.    The  court  say  : 
"  The  idea  of  borrowing  is  not  filled  out 
unless  there  is  in  the  agreement  therefor 
a  promise  or  understanding  that  what  is 
borrowed   will    be    repaid    or    returned, 
the  things  itself  or  something  like  of  equal 
value,  with  or  without  compensation  for 
the  use    of  it  in  the   meantime. 
The  stockholder  [meaning  the  preferred 
stockholder]  had  not  by  the  scope  of  his 
bargain,  nor  by  the  terms  of  the  written 
evidence  of  it,  any  right  ever  to  ask  for 
repayment  of  the  money    furnished   by 
him.      In   short   there    was   not    formed 
thereby  the  relation  of  debtor  and  cred- 
itor.     The    stockholder    parted   forever 
with  the  money  furnished,  inasmuch  as 
the  charter  of  the  company  is  perpetual, 
and     the    companj^    made    a     perpetual 
charge  upon  its  net  earnings."     This  is 
sound  reasoning,  and  perhai)S  the  better 
view."    But  under   given  conditions   un- 
doubtedly a   loan  may  take  this  shape  of 
preferred    shares,     as    where    preferred 
shares  are  secured  by  bond  and  mortgage, 
the  holders  being  expressly  declared  not 
members   of  the    corporation.      Burt   v. 
Rattle,  31  Ohio  St.  116  (1876).     Compare 
Totten  V.  Tison,  54   Ga.  139   (1875),    or 
where   there   is   a  provision  for   the  re- 
demption   of    the    shares,    Westchester, 
Ac,  R.  R.  Co.   V.  Jackson,  77  Penn.  St. 
321  (1875).     Compare  Richardson  v.  Ver- 
mont, Ac,  R.  R.  Co.,  44  Vt.   612  (1872); 
Rutland,  Ac,  R.  R.  Co.  v.  Thrall,  35  Vt. 
536    (1863).      And    in   another    case    the 
legality  of  the  issue  of  preferred  stock  in 
such  a  case,  is  put  upon  the  ground,  not 
of  the  right  to  borrow  money,  but  upon 
the  ground  of  a  riglit  to  raise  funds  by  a 
sale  of  stock.     Chaffee  v.  Rutland,  Ac,  R. 
R.  Co.,  55  Vt.  110  (1882).     So  also  wliere 
an  act  of  the  legislature  authorized  the 
issue  of  bonds  by  a  county  "  in  subscrip- 
tion  for   preferred   stock'"  of  a  railroad 
company,  and  the  act  provided  that  the 
county  "  shall  receive  from  the  company 
preferred  stock  to  the  amount  of  the  said 
bonds,  which   preferred  stock  shall  bear 
interest  at  the  rate  of  seven  per  cent,  per 
annum,"  it  was  held  that  this   preferred 
stock  meant  capital  stock ;  that  a  certifi- 
cate of  stock  tendered  by  the  company  to 


CH.  XVI.]  PREFERRED    STOCK.  [§  268. 

Where  the  power  to  issue  is  in  the  corporation  it  cannot  be 
exercised  by  the  directors/  When,  however,  the  directors  have, 
without  authorit}',  issued  such  stock,  the  corporation  as  a  corpo- 
ration, having  the  power,  it  may  by  a  subsequent  vote  ratify  the 
unauthorized  act  of  the  directors  and  thus  validate  the  issue.^ 
And  where  the  corj)oration  has  no  implied  power  to  authorize  the 
issue  of  preferred  shares,  if  such  stock  is  issued,  it  will  by  lapse 
of  time  become  legal,  as  far  as  the  stockholders  are  concerned, 
by  the  mere  acquiescence  of  the  stockholders,  who  are  estopped  to 
deny  the  validity  of  that  of  which  they  have  long  had  knowledge, 
by  which  they  have  been  benefited,  and  of  which  they  have  not 
complained.^  Thus  a  delay  of  four  years,*  or  of  ten  years,^  in 
raising  the  question  of  the  validity  of  an  issue  of  preferred 
stock,  advantages  having  accrued  in  the  meantime  to  the  corpo- 
ration, and  the  shareholders,  have  been  held  such  acquiescence  as 
will  bar  the  right  of  a  stockholder  to  object.  Acceptance  of  the 
preferred  stock  and  dividends  thereon  also  bars  the  right  to  chal- 
lenge the  legality  of  the  issue.^  So  also  where  the  matter  was 
on  the  whole  more  favorable  to  the  plaintiff  than  to  other  share- 
holders, it  was  held  in  Indiana,  in  a  leading  case,  that  the 
issue  could  not  be  questioned.'^  But  a  power  to  issue  preferred 
stock  does  not  include  the  power  to  issue  partly  preferred  and 
partly  non-preferred  shares.^  Neither  can  a  power  to 
issue  a  certain  number  of  preferred  shares  be  extended  to  vali- 
date the  issue  of  a  greater  number.^     The  stockholders'  remedy 


the  count}-,  setting  forth  that  the  county  ^  McLoughlin   v.   Detroit,  <tc.,   R.   R. 

was  entitled  to  the  stated  amount,  but  by  Co.,  8  Mich.  100  (18G0). 

implication  declaring  it  not  to  be  capital  -  McLoughliu  v.  Detroit,  Ac,    R.    R. 

stock,  was  not  sufficient,  and  that  the  cor-  Co.,  supra. 

poration  might  be  compelled  by  manda-  ''Taylor  ?;.  South,   <fec.    R.   R.   Co.,   4 

mus  to  i.9sue  a  certificate  in    substantial  Woods,  575  (1882);  Ilazelhurst  y.  Savan- 

compliance  with   the   terms   of  the   act.  nah,  Ac.  R.   R.  Co.,   43   Ga.    13   (1871); 

Stale  V.  Cheraw,  <fec.,  R.  R.  Co.,  16  S.  C.  Lockhart  v.   "Van  Alstyne,   31  Mich.    76 

524  (1881).     So  also  it  has  been  held  that  (1875). 

preferred  stock  may  be  issued  to  retire  ^  Kent  v.  Quicksilver  Mining  Co.,  78 

common  stock  theretofore  issued.     West-  N.  Y.  159  (1879). 

Chester,  <fcc.,  R.R.  Co. «;.  Jackson,  77  Penn.  '  Taylor  ii.  South,  Ac.  R.    R.    Co.,  4 

St.  321  (1875).     In  England  it  has  been  Woods,  575  (1882). 

held  that  in  order  that  a  company  may  " « Branch    v.    Jesup,    106   U.    S.    468 

have  f>owcr  to  issue  preferred  stock,  it  is  (1882). 

not  indispensable  that  the   power  should  '  Evansvillc,  Ac.  R.  R.  Co.  v.  City  of 

be  .stated  in  the    menioraiidiim  of  associa-  Evansville,  15  Ind.  395. 

tion  ;  it  is  sufficient  if  it  is  given  by  the  ^Covington,   Ac.    Co.  v.    Sargent,     1 

arlicles  of  association  according   to  their  Cin.  Super.  Ct.  354  (1871). 

true  construction.     Harrison   v.  Mexican  '■'  Melhado  v.  Hamilton,  28  L.  T.   (N 

Ry.  Co.,  44  L.  J.  Chan.  403  (1875).  S.)  578  (1873);  s.  c.  29  Id.  364. 

271 


§  269.] 


PREFERRED   STOCK. 


[CH.  XVI. 


to  restrain  the  issue  of  the  preferred  stock  is  by  a  bill  in  equity/ 
and  he  need  not  wait  to  commence  his  suit  until  there  are  funds 
to  make  a  dividend.^ 

§  269.  General  rights  of  preferred  sliareliolders. — The  rights, 
speaking  generally,  and  the  status  of  the  holder  of  preferred 
shares,  will  in  every  case  depend  upon  the  particular  provisions  to 
be  found  in  the  certificate  of  stock  which  he  holds  as  the  evi- 
dence of  his  contract,  upon  the  terms  of  the  contract  itself,  or 
upon  the  statute  under  and  by  virtue  of  which  the  issue  was 
made.^  The  real  intent  and  character  of  the  contract  is  to  be 
sought  for  and  ascertained  by  reference  to  the  charter  and  its 
amendments,  the  bylaws  and  resolutions  of  the  shareholders, 
books  of  minutes  of  corporate  meetings,  annual  reports  and  other 
records  of  corporate  action.*     The  theory  that  preferred   share- 


'  Guinness  v.  Land  Corporation  of 
Ireland,  22  L.  R.  Chan.  Div.  349. 

^  Sturge  V.  Eastern,  &c.  Ry.  Co.,  7 
DeG.,M.  &  G.  ]5§  (1855).  But  a  sub- 
scriber to  the  common  stock,  who  has 
given  an  express  or  implied  consent  to 
the  issue  ot  preferred  stock,  is  not  re- 
leased from  liability  on  his  subscription 
by  such  issue.  Rutland,  <fec.  R.  R.  Co.  v. 
Thrall,  35  Vt.  536  (1863);  Hazelhurst  v. 
Savannah,  &c.  R.' R.  Co.,  43  Ga.  13 
(1871);  Hoyt  v.  Quicksilver  Mining  Co., 
17  Hun,  169;  Kent  v.  Id.,  78  N.  Y.  159 
(1879). 

3  Elkins  V.  Camden,  &c.  R.  R.  Co.,  36 
N.  J.  Eq.  233  (1882);  s.  c.  Id.  5;  Haily  v. 
Hannibal,  <fec.  R.  R.  Co..  1  Dill.  174 
(1871);  s.  c.  17  Wall.  96;  St.  John  v.  Erie 
Ry.  Co.,  22  Id.  136  (1874);  Williston  v. 
Michisan,  &c.  R.  R.  Co.,  95  Mass.  400 
(1866);  West- Chester,  <fec.  R.  R.  Co.  v. 
Jackson,  77  Penn.  St.  321  (1875);  Mat- 
thews V.  Greiit  iSorthern,  (fee.  Ry.  Co., 
28  L.  J.  Chan.  375(1859);  Belf;ist,  &c. 
R.  R.  Co.  V.  Belfast,  77  Me.  445  (ISS.i). 

^Boardman?'.  Lake  Shnre,  &c.  R.  R. 
Co.,  84  N.  Y.  157  (1881);  Gordon  v. 
Richmond,  .fee.  R.  R.  Co..  78  Va.  501, 
510;  Stevens  /■.  South,  &c.  Ry.  Co.,  9 
Hare,  313  (1851);  Sturge  v.  Eastern,  &c. 
Ry.  Co.,  7  De  G.,  M.  <fe  G.  158  (1855); 
Corry  v.  Londonderry,  <fec.  Ry.  Co.,  29 
Beav.  263  (1860);  Harrison?).  Mexican, 
<fec.  Ry.  Co.,  L.  K.  19  Eq.  Ca?.  358(1875); 
Kent  V.  Quicksilver  Mining  Co.,  78  N.  Y. 
169  (1879);  Crawford  v.  Northeastern, 
&c.  Ry.  lo.,  3  Jur.  (N.  S.)  1U93  (1856); 
Henry  v.  Great  Northern,  &c.  Ry.  Co.,  3 

272 


Id.  1117;  Matthews  v.  Id.  5  Id.  284; 
Belfast,  (fee.  P.  R.  Co.  v.  Belfast,  77  Me. 
445  (1885).  In  Belfast,  <fec.  R.  R.  Co.  v. 
City  of  Belfast,  77  Me.  445  (1885),  a  re- 
cent and  well  considered  case,  where  a 
railway  company  in  issuing  preferred 
shares  adopted  a  by-law  to  the  intent  that 
its  net  earnings  should  be  divided  semi- 
annually among  the  shareholders,  first 
paying  upon  tlie  preferred  shares  an 
amount  per  annum  not  exceeding  six  per 
cent.,  and  then  if  there  was  a  surplus  an 
equal  amount  upon  the  non-preferred 
shares,  and  that  then  any  remaining  sur- 
plus should  be  divided  equally  among  all 
the  shareholders,  it  was  held  that  the 
subscribers  to  the  preferred  stock  took 
their  shares  upon  the  conditions  named 
in  the  by-law,  as  a  contract  between  them 
and  the  corporation.  Under  the  by-law 
in  this  case  the  preferred  shareholder  was 
held  not  a  creditor,  and  that  his  dividend 
was  not  guaranteed  to  him,  but  only  made 
payable  out  of  net  earnings,  and  that,  in- 
asmuch as  the  bylaw  implied  that  the 
entire  net  earnings  of  each  year  should 
be  paid  out  in  dividends,  a  deficiency  of 
preferred  dividend,  in  any  year,  could  not 
he  made  up  in  subsequent  years.  As  to 
what  are  "  net  earnings,"  see  Union  Paci- 
fic R.  H.Co.  V.  U.  S.,  99  U.  S.  402(1878); 
Sioux  City,  tfec.  R.R.  Co.  v.U.S.,  1 10  Id  205 
(1883),  §  272,  and  Chapter  on  Dividends. 
In  Gordon  v.  Richmond,  (fee.  R. 
R.  Co.,  78  Va.  501  (1884),  where  a  rail- 
way company  issued  preferred  stock 
under  the  power  so  to  do,  conferred  by 
statute  (Act  of  Feb'y  13,    1856,  Acts  of 


CH. 


XVI.] 


PREFERRED   STOCK. 


[§  269. 


holders  are  similar  to  mortgagees,  or  creditors  of  the  corporation 
is  now  nowhere  maintained,  and  it  seems  to  be  admitted  in  all 
the  recent  cases  that  preferred  shareholders  are  simply  share- 
holders or  stockholders  of  the  corporation.^  Like  other  share- 
holders— that  is  to  say  equally  with  the  holders  of  the  common 
stock,  they  have  the  right  to  vote  at  corporate  meetings  and  exer- 
cise in  full  all  the  other  rights  of  a  shareholder.^  But  this  is  the 
limit  of  their  right  in  these  respects.  They  cannot  restrain  cor- 
porate acts  any  more,  nor  on  any  other  or  higher  grounds  than 
the  holders  of  the  common  stock.^  Their  rights,  moreover,  are 
subordinate  to  those  of  the  corporate  creditors.*  It  is  said  that 
a  holder  of  preferred  stock  issued  in  lieu  of  bonds  is  a  creditor 
for  certain  purposes,^  and  that  when  a  holder  of  preferred  stock 
exercises  an  option  to   exchange   it   for   the  common  stock,  he 


Va.,  1855-56,  ch.  130,  p.  108),  and  the 
plan  adopted  as  to  dividends,  secured 
somewhat  the  same  distribution  of  profits 
as  in  the  case  of  Belfast,  &c.,  R.  R.  Co.  v. 
Belfast,  (supra,)  it  was  held  that  the  pre- 
ferred stock  issued  under  this  act  was 
^aranteed  capital  in  the  strictest  sense, 
that  the  dividends  thereon,  being  limited 
to  seven  per  cent,  per  annum,  were  pay- 
able out  of  the  gross  receipts  of  the  com- 
pany, if  need  be,  to  the  exclusion  of  the 
holders  of  the  common  stock  from  any 
participation  in  profits;  that  as  to  any 
excess  of  dividends,  beyond  seven  per 
cent.,  the  guaranteed  and  common  stock 
stood  upon  the  same  footing,  and  that, 
inasmuch  as  earnings  belong  primarily  to 
the  corporation,  and  there  can  be  no  such 
thing  as  a  dividend  until  it  is  declared, 
where  the  directors  have  failed  to  declare 
dividends  at  the  times  prescribed  in  the 
charter,  it  is  not  in  their  power  to  declare 
a  dividend  to  extend  back  over  the 
periods  during  which  no  dividends  were 
paid.  See  also  Ragland  v.  Broadnax,  29 
Gratt.  512;  Mills  v.  North,  Ac.  Ry.  Co.,  L. 
R.  5  Chan.  A  pp.  621  (1870).  After  the 
preferred  stock  has  been  issued  it  is  be- 
yond the  power  of  the  corporation  to 
limit  the  preference  given  to  it.  Ash- 
bury  V.  ~~~ 
(1885). 

'  State  V.  Cheraw,  <fec 
B.C.  524  (1881).  By  so 
thority  as  .Mr.  Pierce,  it 
issue  of  preferred  stock  is  a  mode  by 
which  a  corporation  obtains  funds  for 
its  enterprises  vithout  borrowhiff  money — 
or  conlracling  a  debt.     Its  liolders  are  a 


Watson,   L.  R.    30  Ch.   D.    370 


R.  R.  Co.,  16 
eminent  an  au- 
is   said:  "  The 


privileged  class  who  are  entitled  to  divi- 
dends of  a  certain  per  cent.,  payable  out 
of  the  net  earnings  in  priority  to  any 
dividends  upon  ordinary  stock."  (Pierce 
on  Railways,  124.  See  also  Crawford  v. 
Northeastern,  <fec.,  Ry.  Co.,  3  Jur.  (N. 
S.)  1093(1856);  Henry  t;.  Great  North- 
ern, &c.  Ry.  Co.,  3  Id.  1117.  Emerson  r. 
N.  Y.  &  N.  E.  R.  R.  Co.,  16  R.  I.  555  ( 1 884), 
said,  however,  the  preferred  stockhold- 
er had  rights  "  against  the  company  and 
its  property  which  partook  of  those  of 
a  stockholder  and  of  a  creditor.  Aa  a 
stockholder  he  had  rights  to  a  dividend 
and  to  repayment  of  the  principal  of  hia 
stock  in  preference  to  any  of  the  ordi- 
nary stockholders.  As  a  creditor  he  was 
entitled  to  be  paid  the  amount  of  hia 
debt  in  the  same  manner  as  other  credit- 
ors, but  with  no  preference  over  them." 

-  Rutland,  <fec.  R.  R.  Co.  v.  Thrall,  35 
Vt.  536  ;  Burt  V.  Rattle,  31  Ohio  St.  116; 
St.  John  V.  Erie  Ry.  Co.,  22  Wall;  136. 

^  Warren  «;.  King,  108  U.  S.  389(1882); 
Thompson  v.  Erie  Ry.  Co.,  45  N.  Y.  468 
(1871);  s.  c.  11  Abb.  Prac.  (N.  S.)  188; 
42  How.  Prac.  68  ;  Garrett  v.  May,  19 
Md.  177(1862). 

"  St.  John  V.  Erie  Ry.  Co.,  22  Wall. 
136(1872);  Warren  v.  King,  103  U.  S. 
389  (1882). 

"^  St.  John  V.  Erie  Ry.  Co..  22  Wall. 
126  (1872);  Rutland,  &c.  R.  R.  Co. 
V.  Thrall,  36  Vt,  536  (1863);  West 
Chester,  «fec.  R.  R  Co.  v.  Jackson,  77 
Penn.  St.  321  (1875);  Phillips  v.  Eiist- 
ern  R.  R.  Co.,  138  Mas.s.  122  (1884); 
Bates  V.  Androscoggin,  <fec.  R.  R.  Co.  ,49 
Me.  491  (1860). 


[18] 


273 


§  270.]  PREFERRED   STOCK.  [CH.  XVI. 

ceases  to  be  a  creditor.^     But  this  is  a  questionable  position,  and 
it  is  plainly  not  the  rule  until  he  exercises  the  option.^ 

§  270.  Preferred  sliarelxolders  are  not  creditors  and  are  en- 
titled to  dividends  only  from  profits. — In  the  earlier  decisions 
there  was  a  tendency  to  hold  that  owners  of  preferred  or  guaran- 
teed stock  are  creditors  of  the  corporation,  and  so  entitled  to  the 
rights  and  preferences  of  creditors  in  respect  to  their  dividends. 
But  it  is  now  conclusively  settled  that  a  shareholder  is  not  a  cred- 
itor.^ If  he  were  a  creditor  of  the  corporation  then,  like  any  other 
creditor,  he  would  be  entitled  to  demand  and  collect  from  the 
corporation  the  sum  specified  in  his  contract,  and  that  without 
reference  to  whether  the  corporation  was  earning  or  losing  money. 
Since,  however,  the  preferred  shareholder  is  but  a  shareholder 
with  a  right  to  have  his  dividend  paid  before  dividends  on  tlie 
common  stock  are  paid,  he  is  not  entitled  to  any  dividend  until 
the  corporation  has  funds  which  are  properly  applicable  to  the 
payment  of  dividends,  that  is  to  say,  until  the  corporation  has 
earned  the  money  to  pay  the  dividends.*  A  contract  that  divi- 
dends shall  be  paid  on  the  preferred  stock,  whether  any  profits  are 
made  or  not,  would  be  contrary  to  public  policy  and  void.^ 

An  agreement  to  pay  dividends  absolutely  and  at  all  events,  that 
is  to  say,  from  the  profits  when  there  are  any,  and  from  the  capital 
when  there  are  not,  is  an  undertaking  which  is  contrary  to  law,  and 
is  void.     Public  policy  condemns  with  emphasis  any  such  under- 


^  Burt   V.    Rattle,    31    Ohio    St.    116  for  the  debts  of  the  corporation.     Burt  v. 

(IS'/G)-  Rattle,  31  Ohio  St.  116  (1876). 

2  Totten  V.  Tison,  54  Ga.  139  (IS'Zn).  '  Lockhart  v.   Van  Alstyne,  31  Mich. 

3  Totten  V.  Tison,  54  Ga.  139  (1875);  76  (1876).  A  dividend  means  something 
Belfast,  (fee,  R.  R.  Co.  v.  Belfast,  77  Me.  to  be  divided,  a  fund  which  the  corpora- 
445  (1885);  Taft  v.  Hartford,  <fec.,  R.  R.  tion  sets  aside  from  its  profits  to  be  di- 
Co.,  8  R.  I.  310(1866);  Chaffee  ii.  Rut-  vided  among  its  members.  A  right  to  a 
land,  &c.,  R.  R.  Co.  55  Vt.  110  (1882);  dividend  is  not  a  debt  until  the  dividend 
Warren  v.  King,  108  U.  S.  389  (1882).  is  regularly  declared.     If  a   dividend  is 

*  Bates  V.  Androscoggin,  &c.,  R.  R.  declared  to  the  preferred  shareholders  ex- 
Co.,  49  Me.  491  (1860);  Talt  v.  Hartford,  clusively,  it  must  be  understood  to  imply 
(fee,  R.  R.  Co.,  8  R.  1  310  (1866);  Lock-  that  the  sum  divided  has  been  realized  as 
hart  V.  Van  Alstyne,  31  Mich.  76  (1875);  profits,  but  that  the  earnings  do  not  war- 
Chaffee  v.  Rutland,  <fec.,  R.  R.  Co.,  55  A^t.  rant  a  dividend  on  the  common  stock.  A 
110(1882);  McG.regor  f.  Home  Ins.  Co.,  dividend  depends  essentially  upon  the 
33  IS.  J.  tq.  181  (1880);  Warren  v.  King,  good  judgment,  integrity,  and  fidelitj-  of 
108  U.  S.  389  (1882);  McDougall  v.  Jer-  the  corporate  managers — and  a  guarantee 
sey,  <tc.,  Co.,  2  Hem.  <fe  M.  528  (1864).  of  a  dividend  is  nothing  more  than  an  un- 
See  also  Pittsburg,  (fee,  R.  R.  Co.  v.  dertaking  on  the  part  of  the  corporation 
County  of  Allegheny,  63  Penn.  St.  126  to  earn  and  pay  one — to  do  whatever  good 
(1869).  The  preferred  ehareowner  is,  judgment,  fidelity,  and  honesty  can  ac- 
moreover,  like  other  shareholders,  liable  complieh  to  pay  such  dividend. 

274 


CH, 


XVI.] 


PREFERRED   STOCK. 


[§  271. 


taking  on  the  part  of  a  corporation  as  to  its  preferred  or  guaran- 
teed shares.^  The  rule  is  well  settled  that  dividends  on  preferred 
stock  are  payable  only  out  of  the  bona  fide  earnings  of  the  com- 
pany.^ 

§  271.  The  discretion  of  directors  with  respect  to  declaring 
dividends  on  preferred  stocTc. — In  general  it  is  within  the  discre- 
tion of  the  directors  to  declare,  or  not  to  declare,  dividends  on  the 
common  stock,  but  with  respect  to  dividends  on  the  preferred 
stock  it  is  otherwise.  The  question  of  the  ability  of  the  corpo- 
ration to  pay  a  preferred  dividend  is  one  that  may  be  brouglit  be- 
fore a  court  of  equity,  and  the  decision  of  the  directors  is  not  con- 
clusive but  will  be  reviewed  by  the  court.^  Where  the  right  to 
the  preferred  dividend  is  clear,  and  there  are  funds  from  which 
it  can  properly  be  made,  a  court  of  equity  will  compel  the  com- 
pany to  declare  it.*  But  preferred  shareholders  are  not  entitled 
to  a  dividend  which  would  work  an  injustice  to  creditors  and  the 
other  stockholders,  by  taking  all  the  money  from  the  treasury 
and  thereby  crippling  or  wrecking  the  enterprise.^     Moreover,  it 


'  Lockhart  v.  Van  Alstyne,  by  Cooley, 
J.,  supra.  See  also  Curran  v.  Arkansas, 
15  How.  304  (1853);  Evansville,  &c.,  R. 
R.  Co.  V.  City  of  Evansville,  15  Ind.  395. 

2  Thompson  v.  Erie  Ky.  Co.,  45  N.  Y. 
465  (1871);  Boardman  v.  Lake  Shore, 
<fec.,  R.  R.  Co.,  84  Id.  157  (1881);  Prouty 
V.  Id.,  52  Id.  363  (1873);  UnioQ  Pacific 
R.  R.  Co.  V.  U.  S.,  99  U.  S.  402  (1878); 
Nichals  v.  New  York,  &c.,  R.  R.  Co.,  15 
Fed.  Rep.  675(1883);  Elkins  v.  Camden, 
<fec.,  R.  R.  Co.,  36  N.  J.  Eq.  233  (1882); 
Belfa^^t,  (fee,  R.  R.  Co.  v.  Belfast,  77  Me. 
445  (1885),  and  the  cases  supra.  When 
two  corporations  are  consolidated,  one  of 
which  lias  issued  preferred  shares,  the 
new  company  is  liable  to  {)ay  the  guaran- 
teed dividends  thei'con.  Prouty  v.  Lake 
Shore,  (fee.,  R.  R.  Co.,  52  N.  Y.  563(1873); 
Chase  v.  Vanderbilt,  62  Id.  307  (1875). 
In  the  case,  however,  of  Cotting  v.  Kew 
York  &  N.  E.  R.  U.  Co.  5  New  Eng.  Rep. 
851  (Conn.  1886),  the  court  held  that  un- 
der the  peculiar  wording  of  the  statute 
creating  preferred  stock,  the  dividend 
must  be  paid,  althougli  there  was  a  large 
deficit  in  the  corporate  transactions  for 
the  year.  The  court  says:  "Ordinary 
preferred  stock  pnyable  from  the  surpkis, 
or  net  profits,  lakes  its  chances  with  com- 
mon stock  ;  and  if,  from  any  cause,  a  divi- 
dend fails,  it  is  gone.  But  here  the  agreed 


dividend,  however  long  payment  may  be 
deferred,  keeps  its  place  as  a  lien  upon 
the  net  earnings  and  must  be  paid  in  full 
before  any  payment  can  be  made  to  the 
holders  of  the  common  stock.  In  this 
respect  the  preferred  dividends  closely 
resemble  the  interest  on  bonds." 

3  Bailey  v.  Railroad  Co.,  17  Wall.  96 
(1872);  St.  John  V.  Erie  Ry.  Co.,  22  Id. 
136  (1874);  Barnard  v.  Vermont,  &c., 
R.  R.  Co.,  89  Mass.  512  (1863);  Bryant 
V.  Ohio  College,  1  Cinn.  67  (1870);  Chase 
V.  Vanderbilt,  37  N.  Y.  Super.  Ct.  334 
(1874);  Bates  v.  Androscog<;-in,  <fec.,  R.  R. 
Co.,  49  Me.  491  (I860);  Dickinson  v.  R.  R. 
Co.,  7  West  Va.  390(1874);  Rutland,  Ac, 
R.  R.  Co.  «;.  Thrall,  35  Vt.  536  (1863); 
Kichardson   v.  Vermont,  ttc,  R.  R.   Co., 

44  Id.  613  (1872);  Davis  y.  Proprietor, 
(fee,  49  Mass.  321  (1844);  Williston  «;. 
Michigan,  Ac,  R.  R.  Co.,  95  Id.  400  (1866); 
King  V.  Ohio,  &c.,  R.  R.  Co.,  9  Rep.  431 ; 
Taft  V.  Hartford,  &c.,  R.  R.  Co.,  8  R.  I. 
310   (1866);    Thompson   v.  Erie   Ry.  Co., 

45  N.  Y.  4  68  (1871);  Prouty  v.'  Lake 
Siiore,  &c.,  R.  R.  Co.,  52  Id.  563  (187;-f); 
West  Chester,  &c.,  R.  R.  Co.  v.  Jackson, 
77  I'enn.  St  3il  (1875)  ;  Belfast,  Ac, 
R.  R.  Co.  V.  Belfast,  77  Mc  445  (1885). 

*  The  cases  supra. 

^  Culver  V.  Reno,  Ac,  Co.,  91  Peun. 
St.  367  (1879). 

275 


■§  272.]  PREFERRED   STOCK.  [CH.  XVI. 

has  been  held  that  earnings  ought  to  be  appropriated  to  the  pay- 
ment of  a  floating  debt  in  preference  to  the  payment  of  dividends 
on  the  preferred  stock.^  The  directors,  under  an  authority  to 
issue  preferred  stock,  have  no  right  to  issue  it  for  the  purpose  of 
paying  dividends  therewith  upon  t!ie  common  stock.^  The  au- 
thority to  issue  such  stock  is  usually  sought  by  companies  who 
have  expended  their  original  capital,  in  order  to  raise  additional 
capital.  The  issue  of  the  preferred  stock  increases  the  capital 
stock,  and  since  the  capital  stock  can  never  legally  be  divided 
among  stockholders,  except  upon  dissolution,  the  proceeds  of  an 
issue  of  preferred  stock  is  to  be  added  to  the  permanent  funds  of 
the  corporation.^ 

§  272.  Arrears  of  'preferred  dividends,  to  what  extent  paya- 
hie  snhsequently. — Preferred  stock  is  stock  with  a  guarantee  that 
the  dividends  thereon  will  be  paid.  Accordingly  where  there  are 
no  net  profits,  and  consequently  no  funds  for  a  dividend,  the  con- 
tract of  guarantee  is  broken.  As  soon,  hoM^ever,  as  there  are  net 
profits  available  for  dividends  the  corporation  must  pay  the  pre- 
ferred dividends  and  all  arrearages  thereon,  before  a  dividend  is 
declared  on  the  common  stock.  This  is  the  well  settled  rule  in 
this  country,*  and  at  common  law  also,  in  England.^ 


1  Chaffee  v.   Rutland,  <fec.,  R.  R.  Co.,  (fee,   Ry.  Co.,   9  Hare,  313  (1851) ;  Mat- 

55   Vt.    110   (1882);    National   Bank   v.  thews  v.   Great  Northern,  <fec.,  Rv.  Co., 

Douglass,    1    McCrary,    86  (1877);  Rail-  28  L.  J.  Chan.  375  (1859);  Corry  i.  Lon- 

road  Co.  t;.  Howard,  7  Wall.  392  (1868);  donderry,   <fec.,   Ry.    Co.,  29  Beav.    263 

Jones  on   Railroad  Securities,  §  620;  In  (1860);  Webb  v.  Earle,  L.  R.  20  Eq.  656 

re  London  Rubber  Co.,  L.  R.  5  Eq.  Cas.  (1875);  Coates  v.   Nottingham,   <fec.,  Ry. 

525  (1867).  Co.,  30  Beav.  86  (1861);  Smith  v.  Cork, 

•^  Hoole  V.   Great   Western    Ry.  Co.,  <fec.,  Rv.  Co.,  Ir.  L.  R.  3  Eq.  356  (1869); 

L   R.  3  Chan.  262  (18C7).  s.  c,  s'id.  65;  Coey  v.  Belfast,   &c.,   Ry. 

3  Hoole  i».  Great  Western  Ry.  Co.,  L.  Co.,    Ir.    Rep.  2  C.  L.   112  (1866).     But 

R.  ?,  Chan.  262  (1867) ;  Lockhart  v.  Van  upon  the  passage  in  England  of  the  Com- 

Alstyne,  31  Mich.  76  (187n).  panics  Clauses  Act  of  1863,  26  &  27  Vict. 

*  Bcardman  v.  Lake  Shore,  <fec.,  R.  R.  cli.  16,  §  14,  it  was  provided  that  prefer- 

Co.,  84  N.  Y.  157  (1881) ;  Prouty  v.  Michi-  ence  shares  or  stock  shall  be  entitled  to 

gan,    Ac,   R.  R.  Co.,  1  Hun,  655  (1873);  the   preference    dividend   or   interest  as- 

Elkins  V.    Camden,  <fec.,  R.  R.  Co.,  36  N.  signed  thereto  out  of  the  profits  of  each 

J.  Eq.,  233  (1882);  Taftv.  Hartford,  (fee,  year   in   priority  to  the   ordinary  shares 

R.  R.  Co.,  8  R.  L   310(1866) ;  Lockhnrt  "and  stock  of  the  company,  but  that  if  in 

V.  Van  Alstyne,  31  Mich.  76(1875).  Con-  anj'^  year  there  are  not   profits  available 

tra,  Belfast,  (fee,  R.  R.  Co.  v.  Belfast,  77  for   the   payments  of  the  full  amount  oi 

Me.  445.  the  preferential  dividend  or  interest  for 

^  Henry  v.  Great  Northern,    (fee,   Ry.  that  year,  no  part  of  the  deficiency  shall 

Co.,  1  DeG.  (fe  J.  606  ;  Crawford  v.  Nortii-  be  made   good  out  of  the  profits  of  any 

eastern    Ry.    Co.,  3   Jur.    (N.   S.)    1093;  subsequent   year,   or   out   of    any   other 

Sturge  V.  Eastern,  (fee,  Ry.  Co.,  7  De  G.,  funds   of    the    company.     In    Henry    v. 

M.  &  G.   158  (1855);  Stevens  v.  South,  Great  Northern  Ry.  Co.,  1  De  G.  (fe  J. 

276 


CH.  XVI.] 


PREFERRED    STOCK. 


[§  272. 


When  arrears  are  recoverable  interest  on  such  arrears  may  be 
recovered.-^ 

Where  there  was  a  provision  for  tlie  payment  of  a  dividend 
to  the  holders  of  the  common  stock  after  the  payment  of  the  pre- 
ferred dividend,  it  was  held  that  arrears  of  common  dividends 
must  be  paid  next  after  the  arrears  of  preferred  dividends,  and 
before  any  further  preferred  dividends  could  be  declared.^  And 
where  there  is  a  statutory  provision  that  dividends  on  the  pre- 


606,  in  which  the  matter  of  arrears  in 
preferred  dividends  was  elaborately  con- 
sidered, it  was  urged  that  a  reason  why 
8uch  arrears  ought  to  be  held  payable  out 
of  subsequent   profits   is  that  otherwise 
there  would  be  a  temptation  to  the  corpo- 
ralion  to  set  aside   profits  for   improve- 
ments  when  the  profits  were  too  small 
for  a  dividend  on  both  the  common  and 
the  preferred   shares,  or  not  to  set  aside 
enough   for   improvements    in    order   to 
make  a  dividend  for  botli.     As  illustrat- 
ing the  right  to  the  arrearage,  Knight 
Bruce,  L.  J.,  in  the  opinion  in  this  case, 
said:  "  Let  us  suppose  a  right  to  have  a 
tun  of  wine  from  a  vineyard.     Js  that  the 
same  merely  as  a  right  to  h-.ive  a  tun  of 
wine  from  a  vintage?     I  do  not  think  so. 
In  the  former  case  the  deficiency  of  an 
earlier  would   have  to  be   supplied  by  a 
later  vintage;  not  so,  possibly,  in  the  other. 
Here,  as  1  apprehend,  the  plaintiffs  have 
the  vineyard,  and  not  merely  the  chance 
of  a  particular  vintage  to  look  to."     In 
Dent  V.  London  Tramways   Company,  L. 
R.  16  Chan.  Div.  344  (1880),  it  was  held 
that  the  owneis  of  preference  shares,  the 
dividend  on  which  was  "  dependent  upon 
the  profits  of  the  particular  3-ear  ordy,  " 
weie  entitled  to  a  dividend    out  of  the 
profits  of  any  year  alter  setting  aside  a 
proportionate   amount   sufficient  for    the 
maintenance  and   lepair  of  the   tramway 
for  that  year  only,  and  that  they  were  not 
to  be  deprived  ofthat dividend  in  order  to 
make  good  the  sums  which   in   previous 
years  should   have  been  set  aside  by  the 
company  for  maintenance,  but  which  had 
been  imi»roperly  applied  by  them  in  pay- 
ing di\id"nds.     Tliis  was  a  cnse  in  which 
tlie  articles  of  association  provided  thiit 
no  dividends  should   be  declared  except 
out  of  profits,  and  that  the  directors  must, 
before   declaring  dividends,  set  aside  out 
of  profits  a  reserve  fund  for   maintenance, 
repairs,  depreciation,  and  renewals,  and  it 
appeared  that  tiie  com|)any  had  for  sev- 
eral years  carried  on  its  business  and  paid 


dividends  without  setting  aside  this  fund, 
until  the  property  was  worn  out.     Then 
the  attempt  was  made  by  appropriating 
the  total  net  profits  to  restore  the  property 
at  once,  and  the  court  held  that  this  could 
not  be  done  to  the  prejudice  of  the  inter- 
ests of  the  preferred   shareowners.     Cf. 
Mchals  V.  New  York,   Ac,  R.  11.  Co.,  15 
Fed.  Rep.  575  (1883).     Where  each  share 
in  a  company  was  converted  into  two  half 
shares,  one  preferred,  the  other  common 
or  deferred,  and  the  holders  of  the  pre- 
ferred half  shares  had,  in  a  former  year, 
acquiesced  in   the  declaration  of  a  divi- 
dend on  the  deferred  half  shares,  while 
there  was  an  arrearage  of  dividends  oa 
the  preferred  half  shares,  it  was  held  that, 
altiiough  they  had  precluded  themselves 
from  making  any  claim  to  those  specific 
arrears,  they  had  not  waived  their  right 
to  claim  subsequent  arrears.     Matthews 
V.  Great  Northern,  &c.,  Ry.  Co.,  28  L.  J. 
Chan.    375  (1859);   Smith   v.  Cork,    <fec., 
Ry.  Co.,  Ir.  L.  R.  3  Eq.  356  (1868);  s.  c, 
0  Id.  65.     And  again,  where  a  mortgage 
was  executed  upon   the  property   of    a 
corporation  for   the   purpose  of    raising 
funds,  subsequently  to  an  issue   of  pre- 
ferred stock,  the  mortgage  was  held  to  be 
not  in  derogation  of  the  rights  of  the  pre- 
ferred shareowners,  and  an   injunction  to 
restrain  the   execution  of  the   mortgage 
was  refused.     Garrett  v.  Mny,  19  Md.  177 
(186"2).  So  also  of  mortgage  bonds  consoli- 
dating  prior    and    subsequent    indebted- 
ness.    Tliompson  v.  Erie  Ry.  Co.,  45  N.  Y 
468  (1871);  s.  c,   11  Abb.  Prac.  188;  42 
How.  Prac.  68.     See  also  Bailey  v.  Uail- 
road  Co.,   1   Dill.   174  (1872);  *8.  c,  17 
Wall.    96;   St.  John   v.   Erie  Ry.  Co.,  10 
Blatch.   271    (1874);    s.  c,  22  VVall.  137; 
Kichardson  v.  Vermont,  <fec.,   R.    R.   Co., 
44  Vt.  613  (1872). 

'  Boardraan  v.  Like  Shore,  ic,  R.  R. 
Co.,  84  N.  Y.  157(1881). 

'Allen  II.  Londonderry,  <fec.,  Rv.  Co.^ 
25  Week.  Rep.  624. 

277 


§§  273-275.]  PREFERRED    STOCK.  [CH.  XVI. 

ferred  stock  shall  not  exceed  a  certain,  rate  per  cent.,  then  there 
is  no  carrying  over  a  deficiency  of  that  per  cent.^ 

§  273.  The  o])Uo7i  to  exchange  common  for  preferred  shares. 
— When  the  power  to  issue  preferred  stock  is  conferred  upon  a 
corporation,  it  is  sometimes  provided  that  under  certain  condi- 
tions the  common  stock  may  be  exchanged  for  the  preferred 
stock.^  Concerning  this  option  it  is  to  be  noted  that  any  time 
limited  is  of  the  very  essence  of  the  offer.  So  where  an  option 
was  given  to  holders  of  the  common  stock  to  take  a  certain 
number  of  new  shares  within  a  given  time,  it  was  held  that  a 
shareowner  who  lived  abroad  and  had  no  notice  of  the  option 
until  the  expiration  of  the  specified  time,  could  not,  upon  learning 
of  it  afterwards,  come  in  and  demand  the  right  to  purchase  the  pre- 
ferred shares.*  So  likewise  where  there  was  an  option  within  a 
fixed  time  to  convert  loan  notes  into  shares.*  And  where  the 
time  for  payment  of  a  series  of  convertible  bonds  was  extended, 
it  was  held  that  such  extension  did  not  extend  the  time  as  fixed 
in  the  bond  within  which  it  might  be  converted  into  stock.^ 

§  274.  Bights  of  the  assignee  or  transferee  of  preferred  stock 
in  arrears  of  dividends. — The  transferee  or  assignee  of  preferred 
stock  stands,  in  respect  to  arrears  of  dividends,  in  the  shoes  of  his 
assignor  or  transferrer.  The  undeclared  arrears  of  dividends  pass 
to  him  in  the  transfer  of  the  stock,  unless  by  the  terms  of  tlie 
transfer  the  arrears  are  expressly  separated  from  the  stock  itself 
and  reserved  to  the  transferrer,  as  may  be  done.^  But  it  has 
been  held  that  arrears  of  dividends  on  preferred  shares,  not  de- 
clared, cannot  be  assigned  apart  from  the  stock  itself.'' 

§  275.  ^^  Special  stock''''  in  Massachusetts. — In  Massachusetts, 
incorporated  companies  are  permitted  by  statute^  to  issue  a  pecu- 

'  Elkins  V.  Camden,  <fec.,  R.  R.  Co.,  36  56  Id.  553  (18Y4);  Mannings.  Quicksilver, 

N.  J.  Eq.  233  (1882).  &c..  Co.,  24  Hun,  361  (1881);  Nichals  v. 

2  New  York  Session  Laws,  1880, chap.  New  York,  &c.,  R.  R.  Co.,  15  Fed.  Rep. 

225;  Webb  v.   Earle,  L.  R.   20  Eq.  556  575(1883);  Coey  ?;.  Belfast,  cfec,  Ry. Co., 

(IS^S).  Ir.  Rep.  2  Com.  Law,  112  (1866).     But  it 

^  Pearson  v.  London,  <fec.,  Ry.  Co.,  14  is  otherwise  when  the  dividend  has  been 

Sim.  541  (1845).  declared   before   the   transfer.      City   of 

"  Campbell  v.  London,  dec,  Ry.  Co.,  5  Ohio  v.  Cleveland,  &c.,  R.  R.  Co.,  6  Ohio 

Hare,  519  (1846).  St.  489  (1856). 

"  Muhlenberg  v.  Phila.,  <fec.,R.  R.  Co.,  ''  Manning  v.  Quicksilver  Mining  Co., 

47  Penn.  St.  16  (1864).  24  Hun,  361  (1881). 

«,Jerm:iin  v.  Lake   Shore,  ifec,  R.  R.  «  Sts.    1855,   ch.  290;    1870,   ch.  224, 

Co.,  91    N.  Y.  483  (1883);  Boardman  v.  ^§  25,  39,  cl.  4;  Pub.  Sts.  ch.  106,  §§42, 

Same,  84  Id.  157  (1881);  Hyatt  v.  Allen,  61,  cl.  3. 

278 


CH.  XYI.]  PREFERRED   STOCK.  [§275. 

liar  kind  of  stock,  known  as  "special  stock."  It  is  something 
essentially  different  from  preferred  stock.^  Its  essential  charac- 
teristics are  that  it  is  limited  in  amount  to  two-fifths  of  the  actual 
capital ;  it  is  subject  to  redemption  by  the  corporation  at  par  after 
a  fixed  time,  to  be  expressed  in  the  certificate ;  the  corporation  is 
bound  to  pay  a  fixed  half-yearly  sum,  or  dividend,  upon  it  as  a 
debt ;  the  holders  of  it  are  in  no  event  liable  for  the  debts  of  the 
corporation  beyond  their  stock,  and  the  issne  of  this  special  stock 
makes  all  the  general  stockholders  liable  for  all  debts  and  con- 
tracts of  the  corporation  until  the  special  stock  is  fully  redeemed.' 
Preferred  stock  is,  therefore,  plainly  something  quite  different 
from  this.  Authority  to  issue  special  stock  is  conferred,  as  we 
have  seen,  by  general  statute ;  while  in  Massachusetts,  authority 
to  issne  preferred  stock  is  not  conferred  in  express  terras  by  any 
general  statute,  but  special  statutes  have  from  time  to  time 
authorized  individual  companies  to  issue  preferred  stock  with 
various  special  provisions.^  Special  stock  can  be  issued  only  by 
a  vote  of  three-fourths  of  the  general  stockholders  of  the  com- 
pany, at  a  meeting  duly  called  for  that  purpose."  The  guarantee 
of  dividends  of  special  stock  in  Massachusetts  is  an  absolute  one, 
and  not  in  any  degree  conditional  upon  the  earning  of  sufficient 
profits  by  the  corporation.^ 


1   American  Tube   Works  v.  Boston,  meeting  called   to  consider  whether  the 

<fec.,  Co.,  139  Mass.  5  (1885).  corporation  will  issue  preferred  stock,  is 

''  The  statutes  cited  supra;  Americnn  invalid  ;  that  a  vote  to  issue  special  slock 

Tube   Works  v.    Boston,    &c.,   Co.,    139  is  invalid  if  the  record  of  the  meeting 

Mass.  5  (1885).  fails  to  show   that  three-fourths  of  the 

'  E.  rj.  Sts.  18.53,  ch.  1 ;  1855,  ch.  143;  general  shareholders  voted  for  such  issue; 

1877,  ch.  170;   1878,  ch.  138;   1882,  ch.  that  the  court  will  not  presume,  because 

177.  the  record  showed  that  more  than  three- 

*  Sts.  1870,  ch.  224,  §  25.  And  the  fourths  of  the  shareholders  were  present 
corporation  must  have  a  clerk,  who  is  at  the  meetini; ;  that,  therefore,  three- 
Bworn,  and  who  acts  as  recorder  at  such  fourths  or  more  voted  for  the  issue  of 
meeting.  Sts.  187o,  ch.  224,  §§15,18;  special  stock;  and  that  a  holder  of  ape- 
Pub.  Sts.  ch.  106,  i5§  23,  26.  See  also  cial  stock,  which  is  illegally  issued,  can- 
Reed  V.  Boston  Machine  Co.,  141  Mass.  not,  by  estoppel  or  otherwise,  become  a 
454(1886).  This  special  stock  is  declared  member  of  the  corporation  in  respect  of 
to  be  "  a  peculiar  kind  of  stock,  distinctly  such  shares. 

provided  for  by  statute,"  and  it  is  impor-  '  Williams  v.  Parker,  136   Mass.  204 

tant  that  the  marked  distinction  between  (1884).     See  also    Allen  v.  Ilerrick,  81 

preferred   stock,   as   usually   understood.  Id.  274  (1860).     It  is   said  that  the  stopk 

and   special  stock,  as  authorized  by  the  auihorized  by  these  statutes — i.  c,sj)ecial 

statutes  cited  in  the  notes,  be  kept  plain-  stock — has  some  of  the  characteristics  of 

ly  in  view.     American  Tube    VVorks   v.  stock  and  some  of  the  characteristics  of 

Boston,  (fee,  Co.,  139  Mass.  5  (1885).  a  debt  of  the  corporation  ;  that  when  the 

It  was  held,  in  accordance  with  this  net  earnings  of  the  company  are  not  suf- 

view,  in  the  case  last  cited,  tliat  a  vote  of  ficient  to  pay  tlie  dividends,  the  company 

a  corporation  to  issue  special  stock,  at  a  shall  make  good  the  difference  out  of  any 

279 


§§  276,  277.]  PREFERRED   STOCK.  [CH.  XVI. 

§  276.  Remedies  of  shareholders  herein. — The  rights  of  pre- 
ferred stockholders  with  respect  to  their  dividends  are  protected 
in  equity  by  injunction  or  by  other  equitable  remedies.^  Equity 
will  protect  the  prior  right  of  such  shareholders  in  the  distribu- 
tion of  the  profits  of  the  company.^  Specific  performance  in  a 
proper  case  will  be  decreed.^  But  an  action  at  law  cannot  be 
maintained  where  the  dividend  sought  to  be  reached  has  not  been 
actually  declaimed.''  Nor  has  a  court  of  equity  jurisdiction  in  the 
case  of  a  foreign  corporation,  having  neither  officer  nor  place  of 
business  in  the  State.^  Where  a  corporation,  having  issued  pre- 
ferred stock,  is  merged  into  a  new  corporation  by  consolidation, 
the  preferred  shareholders  of  the  old  corporation  may  prosecute 
a  suit  for  dividends  against  the  new  corporation.^  In  an  action 
to  compel  the  corporate  manager  to  declare  a  preferred  dividend^ 
the  common  stockholders  are  proper  but  not  necessary  parties.'' 

§  277.  Interest-hearing  stocks. — Occasionally,  instead  of  issu- 
ing preferred  stock,  a  corporation  issues  ordinary  common  stocky 
together  with  a  promise  that  the  corporation  will  pay  interest 
thereon.  Such  a  promise  is  generally  lawful,  and  may  be  enforced 
as  a  contract  in  the  nature  of  an  agreement  to  pay  a  dividend,* 
This  promise  to  pay  interest  on  stock  will  be  construed  as  an 
undertaking  on  the  part  of  the  corporation  to  pay  when  the  cor- 
porate finances  are  in  such  a  condition  that  a  legal  dividend 
might  properly  be  declared.  It  is  a  lawful  contract,  however, 
only  when  it  is  to  be  interpreted  as  requiring  payment  from 
profits  alone.^     At\j  contract  on  the  part  of  a  corporation  to  pay 

property  it  lias,  and  that  it  is  the  general  ^  Boardman  v.  Lake  Erie,  tfec,  R.  Iv 

legislative  policy  of  tlie  State  to  regard  Co.,  84  N.  Y.  157  (1881). 

holders  of  this  stocli  creditors  of  the  cor-  ■*  Williston  v.   Michigan,   (fee,  R.    R. 

poration  for  the   dividends  guaranteed,  Co.,  95  Mass.  400  (1866). 

which  have  become  payable.     Williams  '  Williston   v.  Michigan,  <fec.,    R.   R. 

V.  Parker,  136  Mass.  204  (1884).  Co.,  mpra. 

'  Boardman  v.  Lake  Shore,  <fec.,  R.  R.  ^  Boardman  v.  Lake  Shore,  <fec.,  R.  R. 
Co.,  84  N.  Y.  157  (1881);  Ellsworth  v.  Co.,  84  N.  Y.  157  (1881);  Chase  v.  Van- 
New  York,  (fee,  R.  li.  Co.,  98  N.  Y.  648  derbilt,  62  Id.  307  (1875). 
(1885);  s.  c.  19  Week.  Dio.  211 ;  Henry  ''  Thompson  v.  Erie  R.  Co.,  45  N.  Y. 
V.  Great,  &c.,  Ry.  Co.,  4  Kay  cfe  J.  1  468  (1871).  Cf.  Chase  v.  Vanderbilt,  62 
(1857).  Id.  307  (1875). 

^  Sturge  V.  Eastern,  cfec,  Ry.  Co.,  7  "Barnard  v.  Vermont,  &c.,  R.  R.  Co., 

De  G..  M.,  <fc   G.    158  (1855);  Smith  v.  89  Mass.  512  (1863). 

Cork,  <fec.,  Ry.  Co.,  Ir.   Rep.   3  Eq.  356  ■>  Millar  v.  Pittsburgh,  &c.,  R.  R.  Co., 

(1869);  Bailey  v.  Hannibal,  tfec,  R.   R.  40  Penn.  St.  237  (1861);  Richardson  ;;. 

Co.,  1  Dill.  174  (1871);  Frouty  ?>.  Michi-  Vermont,    &c.,   R.    R.  Co.,   44  Vt.    613 

gan,  <fec.,  R.  R.  Co.,  1   Hun,  655  (1873);  (1872);  Cunningham   v.   Same,  78  Mass. 

Thompson  v.  Erie  Ry.  Co.,  45  N.  Y.  468  411   (1859);  MfLoughlin  v.  Detroit,  &c., 

(1871).  R.   R.  Co.,  8  Mich.    100  (1860);  City  of 

280 


CH.  XVI.] 


PREFERRED   STOCK. 


[§  277. 


interest  or  dividends  to  its  shareholders,  without  reference  to  the 
ability  of  the  company  to  pay  them  out  of  its  earnings,  is  wholly 
illegal  and  void.^  Accordingly,  it  is  illegal  and  contrary  to  pub- 
lic policy  to  allow  a  corporation  to  pay  interest  on  interest-bearing 
stock  out  of  the  capital  stock  of  the  corporation,  or  while  there 
are  debts  due  by  the  corporation  which  should  be  immediately 
paid.'^  Moreover,  the  directors  or  corporate  officers  paying  inter- 
est on  stock  out  of  the  capital  stock,  are  jointly  and  severally 
liable  to  refund  the  amounts  so  paid  out.^  A  raihray  company 
may  lawfully  receive  subscriptions  to  its  capital  stock  upon  the 
condition  to  pay  interest  thereon  as  soon  as  the  amount  of  the 
subscription  shall  have  been  paid  in,  and  until  the  comple- 
tion of  the  road,  or  of  some  part  thereof,  or  until  the  road 
shall  have  been  put  in  operation.*     It  has  been  held  that  stipu- 


Ohio  V.  Cleveland,  &c.,  R.  R.  Co.,  6  Ohio 
St.  489  ( 1856) ;  Evansville,  <fec.,  K.  R.  Co. 
V.  City  of  Evansville,  15  Ind.  395;  Rut- 
land R.  R.  Co.  V.  Thrall,  35  Vt.  543 
(1 8R3) ;  Wright  ?;. Vermont,  (fee,  R.  R.  Co., 
66  Mass.  68  (1853);  Waterman  ?-.  Troy, 
Ac,  R.  R.  Co.,  74  Id.  433;  Barnard  v. 
Vermont,  &c.,  R.  R.  Co.,  89  Id.  512 
(1863). 

'  Painesville,  (fee,  R.  R.  Co.  v.  King, 
17  Ohio  St.  6S4  (1867);  Pittsburgh,  (fee., 
R.  R.  Co.  V.  County  of  Allegheny,  G3 
Penn.St.  126(1869);'Miller  v.  Pittsburgh, 
(fee,  R.  R.  Co.,  40  Id.  237  (1861);  Lock- 
hart  V.  Van  Alstyne,  31  Mich.  76  (1875); 
Troy,  (fee,  R.  R.  Co.  v.  Tibbits,  18  Barb. 
297  (1854);  McDoiigall  v.  Jersey,  (fee, 
Co.,  2  Hem.  <k  M.  528  (1864);  Salisbury 
V.  Metropolitan  Ry.  Co.,  38  L.  J.  (N.  S.) 
Ch.  249  (1869). 

'  Pitt.5burgh,  (fee,  R.  L.  Co.  v.  County 
of  Allegheny,  63  Penn.St.  126 '(1869); 
Painesville.  (fee,  R.  R.  Co.  v.  King,  17 
Ohio  St.  534  (1867);  Salisbury  v.  Metro- 
politan, (fee,  Ry.  Co.,  38  L.  J.(N.  S.;  Ch. 
249  (1869);  In  re  National,  <fee.  Co.,  10 
L.  R.  Chan.  Div.  118  (1878);  McDoiigall 
V.  Jersey,  (fee,  Co.,  10  Jur.  (N.  S.)  1043 
(1864).  Cf.  I^ardwell  v.  Sheffield,  (fee, 
Co.,  L.  R.  14  Eq.  Cas.  517  (1872).  And 
a  payment  of  interest  on  stock  before 
profits  are  earned  is  in  violation  of  a  stat- 
ute ijroliibitiiig  dividends  from  ca[)ital 
Btock.  Piifj^burgh,  (fee,  R.  R.  Co.  v. 
County  of  Allegheny,  63  Penn.  St.  126 
(1869). 

'  I\e  National,  (fee,  Co.,  10  L.  R.  Chan. 
Div.  118  (1878). 

*  Milwaukee,  (fee,  R.  R.  Co.  v.  Field, 


12  Wis.  340  (1860);  Racine  County  Bank 
V.  Ayers,  12  Id.  512  (1860);  Miller  v. 
Pittsburgh,  (fee,  R.  K.  Co.,  40  Penu.  St. 
287  (1861);  Rutland,  (fee,  R.  R.  Co.  v. 
Thrall,  35  Vt.  536  (1863).  But  in  Penn- 
s^'lvauia  such  an  undertaking  on  the  part 
of  a  corporation  is  pronounced  "foolish." 
In  Miller  v.  Pittsburgh,  (fee,  R.  R.  Co!, 
supra,  Woodward,  J,,  says:  ''This  com- 
pany conformed  to  the  foolish  practice  of 
receiving  subscriptions  on  a  guarantee 
that  they  would  pay  interest  on  stock  '  aa 
soon  as  paid  in '  until  the  road  is  finislied. 
When  it  is  considered  that  railway  com- 
panies are  joint-stock  associations,  and 
depend  on  borrowing  most  of  the  mcmey 
they  expect  to  expend,  the  absurdity  of 
borrowing  money  to  paj'  interest  to  them- 
selves is  self-evident.  .  .  No  intelli- 
gent stockholder  who  has  the  interest  of 
the  enterprise  at  heart  ought  to  acceptor 
insist  on  sueh  a  condition."  Such  a  con- 
dition, if  it  cimteniplated  the  payment  of 
the  interest  before  the  company  had  ac- 
cumulated earnings  proper  to  be  appro- 
priated to  a  dividend  would,  as  we  have 
seen,  be  void.  And  when  the  condition 
does  not  specify  any  lime  of  jiaynieni,  the 
interest  can  only  be  payable  when  a  suf- 
ficient amount  of  net  profits  have  been 
earned.  Kuilaiul,  (fee,  R.  R.  Co.  ♦'.  Thrall, 
3;.  Vt.  543  (18G3);  Waterman  v.  'i'roy, 
(fee,  R.  R.  Co.,  74  Mass.  433  (1857). 
licnee  it  may  be  concluded  thai  the  only 
effect  of  an  agreement  by  the  corporation 
to  pay>uch  interest  is  to  enable  those 
stockhold' rs,  with  whom  the  agreement 
is  made,  to  claim  a  dividend  and  arrears 
of  dividend  before  other  stockholders  re- 

281 


§  278.]  PREFERRED    STOCK.  [CH.  XVI. 

lated  interest  on  stock  cannot  become  a  debt  payable  abso- 
lutely.^ The  right  of  a  subscriber  drawing  interest  on  his  stock 
to  participate  in  elections  and  general  corporate  meetings,  and  to 
exercise  generally  the  rights  of  a  shareowner,  is  the  same  as  that 
of  other  stockholders.^  His  status  as  a  stockholder  is  not  affected 
by  the  mere  consideration  that  he  is  to  be  paid  interest  upon  his 
investment.  Payment  of  interest  on  stock,  being  in  its  essence 
only  a  form  of  dividend,  is  enforceable  in  a  Court  of  Cliancery 
only  when  a  dividend  would  be  ordered.  The  same  rules  prevail 
in  the  one  case  as  in  the  other.  There  must  be  hona  fide  profits, 
and  funds  sufficient  for  the  payment  equally  of  all  such  stock- 
holders in  addition  to  that  necessary  for  current  exjDcnses,  the 
payment  of  floating  debts  due,  and  a  reasonable  sum  for  contin- 
gencies.^ 

§  278.  Bights  of  preferred  sliareoivners  on  dissolution. — 
Upon  the  dissolution  of  a  corporation,  and  the  distribution  of  its 
assets  among  tlie  shareholders  after  the  payment  of  the  corporate 
indebtedness,  it  is  the  settled  rule  of  law  that,  in  the  absence  of 
any  statutory  provision,  preferred  shareholders  have  no  jDriority 
over  common  stockholders.  Their  stock  was  preferred  in  respect 
of  dividends,  and  not  in  reference  to  the  capital  stock.  The 
assets  of  the  corporation  are  to  be  distributed  as  though  no  pre- 
ferred shares  had  been  issued.  The  preferred  shareholder  in  the 
distribution  becomes  a  common  shareholder.*  Where,  however, 
a  preference  as  to  capital  has  been  expressly  contracted  for,"  or  is 
given  by  a  statute,^  the  rule  is,  of  course,  otherwise.''     This,  how- 


ceive  anything.     This  is  nothing   more  ^  McGregor  v.  Home  Ins.  Co.,  33  N.J. 

nor  less  than  a  preferred  dividend.  Eq.  181  (1880\ 

-  Barnard  V.Vermont,  &c.,  R.  H.Co.,  89  ■"  Where  a  corporation  was  dissolved 
Mass.  .512(1 863).  On  the  other  hand,  it  has  by  consolidation  with  another,  it  was  held 
been  held  that  the  relation  of  debtor  and  that  there  might  be  a  preference  in  the 
creditor  is  created  to  the  extent  of  the  distribution  of  the  as-ets  of  the  old  cor- 
interest  stipulated  for.  McLoughlin  v.  poration.  Griffith  v.  Pa.;et,  L.  R.  6  Chan. 
Detroit,  &c.,  R.  R.  Co.,  8  Mich.  100  Div.  511  (1877) ;  s.  c  25  W.  R.  523.  The 
(1 864).  status  of  the  holders  of  preferred  shares  in 

-  McLoughlin  v.  Detroit,  <fec.,  R.  R.  the  distribution  of  the  capital  on  the 
Co.,  supra.  winding  up  of  the  company,  in  the  al>- 

'  Richardson  v.  Vermont,  <fec.,  R.  R.  sence  of  any  statute  designaiing  how  the 

Co.,  44  Vt.  613  (1872);    Barnard  v.  Id.,  assets  are  to  be  apportionccl,  or  of  any 

89  Mass.  512  (1863).  provision  in  the  contr;ict  itself,  is  well  set 

•»  McGregor  v.  Home  Ins.  Co.,  33  N.J.  out  in  the  decision  in  tlie  case  of  McGreg- 

Eq.  181  (1880);  7w  re  London  India  Rub-  or    v.    Home   Insurance    Co.,   supra.     It 

her  Co.,  L.  R.  5  Eq.  519  (1864).  amounts  to  this.   While  (he  concern  is  go- 

*  Re  Bangor,  Ac,  Slate  Co.,  L.  R.  20  ing,  if  there  are  any  profits  earned,  the 

Eq.  59  (1875).  preferred  shareowners  are  to  be  paid.    If 

282 


CH.  XVT.] 


PREFERRED   STOCK. 


[§  278. 


ever,  is  not  generally  the  case,  and  upon  dissolution  all  the  stock- 
holders, both  common  and  preferred,  share  equally  in  the  distri- 
bution of  assets. 


there  be  no  profifs  they  get  nothing,  for 
the\'  are  not  creditors,  but  rather  part- 
ners. On  the  dissolution,  the  profits  are 
at  an  end.  The  onlj  fund  to  which  they 
have  a  right  to  hiok  for  profit  ceases  to 
earn  anything.  The  capital  remains,  but 
inasmuc)i  as  the  preferred  shareholders 
could  not  draw  on  the  capital  during  the 
life  of  the  company,  so  they  are  not  en- 
titled to  any  preference  when  it  is  de- 
funct. This  rule  was  first  laid  down,  it 
seems,  by  Malins,  V.  C.  In  re  London 
Rubber  Co.,  L.  R.  5  Eq.  519  (1867).  And 
it  has  not  been  questioned  either  in  this 
country,  McGregor  v.  Home  Ins.  Co.,  33 
N.  J.  Eq.  181  (1880),  or  in  England. 
Grifiith  V.  Paget,  L.  R.  6  Chan.  Div.  511 
(18Y7). 

In  the  case  last  cited,  the  Master  of 
the  Rolls  luminously  said:  "All  these 
companies  are  commercial  partnerships, 
and  are,  in  the  absence  of  express  provi- 
sions, statutory  or  otherwise,  subject  to 
the  same  considerations.  If  in  an  ordi- 
nary commercial  partnership  one  or  more 
of  the  partners  has  a  larger  share  of  the 
profits  than  is  the  proportion  borne  by 
his  share  of  the  capital  to  the  capital  of 
the  others,  whether  on  account  of  his 
services  (which  is  the  more  frequent 
ground,  in  cases  of  partnership,  for  giving 
the  larger  share),  or  on  account  of  the 
services  of  others  formerly  given  to  the 
partnership,  which  is  sometimes  done, 
especially  in  the  case  of  a  second  or  third 
generation,  that  privilege  ceases  when 
the  partnership  is  dissolved.  If  you  give 
an  annuity  out  of  profits  to  a  widow  dur- 
ing the  continuance  of  the  partnership, 


she  having  no  share  of  the  capital,  of 
course  that,  ex  vi  termini,  will  come  to  an 
end  at  the  dissolution  of  the  partnership. 
If  you  give  a  managing  partner  a  salary, 
or  a  larger  share  of  profits  than  his  pro- 
portion of  the  capital,  of  course,  at  the 
dissolution  the  management  comes  to  an 
end  and  his  larger  share  o'  profits. 

"  But  in  the  ordinary  case,  when  the 
profits  are  unequally  divided — that  is  un- 
equally, as  regards  the  share  of  capital — 
the  same  rule  prevails,  and  that  is  quite 
independently  of  the  circumstance  wheth- 
er the  excess  of  profits  is  given  for  serv- 
ices, or  given  to  a  sleeping  partner  for 
the  use  of  his  name  or  otlierwise. 

"  When  the  partnership  comes  to  an 
end,  the  right  to  the  share  of  profits  comes 
to  an  end  also ;  and  you  distribute  the  as- 
sets, after  providing  for  the  profits  earned 
up  to  the  time  of  the  dissolution,  in  pro- 
portion to  the  partners'  shares  of  the 
partnership  capital.  Tiiat  is  the  general 
rule  of  law  in  a  commercial  partnership. 
Therefore  you  would  distribute  the  assets 
simply  in  proportion  to  the  capital.  This 
is  a  commercial  partnership  subject  to 
certain  statutory  limits.  Therefore,  if 
there  were  no  provision  to  be  found  any- 
where, you  would  distribute  the  assets  in 
proportion  to  the  capital,  and  the  mere 
arrangement  for  the  division  of  profits 
inter  se,  during  the  continuance  of  the 
partnership,  would  have  no  direct  bearing 
on  the  division  of  the  capital  as  distin- 
guished from  profits  earned  up  to  the 
time  of  the  dissolution  after  the  dissolu- 
tion of  the  company." 


283 


CHAPTER  XVII. 

INCREASE   AND   REDUCTION  OF  THE  CAPITAL   STOCK   AND 

OVERISSUED   STOCK 


279.  Introductory. 

280.  Power  of  the  legislature  to  author- 

ize an  increase  or  reduction. 

281.  Power  of  the  corporate  authorities 

to  increase  or  reduce  the  capital 
stock. 

282.  Effect  of  purchase  by  a  corpora- 

tion of  shares  of  its  own  stock. 

283.  The    issue   of  bonds   convertible 

into  stock. 

284.  Power  of  a  court  to  direct  an  in- 

crciise  or  reduction. 

285.  Shareholders,  not  directors,  should 

authorize  the  increase. 

286.  Pre-emptive  right  of  the  old  stock- 

holders to  buy  the  new  stock. 

287.  Issue  of  an  increase  of  stock  by  a 

stock  dividend. 

288.  Liability  of  the  shareholder  upon 

an  increase  of  the  capital  stock. 

289.  Right  and  liability  of  the  share- 

holder upon  a  reduction  of  the 
capital  stock. 


290. 


Changes 


in    the  number  or  par 
value  of  the  shares. 

291.  Unauthorized    increase   of    stock 

may  amount  to  overissued  stock . 

292.  Overissued     stock    is    absolutely 

void. 

293.  Liability   of  the    corporation   on 

overissued  stock. 

294.  Defenses  of  the  corporation  to  such 

actions. 

295.  Personal  liability  of  the  officers  of 

the  corporation  on  overissued 
stock. 

296.  Liability  of  the  vendor   of  over- 

issued stock. 

297.  Equity  will  enjoin  voting,  trans- 

ferring, and  dividends,  on  such 
stock,  and  Avill  adjust  the  right 
of  all  parties. 

298.  Subscriber's  right  to  defeat  a  sub- 

scription to  overissued  stock, 
and  to  recover  back  money  paid 
thereon. 


§  279.  Introductory. — In  general,  the  capital  stock  of  all  in- 
corporated companies,  is  definitely  stated  by  the  charter  which 
makes  it  a  corporation.  When  such  a  company  is  created  by 
special  act  of  the  legislature,  the  amount  of  the  capital  stock  is 
almost  universally  fixed  by  the  charter  of  the  incorporation.  And 
when  the  company  is  organized  under  one  of  the  general  incorpo- 
rating acts,  which  have  been  enacted  in  all  the  States  of  the  Union, 
the  act  itself  generally  provides  that  the  amount  of  the  capi- 
tal stock  be  fixed  and  specified  in  the  articles  of  association. 
This  prescribes  and  limits  the  amount  of  the  stock  as  fully  as 
though  it  had  been  fixed  by  a  special  charter  from  the  legislature. 
It  frequently  happens,  however,  in  the  progress  of  the  corporate 
enterprise,  subsequently  to  the  incorporation,  that  the  capital 
stock  is  found  to  be  too  large  or  too  small  for  the  demands  of 
the  business,  and  there  is  a  desire  to  increase  or  reduce  the  capital 
stock  as  fixed  by  the  charter.     This  can  lawfully  be  done  only 

284 


CH.  XTII.]  INCREASE,   REDUCTION,   AND   OVERISSUE.  [§  280. 

under  certain  prescribed  conditions  and  limitations,  which  it  is 
proposed  in  this  chapter  to  consider.  The  large  number  of  cases 
on  this  subject,  show  that  the  attempt  to  make  this  change  in 
the  amount  of  the  capital  stock,  has  been  a  fruitful  source  of 
mistakes  and  litigation,  and  that  in  undertaking  it,  a  corporation 
is  liable  to  commit  illegal  or  irregular  acts,  which  give  rise  to 
complications,  dithculties,  and  loss  to  the  stockholders. 

§  280.  Poiuer  of  the  legislature  to  authorise  an  increase  or 
reduction. — It  is  plainly  within  the  proper  province  of  tlie  legis- 
lature, upon  granting  a  charter  of  incorporation,  to  fix  the  amount 
of  the  capital  stock  of  the  company  incorporated.  But  it  is  a 
serious  question,  whether  the  legislature  may  amend  a  charter, 
so  as  to  allow  an  increase  or  reduction  of  the  capital  stock,  as 
against  the  protest  of  one  or  more  dissenting  stockholders.  The 
original  charter  is  clearly  a  contract  between  the  corporators  and 
the  State,  No  material  change  can  be  made  in  that  charter  except 
by  the  consent  of  both  parties — the  State  on  the  one  side,  and 
all  the  corporators  or  stockholders  on  the  other.  If  the  increase 
or  reduction,  as  authorized  by  a  statute,  passed  subsequently  to 
the  vesting  of  the  charter,  is  a  material  change  of  that  charter, 
then  a  unanimous  consent  of  the  stockholders  is  necessary  to  its 
validity,^ 

Where,  however,  as  is  usual  in  most  charters  which  have  been 
granted  in  recent  years,  the  legislature  possesses  the  reserved 
power  to  alter,  amend,  or  repeal  the  charter  of  the  corporation, 
then  a  statute  authorizing  an  increase  or  reduction  of  the  capital 
stock  may  at  any  time  be  passed,  without  impairing  the  obliga- 
tion of  the  contract  between  the  State  and  the  incorporators,  and 
the  shareholders  will  not  be  heard  to  object.^     Corporate  credit- 

'  See  Chapter  on  Amendments  to  Char-  corporation  were  extended  by  a  subse- 
ter.  In  Bergman  v.  St.  Paul  Mutual  Build-  queiit  act  of  the  legislature,  passed  by 
ing  Association,  29  Minn.  275  (1882),  it  virtue  of  the  reserved  power  in  the  ciiar- 
is  held  that  the  corporation  cannot  arbi-  ter,  it  was  held  that  the  subscribers  to 
trarily,  by  a  by-law,  compel  the  share-  the  capital  stock  were  not  thereby  dia- 
holder  to  sell  his  stock  to  tiie  corporation  charged.  Peoria,  <fec.,  R.  R.  Co.  v.  Ell- 
in order  tliat  it  may  be  retired.  And  that  ing,  17  111.  429  (1866).  And  if  such  a 
a  voluntary  consent  by  the  shareholder  to  statutory  amendnieiit  be  accepted  by  the 
the  retirement  of  ]iart  of  his  stock  is  no  director.s  of  the  corporation,  the  subscrib- 
waiver  of  his  right  to  object  to  the  retire-  ers  to  the  stock  are  not  released.  Illinois 
ment  of  the  remainder.  River  R.  R.   Co.  v.  Zimmer,  20   III.   054 

»  Buffalo,  &c.,  R.  R.  Co.  v.  Dudley,  14  (1858).     Where,  however,  the  increase  of 

N.  Y.  336  (1856);   Joslyn  v.  Pacific  Mail  capital  stock  is  so  great  as  to  change  09- 

Steamship  Co.,  12  Abb.  Prac.  (N.  S.)  329  sentially  tlie  liability  of  the  shareholder, 

(1872).     Thus,  where  the  powers  of  the  and  to  impose  upon  him,  in  reality,  a  new 

285 


§  281.] 


INCREASE,   REDUCTION,    AND   OVERISSUE.        [CH.  xvn. 


ors  may,  however,  have  such  vested  rights  in  the  corporate  prop- 
erty, that  the  legislature  cannot  constitutionally  authorize  the 
reduction  of  the  capital  stock,  in  prejudice  of  their  rights  as  to 
antecedent  corporate  indebtedness.^ 

Sometimes  provision  is  made  for  the  increase  or  reduction  of 
the  amount  of  the  capital  stock  of  incorporated  companies,  by  a 
general  statutory  provision  in  the  statute  authorizing  the  incor- 
poration.^ Authority  to  increase  the  capital  stock  of  a  corpora- 
tion may  undoubtedly  be  conferred  by  a  law  passed  subsequently 
to  the  charter,  but  such  a  law  is  valid  only  when  accepted  by  the 
stockholders.  This  assent  may  either  be  inferred  from  subse- 
quent acquiescence,  or  it  may  be  given  by  express  vote  of  the 
shareholders  in  meeting  assembled.^ 

§  281.  Power  of  the  corporate  mithorities  to  increase  or 
reduce  the  capital  stock. — In  the  absence  of  express  authority 
from  the  State,  a  corporation  has  no  power  whatsoever  to  increase 
or  reduce  the  amount  of  its  stock,  and  any  attempt  upon  the  part 
of  the  corporation,  either  by  the  corporate  officers  or  by  the  stock- 
holders, to  do  so,  is  wholly  illegal  and  void.*     Accordingly  it  is 


contract,  the  increase  will  operate  to  dis- 
charge such  of  the  subscribers  to  the  capi- 
tal stock  as  do  not  assent  to  it,  or  subse- 
quently acquiesce.  Hughes  v.  Antietam, 
&c.,  Co.,  34  Md.  316  (1870).  The  same 
rule  prevails  in  the  case  of  a  reduction  of 
the  capital  stock.  Okltown,  <fec.,  R.  R. 
Co.  V.  Veazie,  39  Me.  571  (1855),  But  cf. 
Chapter  on  Amendments. 

^  Re  State  Insurance  Co.,  14  Fed.  Rep. 
28  (1882);  s.  c.  11  Biss.  301;  Palfrey  v. 
Paulding,  7  La.  Ann.  363  (1852);  Re 
Telegraph  Construction  Co.,  L.  R.,  10  Eq. 
384  (1870);  Cooper  v.  Frederick,  9  Ala. 
742(1846);  Morawetz  on  Corp.  (2d  edi- 
tion), §§  8ii3,  851.  In  re  Credit  Fancier 
of  England,  L.  R.,  11  Eq.  356  (1871). 
And  in  England  a  corporate  creditor  may 
enjoin  a  distribution  of  assets  on  reduc- 
tion, among  the  stockholders,  until  his 
claim  is  secured.  In  re  Telegraph  Con- 
struction Co.,  L.  R.,  10  Eq.  384  (1870). 

2  New  York  Session  Laws,  1848,  chap. 
40,  §§  20,  21;  1860,  chap.  140,  §  9; 
1878,  chap.  264;  Rev.  Stat,  of  Ohio 
(1886),  §§  3262-3264;  Brightley's  Pur- 
don's  Digest,  Laws  of  Penn.  (1883),  page 
343,  §i5  33,34;  page  348,  §  55  et  seq. 
(Laws  of  Penn.,  April  29,  1874);  Pub. 
Stat,  of  Mass,  (1882),  ch.  106,  §  34;  ch. 

286 


112,  §  60;  Ann.  Stat,  of  111.,  Starr  & 
Curtis  (1885),  ch.  32,  §  50;  ch.  114,  §  15; 
Rev.  of  N.  J.  (1877),  page  181,  §24;  page 
1290,  §  29.  In  Louisiana  the  constitution 
and  laws  make  express  provision  for  the 
increase  of  the  capital  stock  of  incorpo- 
rated companies.  Constitution  of  La., 
art.  239;  Laws  of  La.  (1882),  art.  26; 
Rev.  Stat,  of  La.,  §  693.  But  no  pro- 
vision is  anywhere  made  in  the  constitu- 
tion or  by  statute  for  the  reduction  of 
capital.  The  courts,  therefore,  conclude 
th.it  the  omission  was  intentional,  and 
that  corporations  in  that  State,  in  conse- 
quence, can  have  no  power  to  reduce  their 
stock.  Seignouretw.  Home  Insurance  Co., 
24  Fed.  Rep.  332  (1885). 

•*  Railway   Company  v.   AUenton,   18 
Wall.  233,  235  (1873). 

^  Scoville  V.  Thayer,  105  U.  S.  143, 
148  (1881);  Knowlton  v.  Congress.  <fec.. 
Spring  Co.,  14  Blatchf.  364(1877)-  Gran- 
gers Life,  tfec.  Insurance  Co.  v.  Kamper, 
73  Ala.  325  (1882) ;  Moses  v,  Ocoee  Bank, 
1  Lea  (Tenn.),  398  (1878) ;  Ferris  v.  Lud- 
low, 7  Ind.  517  (1856);  Sutherland  v. 
Olcott,  95  N.  Y.  93,  100  (1884);  New 
York,  &c.,  R.  R.  Co.  v.  Schuyler,  34  Id. 
30(1865);  Mechanics  Bank  t'.  New  York, 
<fec.,  R.  R.  Co.,  13  Id.  599  (1866) ;  Lathrop 


CH.  XVII.]        INCREASE,   REDUCTION,   AND   OVERISSUE. 


[§  261. 


Lot  competent  for  a  corporation,  having  a  fixed  capital  stock  to 
reduce  that  capital  to  the  amount  actually  paid  in  ;  ^  nor,  by  a 
by-law,  to  authorize  the  directors  to  reduce  the  par  value  of  the 

shares.^ 

Where  the  attempted  increase  or  reduction  of  the  stock  is 
■illegal  and  unauthorized,  not  even  the  unanimous  assent  and 
agreement  of  all  the  parties  concerned  will  legalize  it.^  An 
authority  to  reduce  the  number  of  shares  cannot  be  inferred 
from  the  authority  to  increase,  and  a  reduction  with  no  other 
warrant  of  authority  than  a  right  to  increase  will  be  held  void.* 
Where  subscriptions  are  made  to  an  unauthorized   increase  of 


V.  KneelaDd.  46  Barb.  432  (1866);  Salem 
Mill  Dam  Corporation  v.  Ropes,  6  Pick. 
23  (1827).  "If,"  says  Parker,  C.  J.,  in 
the  case  last  cited,  "  a  corporaiion  is  cre- 
ated with  a  fund,  limited  by  the  act,  it 
cann  t  enlarge  or  diminish  that  fund,  but 
by  a  license  from  the  legislature,  and  if 
the  capital  stock  is  parcelled  out  into 
a  fixed  number  of  shares,  this  cannot  be 
changed  b}'  the  corporation."  Ace.  Stace 
&  Worth's  Case,  L.  K.,  4  Chan.  682  (1 869); 
Morawetz  on  Corp.  (2d  edition),  §  434. 

'  I)r(jitwich  Patent  Salt  Co.  v.  Curzon, 
L.  R.,  3  Exch.  35,  42  (1867).  But  an 
issue  of  stuck  to  the  amount  of  the  sub- 
scriber's payments,  and  a  cancellation  of 
the  balance  of  his  subscription,  were  held 
not  to  constitute  a  reduction  of  the  capital 
stock  pro  tnnto.  Chetlain  v.  Republic  Life 
Insurance  Co.,  86  111.  220  (1877).  In 
England  it  is  the  rule  that  when  the  assets 
are  already  reduced  by  losses,  the  corpo- 
ration cannot  effect  a  reduction  of  the 
capital  stock,  so  as  to  cover  up  the  losses. 
In  re  Ebbw  Vale  Steel,  Iron  &  (?oal  Co., 
L.  R.,  4  Chan.  Div.  827  (I8V6).  And  yet 
it  should  seem  that  a  greater  (raud  would 
be  worked  upon  the  public  by  cnntinuing 
business  with  an  impaired  capital,  than 
to  reduce  it  opt^nly  to  what  it  actually  is. 
Cf.  In  re,  Kirkstall  Brewery  Co.,  L.  R.,  5 
Chan.  Div.  535  (1877). 

■'  In  re  Financial  Corporation,  L.  R.,  2 
Chan.  714  (1867).  "The  amount  of  the 
shares  is  properly  part  of  the  coneiitution 
of  the  company,"  ^o  that  an  utiauthorized 
reduction  is  himjily  void,  and  the  stock 
and  cai)ital  remain  the  same  as  before 
Buch  atti'iiipted  reduction.  Smith  v. 
Goldsworthy,  4  Q.  B.  430  (li-43);  Se well's 
Case,  L.  R.,  3  Chan.  131  (1868).  But  in 
Anibergate,  Nottingham  <fe  Boston  & 
EHBtcrn  Ry.  Co.  v.  Mitdiell,  4  Exch.  540 
( 1849) ;  8.   c.   6   Eng.   Ry.  Cases,  234,  it 


was  held  that  a  reduction  by  the  company 
of  its  shares,  from  £25  to  £20,  was,  in  the 
absence  of  any  act  prohibiting  it,  lawful 
and  valid.  An  increase,  however,  in  the 
size  of  the  shares — doubling  their  par 
value — is  such  a  change  as  will  release  a 
non-assenting  subscriber  to  the  stock  to 
the  extent  of  such  increase.  He  will  be 
liable  on  his  subscription  for  shares  of 
the  original  value  only.  In  re  European 
Central  Ry.  Co.,  L.  H.,  8  Eq.  438  (1869). 
And  a  distribution  of  part  of  the  capital 
stock  among  the  shareholders  propor- 
tionally, is  an  unauthorized  reduction, 
and  the  stock  will  be  ordered  to  be  re- 
turned. Holmes  v.  Newcastle,  upon  Tyne 
Abattoir  Co.,  45  L.  J.  (Chan.)  383  (1875). 
it  has  been  held  allowable,  however,  for 
the  company  to  allow  the  holders  of  paid 
up  shares  to  return  them,  and  take  in  ex- 
change shares  of  double  the  par  value  as 
half  paid  up,  and  vice  versa  ;  both  kinds  of 
stock  being  authorized.  Teasdale's  Case, 
L.  R.,  9  Chan.  54  (1873).  Shareholders 
cannot,  however,  be  compelled  to  make 
such  an  exchange. 

^  "The  officers,  directors,  and  stock- 
holders of  an  incorporated  company,  can- 
not, even  by  an  unanimous  agreement, 
made  under  an  honest  misapprehension 
of  their  powers,  increase  the  capital  of 
the  company."  People  v.  Parker  Vein 
Coal  Co.,  10  How.  Prac.  543  (1854).  Ir- 
reL'ulaiitv  of  notice  of  meeting  is  fatal. 
Matter  of  Wheeler,  2  Abb.  Prac.  (N.  S.) 
361.  If  the  stiitule  requires  a  publication 
of  notice  of  the  intended  increase,  such 
publication  must  be  made.  It  caimot  be 
waivcil,  even  by  unanimous  consent  of  the 
stockholders.  The  public  are  entitled  to 
knowledge  of  the  increase.  State  v.  Mc- 
Grath,  86  Mo.  239  (18&6). 

•"  Sutherland  v.  Alcott,   95  N.  Y.  93 
(1884). 

287 


§  282.] 


INCREASE,    REDUCTION,    AND   OVERISSUE. 


[CH. 


xvn. 


stock,  which  is  subsequently  and  legally  validated,  in  an  author- 
ized manner,  the  subscribers,  if  they  acquiesce,  are  bound. ^ 

If  the  charter  of  the  corporation  provides  that  the  capital 
stock  shall  not  be  less  than  a  specified  sum,  nor  greater  than 
another  specified  sum,  the  corporation  may  commence  business 
with  less  than  the  latter  sum,  and  afterwards  increase  the  capital 
nntil  the  limit  is  reached.^ 

An  injunction  is  the  proper  remedy  to  pi'event  an  illegal  in- 
crease or  reduction  of  the  capital  stock  of  a  corporation.  But  an 
injunction  against  the  issue  of  new  stock  by  a  foreign  corpora- 
tion, will  be  dissolved,  where  the  courts  of  the  State  where  the 
corporation  was  created  decide  such  issue  of  stock  to  be  legal.^ 

§  282.  Effect  of  purchase  hy  a  corporation  of  shares  of  its 
own  stock. — If  a  corporation  have  power  to  reduce  its  capital 
stock  it  may  unquestionably  do  so  by  purchasing  and  retiring  a 
portion  of  its  shares.'*     Whether  such  a  purchase   by  a  corpora- 


»  Sewell's  Case,  L.  R.,  3  Chan.  131 
(1868).  And  where  an  increase  was  au- 
thorized by  law,  but  had  been  made  in 
an  irregular  manner,  so  that  the  new  stock 
was  apparently  legal,  but  might  have 
been  annulled  by  an  action  by  the  Attor- 
ney-General, a  subscriber  to  such  stock 
who  paid  the  purchase  price  in  part,  and 
received  the  certificate,  and  subsequently 
voted  on  the  stock  at  corporate  meetings, 
was  held  estopped  to  question  the  regu- 
larity of  the  issue,  in  an  action  by  the 
receiver  of  the  corporation  to  collect  the 
unpaid  subscription.  Chubb  v.  Upton,  95 
U.  S.  665  (1877);  s.  p.  Upton  v.  Jackson, 
1  Flippin,  413;  Kansas  City  Hotel  Co.  v. 
Hunt,  57  Mo.  126  (1874).  In  such  a  case 
the  State  alone  can  properly  raise  the 
question  whether  the  corporate  stock  had 
been  regularly  and  lawfully  increased. 
Pullman  v.  Upton,  96  U.  S.  329  (1877). 
See  Clarke  v.  Thomas,  34  Ohio  St.  46 ; 
Matter  of  the  Reciprocity  Bank,  22  N.  Y. 
9  (1860) ;  Kansas  City  Hotel  Co.  v.  Harris, 
51  Mo.  464  (1873).  But  where  a  sub- 
scription is  made,  and  the  amount  of  it 
or  any  part  of  it  paid  in,  on  the  supposi- 
tion that  the  shares  taken  are  part  of  a 
lawful  increase  of  the  stock,  the  money  so 
paid  may  be  recovered  back,  if  for  any 
reason  it;  turns  out  that  the  increase  waj 
not  lawfully  made.  Knowlton?/.  Congress 
&  Empire  Spring  Co.,  14  Blatchf.  864 
(1877);  s.  c.  affi'd  sub  nom.  Spring  Com- 
pany v.  Knowlton,  103  U.   S.  49  (1880). 

288 


[Compare  with  these  cases  the  dissenting 
opinion  of  Dwight,  C.,-  in  Knowlton  v. 
Congress  <fe  Empire  Spring  Co.,  57  N.  Y. 
518,  540  (1874).]  See  also  Peckham  v. 
Smith,  9  How.  Prac.  436  (1854).  And 
where  the  capital  stock  had  been  unlaw- 
fully increased,  a  promissory  note  given  in 
payment  for  shares  of  stock  could  not,  it 
was  held,  be  collected,  for  the  reason  that 
it  was  impossible  to  show  that  the  stock 
delivered  to  the  purchaser  was  not  part 
of  the  illegal  issue.  Merrill  v.  Gamble, 
46  Iowa,  615  (1877);  Merrill  v  Beaver, 
46  Id.  646  (1877).  But  otherwise  if  stock 
unquestionably  valid  was  delivered.  Mer- 
rill V.  Beaver,  50  Iowa,  404  (1879). 

'  Gray  v.  Portland  Bank,  3  Mass.  364 
(1807).  Ace.  Somerstt,  Ac,  R.  R.  Co.  v. 
Cushing,  45  Me.  524  (1858).  In  the  case 
last  cited,  it  is  held  that  where  the  num- 
ber of  shares  is  not  fixed  by  charter,  the 
directors  or  shareholders  must  fix  it  be- 
fore an  assessment  can  be  levied,  and  that 
then,  if  the  number  fixed  is  greater  tiian 
the  number  taken,  it  may  be  reduced  sub- 
sequently. 

■^  O'Brien  v.  Chicago,  Rock  Island  & 
Pacific  R.  R.  Co.,  53"Barb.  568  (1868). 
An  increase  of  the  capital  stock  widiout 
warrant  of  authority  is  denominated  an 
overissue  of  stock — a  subject  fully  con- 
sidered in  the  succeeding  sections  of  this 
chapter  q.  v. 

■»  State  ?i.  Smith,  48  Vt.  266  (1876); 
City  Bank  of  Columbus  v.  Bruce,  17  N. 


CH.  XYIl]         increase,   REDUCTION",    AND   OYERISSUE.  [§  282. 

tion  will  operate  to  diminish  the  capital  stock  is  a  question  of  in- 
tention. If  a  reduction  is  authorized  by  charter  or  by  statute, 
and  the  formalities  of  making  the  reduction  have  been  complied 
with,  and  the  proper  corporate  authorities  purchase  for  the  cor- 
poration shares  of  its  own  stock  and  consider  the  capital  stock 
thereby  reduced,  the  law  holds  that  a  reduction  of  the  capital 
stock  is  thereby  made.  But  if  any  of  these  elements  are  want- 
ing, then  no  reduction  is  effected,  and  the  corporation  may  at  any 
time  sell  and  reissue  the  stock.^  Hence  a  mei'e  transfer,  of  shares 
to  the  corporation,  whether  the  corporation  assumes  to  buy  the 
stock  or  the  shareholders  simply  to  surrender  it,  will  in  no  case 
constitute  a  reduction  when  the  corporation  lacks  authority  from 
the  legislature  to  reduce  its  capital.  Even  if  the  shareholder  is 
held  to  be  released,  by  such  a  transfer,  still  the  stock  survives  and 
subsists.  The  corporation  is  merely  the  holder  of  it,  and  may 
sell  and  reissue  it  at  any  time.^ 


Y.  BOY  (185?);  Williams  v.  Savage 
Manfg.  Co.,  3  Md.  Chan.  418  (1851); 
Taj-lor  V.  Miami  Exporting  Co.,  6  Ohio, 
176  (1833).  In  Currier  v.  Lebanon  Slate 
Co.,  f)6  N.  H.  262  (1875),  it  is  held  that 
where  a  corporation  has  legislative  au- 
thority to  reduce  its  capital  this  "  may  be 
done  by  relunding  to  its  stockholders  a 
definite  portion  of  each  share,  or  by  the 
surrender  and  extinguishment  of  the  re- 
quired number  of  shares."  But  that  it 
cannot  be  accomplished  "by  the  purchase 
and  exlinguishnient  of  a  portion  of  its 
shares  without  the  consent  and  against 
the  protest  of  any  of  its  stockholders, 
when  such  purchase  or  extinguishment 
would  operate  for  the  relief  and  benefit 
of  the  stockholders  from  whom  the  stock 
is  purchased,  and  will  increase  the  lia- 
bility of  the  remaining  stockholders." 
And  there  is  fidded  tlie  statement  that 
"If  the  corporation  desire  to  increase  its 
capital,  this  may  be  done  by  the  issue  of 
new  shares,  or  by  increasing  the  par 
value  of  the  old."  Cf.  Howell  v.  Chicago, 
<fec.  R.  R.  Co.,  51  JBarb.  378(1868). 

'  .^ame  cases.  The  purchase  by  a  corpo- 
ration, of  its  own  stock,  does  not  necessari- 
ly decrease  the  capital  stock.  "  It  mii^ht 
or  might  not  have  that  effect  at  the  op- 
tion of  the  company,  and  would  require,  I 
think,  some  manitestation  of  such  an  in- 
tent to  produce  that  resul^."  Such  stock 
may  be  reissued  at  any  time.  City  Rk. 
of  Columbus  V.  Bruce,  17  N.  Y.  5o7 
(1858). 


'^Williams  v.  Savage  Manfg.  Co.,  3 
Md.  Chan.  418  (1851);  American  Rail- 
road Frog  Co.  V.  Haven,  101  Mass.  398 
(1869);  Taylor?;.  Miami  Exporting  Co., 
6  Ohio,  176  (1833);  Chetlain  v.  Republic 
Life  Insurance  Co.,  86  111.  220  (1877;. 
Cf.  Currier  v.  Lebanon  Slate  Co.,  66  N. 
H.  262  (1875).  In  some  early  cases  a 
transfer  to  the  corporation  seems  to  have 
been  regarded  as  a  reduction  of  the 
capital  stock  pro  tanto.  Percy  v.  Millau- 
don,  3  La.  568,  587  (1832). 

In  Taylor  v.  Miami  Exporting  Co., 
supra,  it  is  held  that  a  banking  coi-pora- 
tion  might  accept  from  a  shareholder  his 
stock  in  payment  of  a  debt  due  fnmi  him 
to  the  bank,  and  that  a  court  of  equity 
would  not,  alter  a  lapse  of  several  years, 
compel  the  shareholder  to  redeem  the 
stock.  In  the  same  case  it  ia  also  held, 
where  a  shareholder  takes  stock  from 
the  corporation,  buying  and  paying  for 
it  merely  for  the  purpose  of  miilti|jlying 
his  vote  at  an  impending  election,  accepts 
the  certificate,  votes  on  the  stock,  and 
tlien  immediately  returns  the  stock  to  the 
corporation  and  gets  a  return  of  his 
money,  that  equity  will  not  compel  him 
subsequently  to  refund  tiie  nioiiey,  and 
accept  the  stock,  it  not  appearing  that 
any  one  was  injured  b}-  th';  transaction. 
Upon  this  point  compare  State  v.  Smith, 
48  Vt.  266  (1876).  As  a  general  rule,  to 
which  there  are  few  if  any  exceptions,  a 
fitockho'dcr  who  convoys  or  assigns  his 
shares  to  the  corporation,  withoui  «efer- 

[19]  289 


JS4.] 


INCREASE,    REDUCTION,   AND   OVERISSUE.         [cil.  XVII. 


§  283.  The  issue  of  T)onds  convertihle  into  stock. — Where  the 
charter  of  a  railway  corporation  authorizes  the  issue  of  bonds, 
convertible  at  the  option  of  the  holder  into  stock,  the  directors  of 
the  company  have  power  to  issue  such  bonds  in  the  name  of  the 
corporation.  Such  an  issue  may  be  made,  even  thougli,  if  the  bonds 
were  converted  into  stock,  the  capital  stock  would  thereby  be  in- 
creased beyond  the  amount  fixed  by  the  charter.  The  statute  or 
charter  authorizing  such  an  issue  of  bonds,  is  held  to  thereby  au- 
thorize, by  necessary  implication,  the  right  to  increase  the  capital 
stock  to  the  extent  required  in  the  fulfilment  of  the  contract  to 
allow  the  bonds  to  be  converted  into  stock.-^  The  issue  of  a  bond 
convertible  into  stock  has  precisely  the  same  effect  as  issuing 
stock,  and  the  sale  of  such  a  bond  at  a  discount  is  unlawful.^ 
The  holder  of  the  bonds  may  demand  stock  therefor,  at  any  time, 
;and  even  though  the  demand  is  made  just  before  a  dividend  is 
declared,  he  is  entitled  to  the  stock  and  dividend.^ 

§  284.  The  power  of  a  court  to  direct  an  increase  or  reduc- 
tion.— The  courts  have  no  power  by  mandate  or  decree,  or  in  any 


ence  to  tlie  intent  or  object  of  the  trans- 
fer, and  receiyes  in  exchange  a  portion  of 
the  capital  stock,  holds  the  money  so  re- 
ceived subject  to  the  superior  equities  of 
corporate  creditors,  which  is  to  say,  he  is 
trustee  for  the  creditors  quoad  hoc.  Cran- 
dall  V.  Lincoln,  52  Conn.  73,  100  (188-1). 
Cf.  Zulueta's  Claim,  L.  R.  5  Chan.  444 
(1870).     See  also  Chapter  XIX. 

In  Hartridge  v.  Rockwell,  R.  M. 
Charlton  (Ga.),  260  (1828),  it  is  held  that 
directors  who  purchase  stock  of  the  cor- 
poration for  the  account  of  the  corpora- 
tion and  sell  it  again,  neither  increase  nor 
diminish  the  amount  of  the  stock  there- 
by, "  since  the  stock  represents  so  much 
of  the  capital  as  was  invested  in  its  pur- 
chase, and  when  sold  the  money  then 
stands  in  the  place  of  the  stock."  It  is 
not  within  the  power  of  the  directors  to 
diminish  the  actual  capital  of  the  corpo- 
ration by  releasing  a  portion  of  the 
stockholders,  or  by  canceling  a  portion 
of  the  stock  of  each  shareholder.  Such 
a  proceeding  would  be  in  fraud  of  the 
rights  of  creditors  and  other  sharehold- 
ers. Gill  V.  Balis,  72  Mo.  424  (1880). 
See  also  Ch.  X,  §§  167-170.  Such  a  trans- 
action, however,  even  if  valid,  would  not 
reduce  the  capital  stock.  It  would  mere- 
ly reduce  the  number  of  shares  which 
were  supposed  to  be  subscribed  for.     Fu- 

290 


ture  subscriptions  could  be  taken   to  the 
extent  of  those   released  herein. 

'  Ramsey  v.  Erie  Ry.  Co.,  38  How.  Pr. 
193,  216  (1869);  Belmont  v,  Erie  Ry.  Co., 
52  Barb.  637,  669  (1869).  Cf.  Jenks  v.  Cent. 
R.  R.  Co.,  cited  52  Barb.  637,  675  ;  Heath 
V.  Erie  Ry.  Co.,  8  Blatchf.  347;  People  w. 
Erie  Ry.  Co.,  36  How.  Prac.  129(1868); 
Ramsey  v.  Gould,  57  Barb.  398  (1870); 
s.  c.  8  Abb.  Prac.  (N.  S.)  174  (1870); 
Pratt  V.  American  Bell  Telephone  Co. 
(Mass.  1886),  12  Am.  &  Eng.  Corp.  Cas. 
110. 

"  "Where,  however,  a  corporation  has 
power  to  increase  its  capital  stock,  it  may 
issue  bonds  at  50  per  cent,  of  their  par 
value,  convertible  ii;to  stock  upon  pay- 
ment of  the  other  50  per  cent.  Van  Allen 
V.  111.  Central  R.  R.  Co.,  7  Bosw.  (N. 
Y.)  515  (1861). 

^  Jones  V.  Terre  Haute,  tfec.  R.  R.  Co., 
57  N.  Y.  196  (1874).  The  reverse  of  this 
rule  is  also  true,  and  it  is  held  in  New 
York  that  a  corporation,  with  authority 
to  increase  its  capital  stock,  may  law- 
fully issue  new  shares  and  receive  in 
payment  therefor  the  bonds  of  the  cor- 
poration. This  is  a  conversion  of  bonds 
into  stock,  and  is  lawful  and  regular. 
Lohman  v.  New  York,  itc.  R.  R.  Co.,  2 
Sandf.  Super.  Ct.  39  (1848);  Reed  V 
Hayt,  51  N.  Y.  Super.  Ct.  121  (1884). 


CH.  XTII.]        INCREASE,   REDUCTION,   AND   OVERISSUE.  [§  285. 

other  mariner,  to  effect  an  increase  or  reduction  of  the  capital 
stock  of  a  corporation.^  It  is  a  general  rnle,  where  the  whole 
amount  of  the  capital  stock  has  been  regularly  issued,  and  the 
corporation  becomes  liable,  either  to  issue  certain  certificates  to  a 
wronged  party,  or  pay  him  damages  ;  that  the  court,  having  no 
authority  to  direct  such  an  issue,  can  only  give  judgment  that  the 
corporation  pay  damages. 

In  Massachusetts  a  later  and  better  rule  prevails  to  the  effect 
that  the  corporation  in  such  a  case  may  be  compelled  to  issue  the 
stock,  but  in  order  to  prevent  an  illegal  overissue  it  must  pur- 
chase an  equal  amount  of  shares  in  the  market.^  Where  corpo- 
rate officers  enter  into  a  contract  to  pay  for  services,  or  property, 
wholly  or  partially,  in  stock  of  the  corporation,  a  court  will  not, 
after  the  whole  amount  of  the  stock  has  l)een  issued,  decree  a 
specific  performance  of  the  contract,  but  the  aggrieved  party  is 
remitted  to  his  action  for  damao:es.^ 

§  285.  SJiareliolders,  not  directors,  sliould  antliorise  the  in- 
crease.— An  increase  or  reduction  of  the  capital  stock  of  a  cor- 
poration is  such  a  fundamental  change  in  its  affairs  that  although 
it  has  been  duly  authorized  by  act  of  the  legislature  or  by  the 
charter  of  incorporation,  it  caimot  lawfully  be  effected  njerely 
by  the   act  or  assent  of  the  board  of  directors,*  but  must  be  au- 


>  "  When  a  corporation  has  issued 
certificates  of  stock  (which  are  valid  and 
not  void)  to  the  lull  extent  of  all  the 
shares,  which  by  law  and  the  constitu- 
tion of  the  company  it  may  issue,  no 
court  can  order  the  issuance  of  other 
shares,  because  in  that  respect  the  powers 
of  the  corporation  liave  been  exhausted." 
Smith  V.  North  American  Mining  Co.,  1 
Nev.  423  (1865).  Williams  v.  Savage 
Manfg.  Co.,  3  Md.  Chan.  418  (1851); 
Mechanics'  Bank  v.  New  York,  &c.  R.  R. 
Co.,  13  N.  Y.  599  (1856).  In  an  action 
for  the  conversion  of  sliares,  the  question 
of  an  increase  or  reduction  not  being  in- 
volved, it  was  said  that  "To  require  a 
new  issue  of  stock,  might  in  cases  like 
this,  where  shares  have  gone  into  the 
hands  of  innocent  jiurchasers,  involve  an 
overissue  of  stock,  which  would  be  il- 
legal." liaker  v.  Wasson,  59  Texas,  140 
(1883);  8.  c.  53  Id.  150(1880). 

"^  This  rule,  with  an  equitable  adjust- 
ment of  the  conflicting  interests  of  all 
the  parties,  where  an  owner  of  stock  was 
deprived  of  it  by  forgery,  was  cslublishcd 


by  the  Supreme  Judicial  Court  of  Massa- 
chusetts in  the  cases  of  Machinists 
National  Bank  v.  Field,  126  Mass.  345 
(1879).  See  also  Pratt  v.  Machinists 
National  Bank,  123  Id.  110,  and  Boston, 
<fec.,  R.  R.  Co.  V.  Richardson,  135  Id.  173. 
each  of  the  three  cases  growing  out  of 
the  same  transaction. 

^  Finley  Shoe,  <fec.,  Co.  v.  Kurtz,  34 
Mich.  89  ("^18761.  In  this  case  the  court 
say:  Where  the  capital  stock  may  be 
increased  by  vote  of  the  stoeklioldcrs, 
"  it  certainly  could  not  be  within  the 
implied  powers  of  any  corporate  oiiicer 
to  obligate  the  corporation  to  any  such 
increase,  and  thus  indirectly  do  wliat  the 
law  permits  to  be  done  only  by  the  body 
of  corpoi'ators,  s])ecially  convened  for  the 
purpose."  In  actions  against  cori)ora- 
tions  ibr  conversion  of  slock,  the  relief 
demanded  is  usually  in  the  alterriativo, 
being  either  for  an  issue  of  a  certilicatc  of 
stock,  or  else  damages  in  lieu  thereof. 

■*  Percy  v.  Millaudon,  3  La.  568,  585 
(1832);  Eiilnian  v.  Bowman,  58  111.  1 M 
(1871);   Finley  Shoe,  (fee.,  Co.   v.  Kurtz, 

291 


§  285.]  INCREASE,   REDUCTION,    AND   OVERISSUE.  [CH.  XVII. 

thorized  by  the  shareholders  at  a  corporate  meeting.^  Where, 
however,  the  directors  have  made  the  change,  and  the  stock- 
holders have  acquiesced  therein,  thej  are  as  fully  bound  as  though 
the  increase  or  reduction  had  been  expressly  authorized  at  a  cor- 
porate meeting.  The  shareholders'  assent  to  the  change  may  be 
shown  as  conclusively  by  their  conduct  and  acquiescence  as  by  a 
formal  vote.^  But  whether  the  assent  of  the  shareholders  to  the 
increase  by  the  directors,  be  express,  as  by  formal  vote  at  a  cor- 
porate meeting,^  or  implied,   as  wdiere  there  is  a  mere  passive 


34  Midi.  89  (18Y6);  CraTidall  v.  Lincoln, 
52  Conn.  13,  99  (1884);  People  v.  Parker 
Vein  Coal  Co.,  10  How.  Pr.   543(1854). 
See  also  Railway  Company  v.   Ailerton, 
18   Wall.    233    (1873).      In   that    case   a 
shareholder  of  a   city    railway  company 
obtained    an  injunction    restraining  the 
directors    from     increasing    the    capital 
stock.     The  company's  charter  provided 
Ih.at  the  capital  might  be  increased  "  from 
time  to  time,  :it  the  pleasure  of  said  com- 
pany," and  also  that  "all  the  corporate 
powers  of  said  corporation  shall  be  vei-ted 
in  and  exercised  by  a  board  of  directors, 
and  such  officers  and  agents  as  said  board 
shall  appoint."     Mr.  Jus'.ice   Bradley,  in 
construmg   this    latter    clause    to    refer 
merely    to   the  ordinary  business  trans- 
actions (if  the  company,  held  that  to  in- 
crease the  capital  stock  was  not  among 
the   powers  and  duties  of  the  directors, 
and    said :  "  We    are    satisfied  that  the 
decree   must   be  afiirmed   on  the   broad 
ground,  that  a   change    so    organic  and 
iundamental  as  that   of   increasing     the 
capitid  stock  of  a  corporation  beyond  the 
limit  fixed  by  the  charter,c:\nnot  bemade 
by  the  directors  alone,  imless  expressly 
authorized   thereto.     The  general  power 
to  perform  all  corporate  acts  refers  to  the 
ordinary  busin  ess  transactions  of  the  cor- 
poration, and  does  not  extend  to  a  recon- 
struction of  the  b  ody  itself,  or  to  an  en- 
largement of  its  capital  stock."     See  also 
Constitution  of  \  iinois,    1870,  Art.   XI, 
§  13;  al:^o  Act  of  March  26,  1872,  Illinois. 
'  See  the  cases  cited  in  the  preceding 
note.     Green's  Btice's   Ultra   Vires  (2d 
edition),  495  ;    Morawetz    on   Coip.  (2d 
edition).  §  512  ;  Taylor  on  Corp.,  §  228. 
Of.  VAty  of  Chicago  v.  Jones,  60  HI.  383 
(i871);  Mutter  of  Wheeler,  2  Abb.  Prac. 
(N.  S.)  361  (1866);  People  v.  Twaddell, 
18  Hun,  427,  432  (1879);  State  v.  Mer- 
chant, 37  Ohio  St.  251  (1881). 

•^  Se well's    Case,   L.    R.   3    Chan.    131 
(1868)  ;  Lane's  Case,  1  De  G.,  J.  &  S.  504 

292 


(1863);  Pajson  v.   Stoever,  2  Dill.  428 
(1873).      Althoujih   the  act    authorizing 
the  increase   required  the   assent  of  the 
stockholders,  yet  it  has  been  held  that 
"  the  requisite  assent  of  the  stockholders 
can  be  shown  by  their  conduct   and  ac- 
quiescence, and  need  not  necessarily  be 
established  by  any  formal  vote  or  resolu- 
tion," and  moreover  tliat  a  shareholder  is 
bound  by  the  acts  and  acquiescence  of  an 
agent,  who,  knowing  of  the  irregular  in- 
crease  of  the  stock,  continued  to  act  for 
his  principal  as  a  stockholder.     Payson 
V.  Stoever,  supra.     And  an  amendment  of 
the  charter  which  allows   the   directors 
instead  of  the  shartholders  to  authorize 
an  increase  of  the  capital,  is  not  such  a 
fundamental  change  in  the  constitution  of 
the  corporation  as  will  operate  to  release 
non-assenting  shareholders  from  the  ob- 
ligation   on    their    stock.        Payson    v. 
"Withers,  5  Biss.  269  (1873);  Payson  v. 
IStoever,  supra.     The  power  to  increase 
the   capital  stock  may  be  vested  in  the 
directors.     Sutherland   v.  Olcott,  95   N. 
y.  83  (1884),  holding  also  that  when  the 
power   to   increase  the  stock  is  by   the 
charter  vested  in  the  company  to  be  ex- 
ercised  through    the   directors,   subject 
only  to  the  limitation  that  the  business 
should  require  an  increase,  the  directors 
are  the  judges  of  whether  the  business 
actually   require  it,  and  so  long  as  they 
act  in  good  faith  in  exercising  the  powers 
their  determination  is  conclusive.     Their 
resolution,  that  "the  capital  stock  of  this 
company  be,  and  the  same  is,  herebj'  in- 
creased to "  is  sufficient  to  effect  the 

increase. 

^  Upon  the  power  of  the  shareholders, 
by  subsequent  action  at  a  corporate  meet- 
ing, to  ratify  and  validate  irregular  acts 
of  the  direciiors,  when  such  acts  were  not 
fraudulent  or  in  derogation  ot  the  riglits 
of  the  corporation  or  its  creditors,  see 
Supervisors  v.  Schenck,  6  Wall.  772,  782 
(1»66);  Crump  v.   U.   S.   Mining  Co.,   7 


en.  XVII.]        INCREASE,   REDUCTION,   AND   OVERISSUE. 


[§  280. 


assent  or  acquiescence  on  the  part  of  the  shareholders/  it  is  equally 
sufficient  to  validate  the  increase,  provided  the  act  of  the  direc- 
tors be  in  other  respects  lawful.^  But  althougli  ihe  shareholders 
have  regularly  voted  to  increase  the  capital  stock,  in  pursuance 
of  adequate  legislative  authority,  still,  inasmuch  as  the  increase  is 
not  accomplished  until  the  shares  are  actually  issued,  the  vote 
may  be  reconsidered  in  a  lawful  manner  at  any  time  before  the 
stock  is  finally  issued.^ 

§  28(5.  Preemptive  rigid  of  the  old  stockholders  to  buy  the 
new  stocli. — When  the  capital  stock  of  a  corporation  is  increased 
by  the  issue  of  new  shares,  each  holder  of  the  original  stock  has 
a  right  to  offer  to  subscribe  for  and  to  demand  from  the  corpora- 
tion such  a  proportion  of  tiie  new  stock  as  the  number  of  shares 
already  owned  by  him  bears  to  the  whole  number  of  shares  be- 
fore the  increase.  This  pre-emptive  right  of  the  shareholder,  in 
respect  of  new  stock,  is  well  recognized.*     But  this  applies  only 


Gratt.  352  (1851");  Arlinston  v.  Peirce, 
122  Mass.  270  (1877) ;  Waldo  v.  Portland, 
y.'i  Conn.  363  (1866)  ;  Aurora  Agricul- 
tural, (fee.  Society  v.  Paddock,  80  111.  263 
(1875);  McLoui^hlin  v.  Detroit,  tfec,  R. 
R.  Co.,  8  Mich^lOO  (1860);  Hayward  n 
Pil^nim  Society,  21  Pick.  270  (1838); 
Bank  of  Columbia  v.  Patterson,  7  Cranch, 
299,  307  (1813).  Cf.  Twin  Lick  Oil 
Co.  V.  Marbury,  91  U.  S.  587  (1875) ; 
Hotel  Company  v.  Wade,  97  Id.  13 
(1877);  Pneumatic  Gas  Co.  v.  Berry, 
113  Id.  322  (1884);  Union  Pacific  R. 
R.  Co.  V.  Credit  Mobilier,  135  Mass.  367 
(1883);  United  States  Rolling  Stock  Co. 
V.  Atlantic,  Ac,  R.  R.  Co.,  34  Ohio  St. 
450(1878);  Peterson  v.  Tlie  Mayor,  17 
N.  Y.  449  (1858);  Reed  v.  Hayt,  51  N.  Y. 
Super.  Ct.  121  (1884);  Buell  v.  Bucking- 
ham, 16  Iowa,  284,  295  (1864). 

'  To  tiie  point  tiiat  a  p:i8iive  assent  is 
Buch  an  ai-quiefscctice  as  will  avail  to  bind 
a  princifial  and  make  a  shareholder  liable 
for  the  irrcf^ulai-  acts  of  the  directors,  if 
they  are  not  fraudulent  or  in  violation  of 
law,  see  Gold  Mining  Co.  v.  National 
Bank,  96  U.  S.  64';j  (1877);  Mining  Co.  v. 
Anglo  Californian  Bank,  104  Id.  192 
(1881);  s.  c.  Huh  norn.  Anglo  Californian 
Bank  v.  Mahoney  Mining  Co.,  5  Sawyer, 
255  (1878);  Bank  of  Pennsylvania  v. 
Reed,  1  Watts  .fe  S.  101(1841);  ILiiliard 
V.  Goold,  34  N.  II.  230  (1856);  Pacific  R. 
R.  Co.  «.  Thomas,  19  Kan.  266  (1877); 
Chicago  Building  Society  v.  Crowell,  65 
111.  453  (1872) ;  Darst  v.  Gale,  83  Id.  136 


(1876);  Blen  v.  Bear  River,  tfe^.  Mining 
Co.,  20  Cal.  602  (1862) ;  Perry  v.  Simpson, 
(fee,  Manfg.  Co.,  37  Conn."  520  (1871); 
Bennett  v.  Maryland  Fire  Insurance  Co., 
14  Blatchf  422  (1878);  Walworth  Co. 
Bank  v.  F;irmers  Loan  &  Trust  (Jo.,  16 
Wis.  629  (1863);  Chicago,  (fee.  R.  R.  Co, 
t;.  James,  24  Id.  388  (1859);  Phillips  v. 
Campbell,  43  N.  Y.  271  (1870);  New 
Hope  &  Delaware  Bridge  Co.  v.  The 
Phenix  Bank,  3  N.  Y.  156  (1849).  Cf. 
Terry  v.  Eagle  Lock  Co.,  47  Conn.  141 
(1879). 

-  An  allegation  of  ratification  must 
not  be  in  general  terms,  but  muit  set  out 
specifically  the  facts  constituting,-  the  rati- 
fication. Eidraan  v.  Bowman,  63  III. 
444. 

^  Terry  v.  Ea'j;le  Lock  Co.,  47  Conn. 
141  (1879).  In  this  case  the  court  say  : 
"  It  cannot  be  said  that  the  cnpital  is 
actually  increased  until  the  new  stock  is 
subscribed  for  at  least.  Until  then  I  here 
is  an  element  of  uncertainty  about  it.  It 
may  never  be  taken.  It  is  very  clear 
that  the  note  to  increase  is  not  per  se  an 
increase." 

••  Gray  v.  Portland  Bank,  3  Mass.  364 
(1807);  Eidrnan  ».  Bowman,  58  III.  444 
(1871);  Reese  «\  Biink  of  Montgomery, 
31  Penn.  St.  78  (1855);  R<^  Wluv.ler,  2 
Abb.  I'rac.  (X.  S.)  364  (18G6)  ;  Miller  v. 
Illinois,  <fec.,  R.  R.  Co.,  24  Barb.  312 
(1857);  Jones®.  Morrison,  31  Minn.  140 
(1883);  Bank  of  Montgomery  v.  Reese,  26 
Penn.  St.  143  (1856).     Cf.  Curry  v.  Scott, 

293 


§  286.] 


INCREASE,   REDUCTION,   AND   OVERISSUE.         [CH.  XVn. 


when  the  capital  is  actually  increased,  and  not  to  a  reissue  of  any 
portion  of  the  original  stock.^  The  right  must  be  exercised 
within  a  tixed  or  a  reasonable  time,  and  if  the  shareholder  fails 
to  avail  himself  of  it,  he  is  barred  by  laches  or  acquiescence,  of 
his  right  to  contest  a  disposition  of  the  stock  to  some  one  else.'"^ 
The  corporation  cannot  compel  the  old  stockholders,  upon  their 
subscription  for  new  stock,  to  pay  more  than  the  par  value  there- 
for. They  are  entitled  to  it  without  extra  burden  or  expense, 
beyond  the  regular  subscription  price.^  In  the  absence  of  laches 
or  acquiescence  on  the  part  of  the  shareholder,  an  attempt  to  de- 
prive him  of  this  right  will  be  enjoined.^     When  the  newly  issued 


54  Penn.  St.  2*70  (1867);  Wilson  v.  Bank 
of  Montgomery  County,  29  Id.  531  (1857); 
Mason  V.  Davo'l  Mill?,  132  Mass.  76(1882); 
Pratt  V.  American  Bell  Tel.  Co.,  12  Am. 
&  Eng.  Corp.  Cas.  110  (Mass.  1886);  Ohio 
Insurance  Company  r.  Nunnemachcr,  15 
Ind.  294  (1860).  In  Reese  v.  Bank  of 
Montgomery,  31  Penn.  St.  78  (1855),  tlie 
Supreme  Court  of  Pennsylvania,  in  an  ac- 
tion for  damages  against  the  corporation 
for  refusal  to  allow  a  subscription  for  new 
shares,  in  violation  of  a  shareholder's  pre- 
emptive right,  says:  "Since  the  acts  of 
incorporation  do  not  declare  how  the  un- 
taken  stock  shall  be  disposed  of,  it  stood 
like  all  the  other  corporate  franchises 
and  belonged  to  the  corporators,  and  they 
had  a  right  to  all  the  profits  that  could 
be  derived  from  it  .  .  .  tlie  bank 
hcdd  the  right  in  trust  for  its  members. 
The  directors  might  order  it  sold,  and 
then  the  profits  would  be  shared  among 
the  members  at  the  next  dividend,  or 
they  might  allow  each  member  to  sub- 
scribe for  liia  proportion  of  the  new  stock 
as  nearly  as  it  could  be  fixed  in  integral 
shares."  In  Jones  o.  Morrison,  31  Minn. 
140  (1883),  the  court  says:  "  When  new 
stock  is  issued  each  share  of  it  has  an 
interest  in  the  surplus  equal  to  that  per- 
taining to  each  share  of  the  original 
stock.  And  if  the  corporation,  either 
through  the  officers,  directors,  or  major- 
ity of  stockholders,  may  dispose  of  the 
new  stock  to  whomsoever  it  will,  at  whsit- 
ever  price  it  may  fix,  then  it  has  the 
power  to  diminish  the  value  of  each  share 
of  old  stock,  by  letting  in  other  parties  to 
an  equal  interest  in  the  surplus,  and  in 
the  good-will  or  value  of  the  established 
business."  This  case  holds  that  such 
also  may  be  the  rule  by  contract  where 
unissued  shares  of  the  oiiginal  capital 
stock  is  paid  for  by  profits  and  issued  to 

9,94: 


one  stockholder  in  trust  for  all.  The 
corporation  cannot  then  sell  it  for  the 
benefit  of  the  corporation.  In  ^lassachu- 
setts  this  right  is  preserved  in  the  statutes. 
Chap.  106,§  37;  chap.  112,  §  58.  In  New 
York,  in  banking  corporations,  it  is  se- 
cured to  the  shareholder  by  statute.  Ses- 
sion Laws  1878,  chap.  274,  §  5.  But  the 
pledgee  of  stock  who  holds  it  merely  as 
collateral  security,  is  not  entitled  to  this 
right  to  take  up  new  shares.  The  rioht 
belongs  to  the  pledgor.  Miller  v.  Illinois 
Central  R.  R.  Co.,  24  Barb.  312  (1857). 

1  State  V.  Smith,  48  Vt.  266;  Har- 
trid^e  v.  Rockwell,  R.  M.  Charlton  (Ga.j, 
260  (1828).  In  State  v.  Smith,  supra,  the 
court,  by  Redfield,  J.,  said  :  "  Wlien  new 
stock  is  issued  that  shares  equally  with 
the  existing  stock,  the  shareholders  have 
a  right  that  it  shall  be  so  distributed  as 
not  to  divest  any  stockhclder  of  his  pres- 
ent vested  right  in  property;  and  the 
proportionate  share  of  the  accumulated 
profits  is  represented  by  the  shares  and 
in  vested  property,  as  much  so  as  the 
shares  themselves.  .  .  .  But  this  was 
not  a  new  issue  of  stock,  but  a  portion  of 
the  original  subscription.  .  .  .  The 
transfer  of  the  stock  to  the  corporation 
suspends  the  right  to  vote  upon  it.  and 
may  be  a  merger  if  so  understood  by  the 
parties.  The  right  of  the  directors  to 
reissue  or  sell  such  stock  for  honest  pur- 
poses and  for  the  benefit  of  the  corpora- 
tion, is  reasonable  and  amply  sust.dned 
by  the  authorities." 

2  Terry  v.  Eagle  Lock  Co.,  47  Conn. 
141  (1879);  Hart  v.  St.  Charles  St.  R.  R. 
Co.,  30  La.  Ann.  758  (1878);  Brown®. 
Florida  Southern  Ry.  Co.  19  Fla.  472 
(1882). 

^  Cunningham's  Appeal,  108  Penn.  St. 
546  (1885). 

4  A  stockholder's   remedy,  it  is  said. 


CH.  XVII.]        INCREASE,  REDUCTION,   AND  OVERISSUE. 


[i  286. 


shares  have  all  been  distributed,  or  sold  to  others,  in  violation  of 
a  shareholder's  pre-emptive  right,  his  only  remedy  is  an  action  at 
law  against  the  corporation  for  damages.  And  the  measure  of 
damages  has  been  declared  to  be  the  excess  of  the  market  value 
above  the  par  value  at  the  time  of  the  issue  of  the  shares,  with 
legal  interest  on  such  excess.^ 

A  mere  verbal  notice  by  the  stockholder  to  the  corporation,  that 
he  will  take  his  proportion  of  the  new  issue  under  an  increase,  is 
held  in  Louisiana  to  be  suthcient  to  render  the  company  liable  in 
damages  for  selling  the  shares  to  some  one  else.  This  amounts  to  a 
regular  offer  to  subscribe  for  the  shares,  and  when  a  tender  of  pay- 
ment is  made  in  the  usual  manner,  the  shareholder,  who  has  made 
such  an  offer,  can  be  put  in  default  only  by  a  tender  of  the  certifi- 
cate and  demand  of  payment  by  the  corporation.^  The  corporation 
may,  however,  and  usually  does,  limit  the  time  within  which  the 
shareholders  may  signify  their  intention   to  take  up   the  new 


in  such  a  case,  is  clearly  agaiast  the 
corporation,  and  he  is  not  obliged  to  sue 
at  law  for  damages.  "  Tlie  effect  of  such 
an  acUon  [i.  e.,  the  action  for  damages] 
would  be  to  convert  part  of  his  interest 
as  a  shareholder  into  a  judgment  for 
damages  ;  in  other  words  to  sell  a  por- 
tion of  his  stock  to  the  corporation.  .  . 
The  judgment  to  be  effectual  must  be 
against  the  corporation  itself,  not  against 
the  directors  personally,  who  may  be 
changed  from  time  to  time."  Dousman  v. 
Wisconsin  &  Lake  Superior  Mining  & 
Smelting  Co.,  40  Wis.  418  (1876).  In  this 
case  it  is  also  lield  that  the  shareholder, 
where  the  stock  is  not  yet  fully  issued, 
may  have  a  decree  in  a  court  of  equity 
restraining  the  whole  issue,  or  else  that 
there  be  an  equitable  distribution,  and  if 
the  shares  are  already  partially  dis- 
tributed that  the  proper  amount  be  is- 
sued to  the  party  complainant.  Cf.  Eid- 
raan  v.  Bowman,  58  111.  444.  In  Massa- 
chusetts, however,  where  the  courts  for- 
merly possessed  but  a  limited  equity  juris- 
diction, this  is  not  tiie  rule,  and  in  that 
State  it  is  held  that  tin're  is  no  power  in 
the  courts,  acting  as  courts  of  chancery, 
to  decree  a  specific  performance  iu  favor 
of  the  shareholder,  who  alleges  that  shares 
which  ought  to  have  been  allotted  to  him 
have  been  wrongfully  sold  or  issued  to 
others  ;  or  in  other  words,  that  the  courts 
have  no  power  to  compel  the  corporation 
<)r  the  directors  to  issue  the  shares  to  tiio 


party  aggrieved.  Sewall  v.  Eastern  R.  R. 
Co.,  9  Cush.  5  (1851).  But  an  action  will 
lie  against  the  corporation  for  damage. 
Gray  v.  Portland  Bank,  3  Mass.  364  (1807). 
'  Eidman  v.  Bowman,  58  HI.  444 ; 
Reese  v.  Bank  of  Montgomery,  31  Penn. 
8t.  78  (1855);  Gray  ?'.  Portland  Bank, 
3  Mass.  364  (1807).  In  Eidman  v.  Bow- 
man, supra,  it  is  said  that:  "  When  the 
company  determine  to  increase  their  capi- 
tal stock,  within  the  limits  of  their  char- 
ter, each  of  the  previous  stockholders  has 
the  right  to  a  proportionate  number  of 
the  new  shares,  or  a  proportionate 
amount  of  the  new  stock,  if  it  should  be 
added  to  the  old  shares.  If  he  be  de- 
prived of  it  he  may  sue  the  company  by 
a  special  count  in  assumpsit,  and  recover 
for  the  loss,  and  it  has  been  held  that  the 
measure  of  damages  is  the  excess  of  the 
market  value  of  the  stock  above  the  par 
value  at  the  time  of  payment  of  the  last 
installment,  with  interest  on  the  excess. 
.  .  .  It  would  be  a  dangerous  pow- 
er to  intrust  to  directors  to  increase  the 
stock  of  the  company  at  pleasure,  and  to 
sell  it  to  whom  they  clioose.  .  .  .  The 
power  is  such  that  we  will  not  infer  its 
existence  in  a  charter  unless  clearly  ex- 
pressed." 

«  Hart  V.  St.  Charles  St.  Ry.  Co.,  80 
La.  Ann.  758(1878).  In  such  a  case  no 
special  formalities  of  subscription  aro 
necessary  to  secure  the  shares. 


295 


§287.]  INCREASE,   REDUCTION,    AND   OVERISSUE.  [CH.  SVII. 


shares,  and  may  require  a  part  payment  within  that  time  upon 
the  shares.^  The  stockliolder,  therefore,  who  brings  his  action 
against  the  corporation  for  damages,  for  refusal  to  allow  him  to 
subscribe  for  the  new  shares,  or  for  selling  the  shares  to  some  one 
else,  or  for  depriving  him  in  any  other  way  of  them,  must  allege 
and  prove  that  he  demanded  the  shares  and  offered  to  subscribe 
and  pay  for  them  in  the  regular  way,  within  the  time  fixed  for 
such  subscriptions.^  Other  shareholders  similarly  aggrieved  are 
not  to  be  joined  as  parties  complainant.  Each  stockholder  sues 
alone,  inasmuch  as  the  liability  of  the  corporation  in  these  cases 
is  several  and  not  joint.^ 

§  287.  Issue  of  new  stock  hy  a  stock  dividend. — A  frequent 
method  of  issuing  an  increase  of  the  capital  stock  is  by  a  stock 
dividend.     In  England  there  is  some  doubt  as  to  whether  such 


'  Sewall  V.  Eastern  R.  R.  Co.,  9  Cush. 
5  (1851);  Hart  v.  St.  Charles  St.  Ry.  Co., 
30  La.  Ann.  758(1878). 

'  Wilson  V.  Bank  of  Montsjomery 
County,  29  Penn.  St.  537  (1857).  ' 

3  Dousman  v.  Wisconsin  &  Lake  Su- 
perior Mining  and  Smelting  Co.,  40  Wis. 
418  (1876).  In  Williams  v.  Savnge  Manu- 
facturing Co.,  3  Md.  Chan.  418,  430,  it 
is  also  held,  that  ordinarily  a  shareliolder 
suing  the  corporation  "  stands  before  the 
court  precisely  in  the  attitude  of  an  ordi- 
nary suitor,  and,  upon  his  application  to 
compel  the  production  of  books  and 
papers  from  the  adversary,  must  show 
himself  entitled  upon  the  general  practice 
and  law  regulating  the  subject."  And 
further,  that  the  court  will  not,  upon  such 
an  application,  order  the  books  of  a  corpo- 
ration to  be  brought  into  court,  unless 
the  party  asking  the  order  "  sliould,  with 
a  reasonable  degree  of  certainty,  designate 
the  books  and  papers  required,  and  the 
facts  expected  to  be  proved  by  them." 
In  an  early  Indiana  decision  it  is  said 
to  be  the  law  that  where,  in  the  charter, 
directors  are  given  full  power  to  effect  an 
increase  of  the  capital  stock,  "  on  such 
terms  and  conditions  and  in  such  manner 
as  to  them  shall  seem  best,"  they  may  au- 
thorize the  increase  without  the  consent 
of  the  shareholders;  that  as  to  each  in- 
crease there  is  no  pre-emptive  right,  and 
that  accordingly  the  newly  issued  shares 
may  be  disposed  of  as  the  directors  de- 
termine Ohio  Insurance  Co.  v.  Nunne- 
macher,  15  Ind.  294  (I860).  Cf.  Great 
Falls,    (fee,   R.  R.    Co.   V.  Copp,  38  N.  H. 

296 


124  (1859).  So  also  in  New  York,  it  is 
said  that  the  executory  purchaser  of 
shares  of  the  original  stock  is  not  entitled 
to  the  proportionate  amount  of  new  stock 
on  an  increase  of  the  capital.  Miller  v. 
Illinois  Central  R.  R.  Co.,  24  Earb.  312 
(1857).  So  also  it  seems  in  Massachu- 
setts, Pratt  V.  American  Bell  Telephone 
Co.,  5  Northeastern  Rep.  307  (1886),  an 
important  application  of  this  general  doc- 
trine of  the  shareholder's  pre-emptive 
right,  to  take  new  shares,  is  the  rule  that, 
where  upon  the  organization  of  the  com- 
pany only  part  of  the  authorized  capital 
stock  is  issued,  the  right  to  take  the  re- 
mainder, whenever  it  shall  be  issued, 
vests  in  the  original  shareholders,  in  pro- 
portion to  the  amount  of  the  stock  first 
issued  which  they  severally  own.  Eid- 
man  v.  Bowman,  58  111.  444;  Gray  v.  Port- 
land R.  R.  Co.,  3  Mass.  364  (1807).  Angell 
&  Ames  on  Corp.  (Uth  edition),  ^§  554, 
555.  This  is  denied  in  Peniisylvania, 
where  the  courts  have  taken  decided 
ground  that,  in  such  a  case,  there  is  no 
prior  or  superior  right  in  the  original 
shareowner  as  to  the  remainder  of  the 
capital.  "  It  is  not  to  be  admitted,"  say 
the  court  in  Curry  v.  Scott,  24  Penn.  St. 
27  (1867),  in  discussing  this  question, 
"that  an  old  stockholder  had  a  right  to 
subscribe  to  the  untaken  stock,  superior 
to  the  right  ol  one  who  owned  no  stock. 
If  this  were  so  a  first  subscriber  might 
compel  all  the  remaining  untaken  slock 
to  be  sold,  or  at  least  would  have  a  right 
to  exclude  any  other  person  from  sub- 
scribing." 


CH.  XVII.]        INCREASE,   REDUCTION,   AND   OVERISSUE.  [§  288. 

dividends  may  be  imposed  upon  stockholders  who  object  to  them 
and  demand  the  raonev  dividend  in  lieu  of  which  tlie  stock  is 
issued.^  In  this  country  such  dividends  are  legal  unless  prohibited 
by  constitutional  or  statutory  provisions.^  But  in  all  cases  of  a 
stock  dividend,  as  a  method  of  issuing  an  increase  of  the  capital 
stock,  there  must  be  in  the  possession  of  the  corporation  an 
amount  of  property  over  and  above  its  corporate  debts,  equal  to 
the  whole  capital  stock,  including  the  increase,  and  this  amount 
cannot  afterwards  be  used  for  any  kind  of  a  dividend, 

§  288.  Liability  of  the  sMreholder  upon  an  increase  of  tlie 
capital  stocTx. — A  person  subscribing  for  shares  of  stock  upon  an 
increase  of  tlie  capital  stock  is  liable  thereon,  the  same  as  a  sub- 
scriber, to  the  original  capital  stock.  In  some  respects,  he  caimot 
set  up  defenses  that  an  original  subscriber  might  have  set  up. 
Thus,  a  subscriber  for  increased  stock  cannot  defeat  an  action  to 
enforce  his  subscription  by  setting  up  the  failure  of  the  corpo- 
ration to  obtain  subscriptions  for  the  whole  of  the  authorized  in- 
crease.^ In  general,  a  subscriber  to  an  increase  of  stock  cannot 
interpose  defenses  to  his  subscription,  which  subscribers  to  the 
original  stock  could  not  have  raised,  such,  for  an  example,  as  tech- 
nical objections  to  the  validity  of  his  contract  of  subscription.* 
Nor  can  the  subscriber  set  up  that  the  increase  was  unauthorized 
and  illegal.  It  is  for  the  State  alone  to  raise  the  question  whether 
corjjorate  capital  stock  has  been  lawfully  and  regularly  increased.^ 
Especially  is  it  the  rule  that,  as  against  corporate  creditors,  stock- 
holders who  have  subscribed  for  the  increased  stock,  accepted  the 
certificate,  and  received  dividends  thereon,  are  estopped  from  set- 


'  See  Chapter  on  Dividends.  be  issued,  will  not  prevent  siicli  issue,  and 

'Id.;  &ho%b\,  Hupra.     "Ifthecorpo-  that  the  increase  of  the  stock  of  a  foreign 

ration   have   tl)e   power  to  increase  the  corporation  will  not  be  inquired  into  by 

capital  stock,  tiic  manner  of  effecting  the  the    court   of  another  State.     Cf.  llcese 

increase  not  being   prescribed  in  the  en-  v.  Bunk  of  Montgomery,  31  Penn.  St.  78 

abling  act,  it  is  immaterial  whether  such  (1855).     An  increase  of  the  capital  stock, 

increase  is  made   by  awarding  the  stock  by  Jlie  i<sue  of  new  shares  and  the  sale  of 

to  stockholder-',  as    dividends  in   lieu  of  tliem  for  less  than  their   par  value,  is  not 

money,  retaining  the  money  for  the  pur-  such  an  "issue  of  fictitious  stock  "  as  Ihe 

pose  of   the  company,  or   by  paying  the  California  State  Constitution  forbids.  Art. 

stockholder  the  dividends    in  cash  from  XII,  §  11  ;  .Stein  v.  Howard,  65  Cal.  016 

the  earnings  of  the  company,  and   selling  (1884). 

the   stock  in  the  market  to  raise   money  •'Clarke  v.  Thomas,    34   Ohio    St.   46 

for  the  use  of  the  corporation."     Howell  (1877);   Nutter;.'.  Lexington,    <fcc.    It.   R. 

V.  Chicago,  <fcc.,  R.  R.  Co.,  51   Barb.  378  Co.,  6  (Jray,  85  (1856). 
(1868).     In  this  case  it  seems  to  be  held  ■»  Kansas  City  Hotel  Co.  v.   Hunt,   57 

that  a  statement  of  the  board  of  directors,  Mo.  120  (1874). 
in  their  report,  that  no  more  stock  is  to  '' Pullnian  i;.  Upton,  96  U.S.  328(1877). 

297 


§289.] 


INCREASE,   REDUCTION,  AND   OVERISSUE.         [CH.  XVII. 


ting  np  that  the  stock  was  increased  in  an  irregular  or  unlawful 
manner,^  Stockholders  of  the  original  capital  stock  are  of  course 
not  liable  for  the  defaults  of  subscribers  to  the  increased  capital 
stock.^ 

§  289.  Eights  and  liahilities  of  tlie  sliareliolders  u])on  a 
reduction  oftlie  cajntal  stock. — Upon  an  authorized  reduction  of 
the  capital  stock  of  an  incorporated  company,  regularly  effected, 
the  amount  of  corporate  assets,  over  and  above  the  amount  of  the 
capital  stock  as  reduced,  is  equivalent  to  surplus  profits,  and  may- 
be treated  as  such  by  the  corporation.  It  may  be  set  aside  as 
surplus,  or  it  may  be  divided  among  the  shareholders  proportion- 
ally by  a  dividend,  subject,  however,  in  all  cases,  to  the  rights  of 


'  Chubb  V.  Upton,  95  U.  S.  665  (1811); 
Sheldoa  Hat  Blocking  Co.  v.  Eicke- 
meyer,  <fec.  Co.,  90  N.  Y.  607,  612  (1882); 
Kent  V.  Quicksilver  Mining  Co.,  '78  N.  Y. 
159,  187  (1879);  In  ve 'Miller's  Dale, 
<fec.  Co.,  L.  R.  31  Ch.  D.  211  (1886);  As- 
piuwallw.  Sacchi,  67  K  Y.  331  (1874); 
Buffalo,  <fec.  R.  R.  Co.  v.  Cary,  26  N.  Y. 
75  (1862) ;  Eaton  r.  Aspinwall,  19  N.  Y. 
119  (1859) ;  Veeder  v.  Mudgett,  95  N.  Y. 
295  (1884) — the  last  case  holding  that  a 
statute  allowing  increase  to  be  made  by 
stockholders  in  meeting  assembled  on  a 
specified  notice,  is  invalid  if  tlie  notice 
did  not  conform  to  the  statute,  but  tliat 
the  stockholders  are  liable  nevertheless 
to  corporate  creditors  on  such  stock.  To 
the  general  point  that  a  subscriber  or 
shareholder,  as  against  creditors,  will  be 
estopped  from  questioning  the  formal 
regularity  or  validity  of  corporate  acts, 
by  acquiescence  or  assent,  or  by  receiv- 
ing benefit  under  such  acts,  or  by  allow- 
ing other  persons  to  give  the  corpora- 
tion credit  upon  the  faith  of  those  acts, 
see  Dutche?s  Collar  Manfg.  Co.  v.  Davi.s, 
14  Johns.  237  (1817)  ;  Biasell  v.  Michi- 
gan Southern  R.  R.  Co.,  22  N.  Y.  258 
(I860) ;  Methodist  Episcopal  Union 
Church  V.  Pickett,  19  N.  Y.  482  (1859) ; 
Upton  V.  Hansbrough,  3  Biss.4l7  ;  Ogilfie 
V.  Knox  Insurance  Co.,  22  How.  380 
(1859) ;  Rensselaer,  (fee.  Plankroad  Co,  v. 
Westel,  21  Barb.  56  (185S);  Thompson 
on  Liability  of  Stockliolders,  §^5  160- 
175,  407,  410,  414;  Morawetz  on  Corpo- 
rations (2d  edition),  §§  761-767;  Her- 
man on  Estoppel  (2d  edition),  §§  1178, 
1248).  Cf.  Granger's  Life,  &c.  Ins.  Co. 
v.  Kamper,  73  Ala.  H25  (1882);  Kansas 
City   Hotel  Co.  v.  Harris,  51    Mo.   464 

298 


(1873),  and  see  McCarthy  v.  Lavasche,  89 
111.270(1878).  Lindley,  in  his  learned 
work,  says :  "  If  shares  can,  under  any 
circumstances  legally  exist,  then,  how- 
ever improper  their  issue  may  have  been, 
the  company  and  the  holder  of  them 
may  be  estopped  from  denying  their  ex- 
istence, and  the  holding  of  them  by  him. 
But  if  they  cannot  legally  exist,  the  per- 
son taking  them  cannot,  by  estoppel  or 
otherwise,  become  a  member  in  respect  of 
them.''  1  Lindley  on  Partnership  (4th 
ed.),  134 ;  see  also  vol.  2,  p.  1349,  citing 
Campbell's  Case,  L.  R.  9  Chan.  1  (1873) ; 
Chains'  Case,  L.  R.  6  Chan.  266  (1871); 
Hare's  Case,  L.  R.  4  Chan.  503  (1869); 
Bank  of  Hindustan  v.  Alison,  L.  R.  6  C. 
P.  54,  222  (1870) ;  Stace  &  Worth's  Case, 
L.  R.  4  Chan.  682  (1869);  Smith's  Case, 
Id.  611  (1869);  Spackman  v.  Evans,  L. 
R.  3  H.  L.  171  (1868).  But  Morawetz 
well  says:  "This  statement  of  the  law, 
however,  is  hardly  sustained  by  the  aii- 
thorities  cited  by  the  learned  author." 
Morawetz  on  Corp.  (2d  edition),  §  766. 

^  Thus  where  the  statute,  as  in  New 
York,  Laws  of  1848,  chap.  40,  §§  10,  20, 
21,  22,  makes  stockholders  liable  to  cred- 
itors until  the  capital  stock  is  fully  paid 
in,  that  liability  is  terminated  when  such 
full  payment  has  been  made,  and  the 
proper  certificate  to  that  effect  duly  made 
and  recorded  ;  and  a  subsequent  increase 
of  the  capital  stock  will  not  render  the 
old  shareholders  liable  to  creditors  until 
that  increase  is  likewise  fully  paid  in  and 
regularly  certified.  The  liability  of  the 
old  stockholders  once  terminated  cannot 
be  revived.  Veeder  v.  Mudgett,  95  N. 
Y.  295  (1884). 


cii.  xvil]      ixcrease,  reduction,  and  overissue. 


[§200. 


previous  corporate  creditors.^  But  it  is  not  the  rule  that  the  re- 
duction of  the  capital  stock  of  a  corporation  always  authorizes 
the  distribution  among  the  stockholders  of  a  sum  equal  to  the 
difference  between  the  original  and  the  reduced  amount  of  capi- 
tal. Such  a  distribution  is  lawful  only  when  it  appears  that  the 
original  capital  stock  is  unimpaired.  The  corporation  can  divide 
among  its  stockholders  only  such  a  sum  as  will  leave  with  the  cor- 
poration an  amount  equal  to  tlie  reduced  capital  stock.^  Not 
only  this,  but  corporate  creditors  who  were  such  before  the  reduc- 
tion, may  disregard  the  reduction  and  enforce  payment  of  their 
debts  from  the  original  unpaid  subscriptions,  as  though  no  reduc- 
tion had  taken  place.^  But  creditors  whose  debts  were  contract- 
ed subsequently  to  the  reduction,  can  look  only  to  the  capital 
stock  as  reduced,  for  security.  Tlioy  will  be  held  to  have  given 
the  credit  upon  the  faith  of  that  amount  of  stock  alone.* 

§  290.  Change  in  the  numher  or  par  value  of  the  shares. 
— It  is  a  principle  of  law  closely  related  to  those  already  set 
forth  in  this  chapter,  and  well  settled,  that  the  number  of  shares 


'  strong  V.  Brooklyn  Crosstown  R. 
R.  Co.,  93  N.  Y.  426  (1883);  Seeley  v. 
New  York  Xntional  Excliang-e  Bank  of 
New  York,  8  Daly,  400  (1878);  s.  c.  affi'd, 
78  N.  Y.  608  (1879).  Jn  the  case  last 
cited,  where  a  national  bank  liad  reduced 
its  cai)ital  stock  as  authorized  by  statute, 
(U.  S.  Rev.  Stat.  §5143)  the  cuurt  say: 
"  If  instead  of  surrendering  all  its  corpo- 
rate powers,  a  corporation,  by  reducing  its 
capital  stock,  reliufjuishes  a  portion  of 
them,  it  seems  to  me  that  the  shareliold- 
ers  may  properly  claim  ii  distribution  of 
the  money  wliich  the  corporate  body  has 
no  longer  the  rigiit  to  use  as  capital.  .  . 
The  return  of  the  reduced  capital  to  the 
shareholders  is  not  a  subject  for  the  ex- 
ercise of  a  director's  discretion."  The 
shareholder  ma3%  it  was  decided,  sue  for 
his  share  and  recover  it.  Tlie  case  of 
Strong  v.  Brooklyn  Crosstown  R.  R.  Co., 
eiipru,  hfdils  that  a  reduction  of  the  capi- 
tal slock  does  not  authorize  the  distribu- 
tion among  the  stockholders  of  a  sum 
equal  to  the  difference  between  the 
amount  oiigirialiy  named  as  the  capital, 
and  the  reducer!  amount  fixed  by  the 
vole  of  the  stoekholdei-s,   even    if   it  ap- 

ficar.s  that  the  original  amount  was  actual- 
y  paid  in.  To  authorize  such  a  distiil)U- 
tion,  if  tlie  original  capital  has  been  paid 
in,   it  should  apjiear   that  the  capital  so 


paid  in  has  not  been  impaired,  and  if  it 
has  been  impaired  it  should  appear  that 
the  corjjoration  still  has  on  hand  actual 
capital,  available  for  the  payment  of 
debts,  exceeding  the  amount  to  which  it 
has  reduced  its  capital,  and  if  it  has,  the 
excess  only  ought  to  be  distributed." 
But  "  the  excess  of  its  funds  or  property 
actually  on  hand,  over  and  above  the 
sum  which  the  company  is  bound  to  keep 
as  capital  (viz.  its  nominal  capital,  as  re- 
duced), is  reduced  into  a  surplus  fund 
which  it  can  dispose  of  by  dividing  it 
a':iong  its  stockholders."  This  excess  is 
to  be  determined  by  an  actual  inventory 
of  its  assets. 

'■^  Strong  V.  Brooklyn  Crosstown  R. 
R.  Co.,  93  N.  Y.  426  (1883). 

^/rt  re  State  Insurance  Co.,  11  Biss. 
301  (1882);  8.  c.  14  Fed.  Rep.  28;  Bed- 
ford K.  R.  Co.  V.  Bowser,  48  Penn.  St.  29 
(1864).  Shareholders  have  no  power  to 
avoid  liability  on  their  stock  by  reducing 
either  the  amount  of  it  or  the  par  value 
of  tlie  shares,  Dane  v.  Young,  61  Me. 
160  (1872).  Cy.  Bedford  R.  R.  Co.  v. 
Bowser,  4  8  Penn.  St.  29  (1864). 

■' Hr'[)l)urn  v.  Exchfuge,  ifee.  Co.,  4 
La.  Ann.  87  (1819);  Palfrey  v.  Paulding, 
7  id.  363  (1852);  Cooper  //.  Frederick,  9 
Ala.  742  ( 1 8-16).  Cf.  Jn  re  State  Ins.  Co., 
14  Fed.  Rep.  28  (1882);  s.  c.  11  Biss.  301. 

200 


§  292.]  INCREASE,   REDUCTION.   AND   OVERISSUE.  [cH.  XVII. 

into  which  the  capital  stock  has  been  divided,  and  the  par  value 
of  those  shares,  can  neither  be  increased  nor  diminished,  in  num- 
ber or  in  value,  without  express  warrant  of  authority  either  from 
the  legislature  or  the  charter  of  the  company,^  When  the 
charter  does  not  iix  the  number  or  amount  of  the  shares,  it  de- 
volves upon  the  shareholders  or  directors  to  fix  them,  and  in  such 
a  ease 'it  seems  that  the  limit  established  might  lawfully  be 
changed  without  special  authority.^ 

§  291 .  JJnautliorized  increase  of  stock  may  amount  to  overis- 
sued stoclc  — Where  the  full  capital  stock  of  a  corporation  has  been 
issued,  and  there  is  no  statute  or  charter  provision  authorizing  an 
increase  of  the  stock,  it  is  clear  that  any  issue  of  stock  in  excess 
of  the  cajiital  stock  is  not  a  legitimate  increase  of  the  capital 
stock.  It  is  unauthorized  and  illegal,  and  is  termed  in  law  an 
overissue  of  stock.  There  is  a  clear  distinction  between  over- 
issued stock  and  an  irregular  increase  of  stock.  The  former  ex- 
ists when  it  is  made,  although  no  increase  of  the  stock  is  author- 
ized by  the  charter  or  by  statute.  The  latter  occurs  when  there 
is  a  statutoiy  or  charter  provision  authorizing  an  increase  of  the 
stock,  but  the  formalities  prescribed  for  making  that  increase  have 
not  been  strictly  complied  with.  Overissued  stock  is  void  while 
an  irregular  increase  of  stock  is  merely  voidable. 

§  292.  Overissued  stock  is  ahsolutehj  void. — By  overissued 
stock  is  to  be  understood  stock  issued  in  excess  of  the  amount 
limited  and  prescribed  by  the  act  of  incorporation.  Certificates 
of  stock  issued  in  excess  of  the  certificates  that  represent  the  full, 
authorized  capital  stock  of  the  corporation,  represent  overissued 
stock.     Such  stock  is  spurious  and  wholly  void.     This  is  the  set- 


'  Salem  MillDam  Corporation  v.  shares  into  wliicli  it  is  Hivided.  The  su- 
Ropes,  6  Pick.  23  (1827);  Knowltoa  v.  preine  legislative  power  of  tlie  State  can 
Congress,  <fec.  Spring  Co.,  14  Blatchf.  864  alone  confer  that  authority."  It  cannot 
(1877);  Grangers  Life,  &c.  Ins.  Co.  v.  be  increased  "  by  the  covert  or  frandu- 
Kamper,  73  Ala.  325  (1882);  Re  Finan-  lent  efforts  of  one  or  more  of  the  agents 
cial  Corporation  (Holmes  Case),  L.  R.  2  of  the  corporation."  N.  Y.  &  New 
Chan.  714,  733(1867);  Droitwich  S;ilt  Haven  R.  R.  Co.  v.  Schuyler,  34  N.  Y. 
Co.  V.  Curzon,  L.  R.  3  Eq.  42  ;  Smith  v.  30,  48  (1865).  Cf.  Scovill  v.  Thayer,  105 
Goldsworthy,  4  Q.  B.  43o  (1843);  Sew-  U.  S.  143  (1881);  Morawetz  on  Corpora- 
ell's  Case,  L.  R.  3  Chan.  131  (1868).  "A  tions  (2d  edition),  §  434.  In  New  York 
corporation,  with  a  fixed  capital,  divided  a  statute  allowing  such  a  change  exists, 
into  a  fixed  number  of  shares,  can  have  New  York  Session  Laws,  1866,  chap.  73. 
no  power  of  its  own  volition,  or  by  any  ^  Somerset,  <tc.  R.  R.  Co.  v.  Cushing, 
act  of  its  officers  and  agents,  to  enLirge  45  Me.  524(1858). 
its  capital  or  increase    the    number    of 

300 


Cir.  XVn.]         INCREASE,   REDUCTION,    AND   OVERISSUE. 


[§  292. 


tied  law,  and  it  prevails  equally  whether  the  overissue  is  the 
result  of  accident,  or  mistake,  or  want  of  knowledge  of  the  law, 
or  is  due  to  fraud  and  intentional  wrongdoing.  The  anirnus  or 
intent  of  the  parties  to  the  overissue  is  not  material.  Over- 
issued stock,  no  matter  how  overissued,  represents  nothing,  and  is 
wholly  and  entirely  valueless  and  void.  So  rigid  and  well  estab- 
lished is  this  rule,  that  not  even  a  hona  fide  holder  of  such 
stock    can    give   to    it    any    validity   or   vitality.     It   is   void.^ 


'  The  great  and  leading  case  on  tins 
subject  is  New  York,   <fec.,  R.  R.  Co.  v. 
Sclmyler,  34  N.  Y.   30  (1865).      Cf.  Me- 
chanics'  Bank  v.  New  York,   <tc.,  K.   R. 
Co.,  13  Id.  599  (1856).     In  the  litigation 
growing  out  of  these  cases  it  appeared  that 
many  tliousunds  of  shares  of  the  stock  cf 
the  New  York  <fe  New  Ilayea  R.  R.  Co. 
had  been  fraudulently  issued  by  the  trans- 
fer agent,  Robert  Schuyler,  in   excess  of 
the  amount  of  stock  limited  by  the  char- 
ter, and   t!iat  much   of    such   overissued 
stocks  was  in  the  hands  of  bona  fide  hold- 
ers.    In  the  case  of  the  Mechanics'  Bank 
V.  New  York,  Ac,  R.  R.  Co.,  13  N.  Y.  599 
(1856),  it  was  decided   that  the  spurious 
certificates  of  stuck  issued  by   Schuyler 
were  voii),  upon  the  ground  of  a  want  of 
corporate  power  to  create  shares  of  stock 
in  excess  <jf  the  prescribed  amount;  that 
a  bank,  having  taken  such  spurious  shares 
as  collateral  security  for  a  loan,  did  not 
thereby  acquire  a  right,  legal  or  equitable, 
to  any  stock,  and  that  the  railroad  com- 
pany was  not  responsible  to  the  bank  for 
damages  sustained  by  it  through  dealing 
upon  tlie  faita  of  the  certificate.    The  court 
said  that  the  capital  stock  cannot  be  in- 
crease.) by  any  acts  of  the  agents  of  the 
company.      Certificates,  when  issued  for 
sh;ircs  of  stock  in  excess  of   the  capital 
stock, have  not  the  effect  of  increasingthc 
capital  stock.     Subsequently  the  railroad 
company, being  threati'ncd  with  more  than 
one  hundred  suits  by  holders  of  the  over- 
issued stock,  brcuglit  an  action  in  equity 
against  Schuyler  and   320   other  dei'ena- 
auis — New  York,  ifec,  li.  R.  Co.  v.  Schuy- 
ler et  al.,  34  N.  Y.  30  (1865)— to  have  the 
fraudulent  certificates  and  transfers  made 
by  Schuyler  and    iield  by   the   other   de- 
fendants   adjudged    to    be    spurious    and 
void,  to  h:ive  them  brought  intocoui-t  and 
caticcll-;d,  and  to  enjoin  the    d'-fendants 
from   furtlier   prosecuting  certain  actions 
then  pending,  and  from  commencing  otiier 
suits  against  thi;  compiny,  to  enforce  sucli 
certiticatcs  and   transfers,  or  to  recover 


damages  for  any  reason  connected  with 
them.     This  case  is  one  of  the  landmarks 
of  the  law.     The  doctrine  of  the  earlier 
case  of  the  Mechanics'  Bank  v.  New  Y'ork, 
(fee,  R.  R.  Co.,  13   N.  Y.  599  (1856),  that 
overissued    stock  is  void,  is  vigorously 
sustained.     In   answering    the    question 
whether  the  stock  purporting  to  be  cre- 
ated by  the  false  certificates  and  fraudu- 
lent transfers  of  Schuyler  could  be  valid 
stock  of  the  corporation  and  become  part 
of  its  capital,  the  court  said  :   "  In  the 
nature   of  things  this  is  impossible.     A 
corporation  witli  a  fixed   capital  divided 
into  a  fixed  number   of  shares,  can  have 
no  power  of  its  own  volition,  or  by  any 
act  of  its  officers  and  agents,  to  enlarge 
its   capital,   or   increase   the   number   of 
shares  into  which  it  is  divided.     The  su- 
preme legislative  power  of  the  State  can 
alone  confer  that  authority,  and   remove, 
or  consent  to  the  removal  of  restrictions 
which  are  part  of  the  fundamental  law 
of  the  corporate  being,  and.  hence  every 
attempt  of  the  corporation  to  exert  such  a 
power,  before  it  is  conferred,  by  any  di- 
rect and  express  action  of  its  officers,  is 
void,  and  hence  every  indirect  and  fraud- 
ulent attempt  to  do  so  is  void,  for,  if  such 
a  result  cannot  be  accomplished  diiectly, 
by  the  whole  machinery  of  the  corporate 
powers,  it  is  absurd  to  suppose  that  it  can 
be  produced  by  the  covert  or  fraudulent 
efforts  of  one  or  more  of  the  agents  of  the 
corporation.    The  special  term  was  there- 
fore right  in   holding  that  the  spurious 
stock  attempted  to  be  created  by  Schuy- 
ler in  excels  of  the  capital,  formed  no 
part  of  the  capital  stock  of  the  company, 
but  was  utterly  invalid,  and  it  necessarily 
followed    .     .     .    that  the  plaintiffs  were 
entitled  to  have  all  certificates  and  trans- 
fers wliich  represented  such  spurious  stock 
dochired   void    and    ordere  1    to    be    can- 
celled."    See   also,  as  to  the   point   that 
overissued    stock    is   void    even    in    the 
liacds  of  bona  fide  holders,  Peoijle's  Bank 
V.  Kurtz,  99  I'enn.  St.  344  (1882);   Bruff 

301 


§  293.]  INCREASE,   REDUCTION,   AND   OVERISSUE.  [CH.  xvn. 

Overissued  or  spurious  stock  may,  however,  it  seems,  be  legalized 
by  a  subsequent  legal  increase  of  the  capital  stock.^ 

§  293.  Liahility  of  the  corporation  as  to  overissued  stock. — 

Althougli  it  is  settled  law  that  overissued  stock  is  void  and 
valueless,  and  that  no  action  lies  on  the  certificate  either  to  compel 
the  corporation  to  recognize  the  holder  as  a  stockholder,  or  to 
issue  in  place  thereof  a  valid  certificate,  yet  where  overissued 
certificates  of  stock,  signed  or  purporting  to  be  signed  by  the 
corporate  officers  having  the  authority  to  issue  stock,  and  actually 
issued  by  such  officers,  are  purchased  by  any  person,  or  are  taken 
in  any  manner  in  good  faitii  and  for  value,  such  hona  fide  holder 
may  sue  the  corporation  in  tort,  and  recover  damages.^ 

The  cases  to  this  point  proceed  upon  the  theory  that  a  corpora- 
tion, like  a  natural  person,  is  liable  in  damages  for  the  torts  and 
frauds  of  its  agents  when  acting  within  the  scope  of  their  proper 
employment,  and  that,  when  fraudulent  certificates  are  issued  by 
its  officers,  and  pass  innocently  into  the  hands  of  hona  fide  holders 
for  value,  the  corporation  is  estopped  to  deny  the  authority  of 
such  agents,  and  cannot  escape  liability  for  damages  so  resulting. 
If  an  innocent  holder  of  overissued  stock  In-ings  an  action  in 
equity  to  compel  the  corporation  to  record  the  transfer,  he  will  be 
denied  that  relief,  but  may  have,  in  lieu  thereof,  damages  at  law.^ 
The  better  remedy  in  such  a  case,  therefore,  is  an  action  at  law, 
and  the  measure  of  damages  is  the  mai'ket  value  of  the  stock  at 
the  time  the  transfer  was  demanded.* 


V.Mali,   36  N.  Y.  200  (ISeV);  People  v.  t'.  Kurtz,  99   Penn.   St,  344  (1882).     See 

Parker,    &c.,   Co.,    10    How.    Prac.    543  also  Daly  y.  Thompson,  10  Mee.  A  W.  309 

(1854);  Sewell's  Case,  L.  R.  3  Chan.  Ap.  (1842).   'in  re  Bahia,  &c.,  R.  R.  Co.,  L.  R. 

131,    138   (1868);    Wright's   Appeal,    99  3  Q.  B.  584,  595  (1868) ;  Simm  «.  Anglo, 

Penn.  St.  425  (1882);  Scovill  v.  Thayer,  (fee.,  Co.,  L.  R.  5   Q.  B.  Div.    188  (1ST9); 

105  U.  S.  143  (1881).  Waterhouse  v.  London,  etc.,  R.  R.  Co.,  41 

'  Sewell's  Case,  L.  R.  3  Chan.  Ap.  131  L.  T.  (N.  S.)  553  (1879);  Mandelbaum  v. 

(1868);  New   York,    Ac.,    R.    R.   Co.    v.  North,  *fec.,  R.  R.  Co.,  4  Midi.  405  (1857); 

Schuvler,  34  N.  Y.  30,  56,  57  (1865).  Wriaht's  Appeal,  99  Penn.  St.  425(1882). 

2  New  York,  d'C,  R.  R.  Co.  v.  Scliuy-  ^'^^'\\\\%  v.   Phil  a.,  &c.,   R.  R.  Co.,  6 

ler,  34   N.  Y.  30,  49,  60  (1865);  Bruff 'w.  Week.  Notes  Cas.  461    (1879);  People's 

Mali,  36   Id.  200  (1867);  Titus  v.  Great,  Bank  v.  Kurtz,  99  Penn.  St.  344  (1882). 

&c.,  Road  Co.,  5  Lans.  250  (1872);  s.  c.  •*  People's  Bank  v.  Kurtz,  99  Penn.  St. 

61  N.  Y.  237(1874>-    Bank  of  Kentucky  344  (1882);  Willis  «.  Phila.,  &c.,  R.  R. 

V.  Schuylkill  Bank.  .  Parsons'  Select  Cas.  Co.,  6  Week.  Notes  Cns.  461  (1879);  Tome 

180  (1846);  Toraen     Parkersburg,  «fcc.,R.  «.  Parkersburg,  &c.,  R.  R.  Co.,  39  Md.  36 

R.  Co..  39   Md.  36(1873);  Western,  <fec.,  (1873).     It  is  liowever  a  condition  prece- 

R.  R.  Co.   V.  Franklin   Bank,   6e   Id.   36  dent  to  maintaining  such  an  action  that 

(1882);  Willis  v.  Phila.,  &c.,  R.  R.  Co.,  6  the  holder  of   the  overissued  stock  dis- 

Week.  Notes  Cas.  401   (1879);  Willis?/,  charge  any  lien  upon  it  which  would  have 

Fry,  13  Phila.  33  (1879);  People's  Bank  properly  attached  to  genuine  stock  under 

302 


CH.  XVn.]        INCREASE,   EEDUCTIOX,  AND   OVERISSUE.  [§  295. 

§  294.  Defenses  of  the  corporation  to  siicli  actions.— It  fre- 
quently happens  that  an  overissue  of  stock  is  made  without  a 
strict   compliance  with  the  formalities  of  an  issue  of  genuine 
stock.     Generally,  certificates  of  stock  must,  according  to  the 
by-laws  of  the  corporation,  be  signed  by  certain  specified  corpo- 
rate oflficers.     Often,  however,  nothing  in  the  charter  or  by-laws 
of  the  corporation  regulates  the  form  or  contents  of  a  certificate 
of  stock.     Accordingly,  when  action  is  brought  against  a  corpo- 
ration on  overissued  stock,  the  defense  is  some  times  set  up  that 
the  certificates  were  not  signed  by  the  proper  oflScers,  or  were 
not  issued  with  the  usual  formalities,  and  consequently  that,  the 
purchaser  having  had  notice  of  the  infirmity,  the  corporation  is 
not  liable.     But  such  a  defense  is  not  favored  by  the  courts.^ 
But  where  the  charter  provided  that  certificates  of  stock  should 
be  signed  by  the  president,  directors,  and  treasurer,  fraudulent 
overissues  signed  by  the  president  and  treasurer  alone,  were  held 
not  sufficient  to  charge  the  corporation.^ 

§  295.  Personal  liaUlity  of  the  officers  of  the  corporation 
on  overissued  stoclc— The  officers  of  a  corporation,  who  are 
authorized  to  issue  certificates  of  stock  to  tiie  stockholders,  are 
liable,  in  tort,  both  to  the  immediate  purchasers  from  them  of 
spurious  stock,  falsely  and  fraudulently  certified  by  them,  and 
also  to  any  subsequent  purchaser  buying  upon  the  faith  of  the 
false  certificate,  and  sustaining  damage  thereby.^      There  may 

the   same   conditions.     Mt.  Holly  Paper  This  class  of  cases  is  treated  of  in  Chap- 

Co.'s  Appeal,  99  Penn.  St.  513  (1882).  ter  XXI,  under  the  head  of  Forgery. 

'  New  York,  &c.,  R.  R.  Co.  v.  Schuy-  -  Holbrook  v.  Fauquier,  <fec..  Turnpike 

ler,  34  N.  Y.  30(1865).     Thus,  where  an  Co.,  3  Cranch   C.  C.  425   (1829).      And 

officer  of  a  corporation  fraudulently  issued  overissued  stock  issued  by  the  president 

stock  for  his  own  use,  controlled  all  the  to  his  private  debtor,  in  payment  of  his 

books  relating  to  the  stock,  and  counter-  private  debt,  has  been  held  not  to  confer 

signed  all  the  certificates,  the  corporation  on  such  debtor  a  right  to  hold  the  corpo- 

was  held  liable   for  the  spurious  stock,  ration  responsible.     Wright's  Appeal,  99 

Tomev.  Parkersburg,  &c.,  R.  R.  Co.,  39  Penn.  St.  425  (1882).     In  this  case  the 

Md.  36(1873).     So  also  where  overissued  court  assumes  that  the  debtor  could  not 

stock  is  issued  under  the  genuine  seal  of  be  heard  to  claim  bona  fides. 

the  corporation,  the  corporation  is  liable.  ^  Bruff  v.  Mali,  36  N.  Y.  200  (1867) ; 

People's  Bank  v.  Kurtz,  99  Penn.  St.  344  Seizer  v.  Mali,  41  Id.  619  (1869);  revers- 

(1882).     See  also  Manhattan  Beach  Co.  t).  ing  s.   o.    32   Barb.   76  (1860);   11  Abb, 

Harned,  27  Fed.  Rep.  484  (1886).     The  Prae.    129;    Cazeaux  v.   Mali,   25  Barb, 

last  case,  however,  was  where  the  corpo-  578  (1857);   Shotwell  «.  Mali,  38   Id.  445 

rate  officers  issued  stock,  not  in  excf/ss  of  (1862).     A  person  receiviiig  stuck  from 

the  capital  stock,   but  a  part  of  the  un-  the  directors  of  a  corporation,  in  pledp 

issued  original  capital  stock.      They  is-  for  a  loan  to  it,  they  knowing  that   the 

sued  it  not  for  the  corporation,  but  in  stock  was  overissued,  may  sue  the  dircc- 

fraud   of  it   and    for   their  own   benefit,  tors  lor  damages  in  an  action  for  deceit. 

303 


§  29Y.J  INCREASE,   REDUCTION,   AND   OVERISSUE.         [CH.  XVn. 


be  either  a  joint  action  against  tlie  corporation  and  the  corporate 
agents  issuing  the  stock,  or  a  separate  action  against  either/  In 
actions  against  the  directors  for  frauds  in  the  overissue  of  stock, 
the  corporation  is  a  party .^ 

§  29C.  LiaUiity  of  tlie  vendor  of  overissued  stoclc. — In  the 

absence  of  frand,  the  purchaser  of  overissued  and  spurious  stock 
cannot  hold  his  vendor  liable  thereon.  The  I  on  a  fide  vendor  can 
be  held  to  warrant  only  his  own  title  to  the  shares,  not  the  right 
of  the  corporation  to  issue  them.  If  he  came  by  them  honestly 
and  sells  them  in  good  faith,  there  is  no  recourse  to  him,  even 
though  they  turn  out  to  be  spurious.^  When,  however,  the  ven- 
dor is  guilty  of  fraud  in  the  transaction  he  is  liable.^ 

§  297.  Equity   ivill  enjoin   voting,    transferring,   or   divi- 
dends on  sucli  stock,  and  zvill  adjust  the  rights  of  all  parties. 

A  court  of  equity  will,  upon   a  proper  application,  grant  an 

injunction  to  prevent  the  transfer  of  illegally  issued  stock,  or  the 
payment  of  dividends  thereon,  or  the  voting  of  the  pretended 
owners  of  such  stocks.^  The  most  effectual  remedy  in  tiiese  cases 
is  a  suit  in  equity,  instituted  by  the  corporation  whereby,  in  one 
proceeding,   the  rights  and  liabilities   of  all  persons  concerned 


Whitehaven,  <fec.,  Co.  v.  Reed,  54  L.  T. 
Rep.  300(1886);  Natl.  Exchange  Blr.  t>. 
Siblev,  71  Ga.  726  (1883). 

'  Bruff  V.  Mali,  36  N.  Y.  200  (1867). 
And  when  the  action  is  against  the  officers 
responsible  for  the  fraudulent  overissue, 
if  the  evidence  shows  that  the  entire 
capital  stock  of  the  company  had  been 
issued  prior  to  the  dates  of  the  certifi- 
cates purchased  or  held  by  the  plaintiff, 
and  if  it  appears  that  the  defendants  prior 
thereto,  had,  as  officers  of  the  corporation, 
issued  spurious  certificates  of  stock,  then 
there  is  a  presumption  of  law,  that  the 
certificates  in  controversy  are  false  and 
fraudulent,  and  the  burden  is  upon  the 
defendants  to  show  that  these  particular 
certificates  were  issued,  either  upon  the 
surrender  of  certificates  of  genuine  stock, 
or  upon  the  transfer  on  the  books  of  the 
company  of  such  stock,  facts  peculiarly 
within  "the  knowledge  of  the  corporate 
officers.  Shotwill  v.  Mali,  38  Barb.  445. 
469  (1862),  a  well-considered  case;  Bruflf 
V.  Mali,  36N.  Y.  200(1867). 

2  Venezuela,  R.  R.  Co.  v.  Kisch.  L.  R., 
2  H.  L.  99  (1867)  ;  Ross  v.  Estates.  &c., 
Co.,   L.   R.,  3  Clum.    App.    6o2   (1868); 

304 


Askew's  Case,  L.  R.,  9  Id.  664  (1874); 
Cargill  t\  Bower,  L.  R.,  10  Chan.  Div. 
502(1878);  Henderson  v.  Lacon,  L.  R., 
6  Eq.  249;  Smith  v.  Reese,  L.  R.,  2  Id. 
264  (1866);  Thorpe  v.  Hughes,  3  Mylne 
&  Cr.  742  (1838);  Waldo  ?>.  Chicago,  <fec., 
R.  R.  Co.,  14  Wis.  575  (1861);  Hender- 
son V.  Railroad  Co.,  17  Texas,  560  (1856); 
State  V.  Jefferson,  &c.,  Co.,  3  Humph.  305 
(1842);  Ashmead  v.  Colby,  26  Conn.  287 

(1857). 

3  6tate  V.  North  Louisiana,  &c.,  R.  R. 
Co.,  34  La.  Ann.  947 ;  People's  IJank  v. 
Kurtz,  99  Penn.  St.  344  (1882);  Stizer  v. 
Mali,  41  N.  y.  619  (1869). 

■*  Kempson  v.  Saunders,  4  Bing.  5 
(1826);  Nockles  v.  Crosby,  3  Barn.  &  C. 
814(1825);  Gompertz  v.  Bartlett,  2  El. 
<fe  Bl.  849  (1853);  Kendall  v.  Stone,  5  N. 
Y.  14(1851). 

5  Kent  V.  Quicksilver  Mining  Co.,  78 
N.  Y.  139;  Thomas  v.  Railroad  Co.,  101 
U.  S.  71.  And  where  a  cori'orate  officer 
issues  illegal  and  unauthorized  stock,  he 
may  be  enjoined  from  allowing  a  transfer 
of  it,  if  proof  is  given  of  its  illegal  char- 
acter and  of  a  proposed  transfer.  Sher- 
man V.  Clark,  4  Nev.  138  (1869). 


CH.  X^-n.]        INCREASE,    REDUCTION,   AND   OVERISSUE.  [§  298. 

with  the  overissue  of  the  stocic  are  fully  and  finally  determined 
and  adjudicated,  and  the  overissued  stock  itself  is  retired  and 
destroyed.  Sucli  a  proceeding  is  in  the  nature  of  a  bill  to  quiet 
title,  or  to  remove  a  cloud  from  the  title  of  the  genuine  stock. 
Spurious  or  overissued  stock,  issued  by  corjjorate  ofiicers  having 
the  apparent  authority,  and  outstanding  in  the  hands  of  numerous 
holders,  is  a  cloud  upon  the  title  to  the  genuine  stock.  It  is  a 
cloud  which  a  court  of  equity  will  remove,  and  a  suit  to  that  end 
may  be  commenced,  either  by  the  corporation  on  behalf  of  the 
shareowners,^  or  by  the  stockholders  themselves  in  their  own 
behalf,  the  coi-poration  failing  or  refusing  to  institute  it.^ 

§  298.  Subscribe)'' s   right  to  defeat  a  siibscription  to  over- 
issued  stocTv,  and   to   recover  back  money  i)aid   thereon. — In 

addition  to  the  remedy  in  equity,  the  holder  of  overissued  stock 
has  the  further  right  at  law  to  defeat  an  action  on  his  subscrip- 
tion therefor,  and  tliat,  too,  even  though  he  knew  it  to  be  over- 
issued at  the  time  the  subscription  was  made.  There  can  be  no 
estoppel  in  such  a  case,  and  not  even  creditors  can  enforce  any 
liability  on  spurious  or  overissued  stocks.*  Where  also  a  sub- 
scriber has  paid  an  installment  on  his  subscription,  although  he 
knew  when  he  made  the  subscription  and  paid  the  money,  that 
it  was  an  illegal  and  unauthorized  issue,  he  may  rescind  and 
recover  back  what  he  has  paid.*  In  Iowa,  it  has  been  held,  that 
payment  of  a  note  given  for  overissued  stock  cannot  be  enforced 
where  the  consideration  was  expressed  in  the  note  to  be  the  stock 
of  the  corporation  to  which  the  note  was  given,  and  the  direc- 


'  New  York,  tfec,  R.  R.  Co.  v.  Schuy-  m:in,    Lofft,   342  ;    Lowry   v.    Bourdicn, 

ler,    17   N.   Y.    592  (1858);  Plimpton   v.  Doug.  468;  Tappenden  )7.  Randall,  2  Eos. 

Bigflow,  93  Id.  592.  (502  (1883).  &  P.  467  (1801);  Hastelow  v.  Jackson,  8 

•-'  Dewing  v.  Perdicaries,  96  U.  S.  193  Barn.  &  C.  221  (1828);  Aubert  v.  Walsh, 

(1877);   Wood  v.  Union,   &c.,   Assn.,   63  4  Taunt.   293  (1812);  Busk  v.  Walsh,  4 

Wis.  9  (1885);  Perdicaris  v.  Charleston  Id.  290  (1812);  Bone  v.  Eldoss,  5   Hurl. 

Gaslight  Co.,  Chase's   Dec.    435   (1869).  <fe  N.  925(1860);   White  z>.  Franklin  Bank, 

Cy.  Taylor  ?^  South  &  North  Ala.  R.  R.  22   Pick.    181    (1839);    Reed    v.    Boston 

Co.,  4  Woods,  575  (1882),  where  the  sub-  Machine  Co.,  141  Mass.  454(1886) ;  Nellia 

Bcriber  acquiesced  ten  years.     The  court  v.  Clarke,  4  11111,424  (1842);  Morgan  v. 

denied  any  relief.  Groff,   4    Barb.    524    (1848);    Taylor   v. 

*  Scovill  V.   Thayer,   105  U.    S.    143  Bowers,  1  Q.  B.  Div.  291;  s.  c.  31  L.  T. 

(1881);   I>age  v.  Austin,  10  Can.   Sup.  Cl.  (N.  S.)  938.     And  the  dissenting  oi)iiiion 

132;  Clark  v.  Turner,  73  Ga.  1  (1884).  of  Dwight,   Con)r.,  in   Knowltou  v.  Con- 

"  Knowlton  ».  Congress,  Ac.,  Co.,  14  gress,  Ac,  Co.,  57  N.  Y.  518,  54()  (1874). 

Blatch.  364  (1877);  affi'd   103   U.   S.   49  This  case,  however,    was  not  strictly  a 

(1880);  Thomas  v.  City  of  Richmond,  12  case  of  overissued  stock. 
Wall.  349,  355  (1870);  Walker  v.  Chap- 

[30]  305 


§  298.]  INCREASE,  REDUCTION,  AND   OVERISSUE.         [CH.  XVII. 

tors  subsequently  made  an  illegal  and  unauthorized  increase  In 
the  stock,  the  maker  of  the  note  having  had  notice  that  a  large 
amount  of  illegal  stock  had  been  issued,  and  that  the  illegal  and 
valid  stock  could  not  be  distinguished.^  But  it  is  held  that  one 
who  subscribes  for  overissued  stock,  honajide,  upon  discovering 
that  the  stock  is  spurious,  cannot  have  a  receiver  appointed,  pend- 
ing an  inquiry  into  the  legality  of  the  stock,  to  the  end  that,  in 
case  the  stock  be  judicially  declared  invalid,  such  subscriber  may 
recover  back  from  the  corporation  the  money  so  paid  for  the 
spurious  shares,  when  the  money  received  by  the  company  had 
not  been  kept  separate  from  its  general  funds,  .^and  could  not  be 
traced  and  identified.^ 


1  Merrill    v.    Gamble,  46   Iowa,  615  **  Whelpley   v.  Erie  Railway  Co.,  66 

(IST^);    Merrill   v.   Beaver,   46   Id.  646     Blatch.  271  (1868). 

(1877);   Merrill  v.    Reaver,   50  Id.  404 
(1879). 


306 


PART  II. 

TRANSFERS     OF     STOCK. 


CHAPTER  XVIIL 


LEGACIES  AND   GIFTS   OF   STOCK. 


§  299.  Definitions  of  general,  specific,  and 
decaonstrative  legacies  of  stock. 

300-301.  Importance  of  the  difference 
between  general  and  specific  lega- 
cies. 

302-3C3.  Legacies  of  stock  are  construed 
to  be  general,  if  the  language  will 
permit. 


§304-305.  Amount  of  stock  conveyed  by 
certnin  legacies. 

306.  Ademption  or  revocation  of  a  lega- 
cy of  stock,  and  abatement. 

307.  Duty  of  executor  as  regards  spe- 
cific or  general  legacies. 

308.  Gifts  of  stock. 


§  299.  Defimtions  of  general,  specific,  and  demonstrative 
legacies  of  stock. — A  general  legacy  of  stock  is  a  legacy  whereby 
it  becomes  the  duty  of  the  executor  or  administrator  to  giv^e  to 
or  procure  for  the  legatee  a  certain  amount  of  stock,  as  indicated 
by  the  will,  there  being  nothing  in  the  will  itself  to  indicate  that 
the  legacy  is  to  be  satisfied  by  stock  actually  owned  by  the  testa- 
tor. A  specific  legacy  of  stock  arises  when  the  testator,  in  his 
will,  directs  or  clearly  indicates  that  the  legacy  is  to  be  satisfied 
from  stock  which  he  owns.^  A  demonstrative  legacy  of  stock  is 
the  same  as  a  general  legacy,  except  that  it  is  to  be  purchased 
from  a  particular  fund  of  the  estate.  Demonstrative  legacies  of 
stock  are  of  little  importance  as  compared  with  the  other  two 
kinds.^ 

§  303.  Importance  of  the  difference  between  general  and  spe- 
cific legacies. — It  is  frequently  of  the  greatest  importance  whether 


'  On  this  subject  in  general,  see  Roper 
on  Legacies  (2d  ed.) ;  Jarman  on  Wills; 
Williams  on  Executors;  Bouvier  Law  Die, 
vol.  II,  p.  6o;  Tifft  v.  Porter,  8  N.  Y.  516 
(1853),  where  the  court  says :  "A  legacy  is 
general  whiTe  it  is  so  given  as  nob  to 
amount  to  a  bequest  of  a  particular  thing  or 
money  of  the  testator,  distinguished  from 
all  otliersof  the  same  kind.  It  is  specific 
when  it,  is  a  bequest  of  a  specific  part  of  the 
testator's  personal  estate,  wliich  is  so  dis- 
tin^uishea." 


'  That  legacies  of  stock  may  be  de- 
monstrative ha3  been  assumed  by  the 
c;ises.  In  the  case,  however,  of  Kckfeld'a 
Estate,  7  W.  N.  0.  (Penn.)  19  (1879),  the 
court  says  a  legacy  of  stock  "  may  be 
either  specific  or  general,  according  to 
tlio  circumstances.  It  is  never  demon- 
strative. A  demonstrrlive  legacy  is  al- 
ways pecuniary,  differing,  however,  from 
an  ordinary  legacy  in  being  referred  to  a 
particular  fund  or  source  of  payment." 

307 


§300.]  LEGACIES  AND  GIFTS  OF  STOCK.  [cH.  XVIII. 

a  legacy  be  a  general  or  a  specific  one.  A  long  line  of  decisions, 
running  back  for  nearly  two  hundred  years,  have  been  made  in 
endeavoring  to  lay  down  rules  on  this  subject.  The  complica- 
tions, contradictions,  inconsistent  decisions  and  doubt  that  have 
arisen  from  the  inherent  difficulties  of  the  subject  are  frequently 
adverted  to  and  deplored  by  successive  generations  of  judges. 

The  importance  of  determining  whether  a  legacy  of  stock  is 
general  or  specific  rests  in  the  fact  that  if  it  is  specific  it  is  en- 
titled to  certain  advantages,  and,  on  the  other  hand,  is  exposed  to 
certain  perils ;  while,  if  it  is  general,  it  is  without  those  advan- 
tages, but  is  also  free  from  the  perils.  The  advantages  of  a 
legacy  of  stock  being  specific  are  that  debts  of  the  estate  are  to 
be  paid  from  other  funds  ;  the  specific  legacy  passes,  though  other 
legacies  fail  partially  or  wholly  by  reason  of  deficiencies  in  the 
estate  ;  and  the  specific  legatee  is  entitled  to  all  dividends  declared 
after  the  testator's  death,  instead  of  losing  the  first  year's  dividends, 
as  in  case  of  a  general  legacy  of  stock.  General  legacies  of  stock 
have  none  of  these  advantages.  On  the  other  hand,  a  specific 
legacy  of  stock  is  open  to  the  great  danger  of  being  revoked  by 
the  acts  of  the  testator,  and  frequently  so  when  the  testator  has 
no  intention  of  revoking  the  legacy.^  This  revocation,  arising  by 
implication  from  the  acts  of  the  testator,  such  as  selling  the  stock 
bequeathed,  or  using  it  in  any  way  inconsistent  with  the  idea  of 
its  passing  under  the  will,  js  a  danger  that  does  not  exist  if  the 
legacy  is  a  general  one,  since  general  legacies  of  stock  may  be 
carried  out  by  the  executor's  purchasing  the  stock  for  the  pur- 
pose of  the  legacy. 

1  Kenkel  v.  Macgill,  56  Md.  120  (1880),  not  paid.    In  the  case  MuUins  v.  Smith,  1 

tlie  court  saying:  "  If  the  legacy  is  to  be  Dr.  <fe  Sm.  204  (1860),  the  difference  be- 

considered  specilic,  then,  in  the  event  of  tween  a  specific  and  demonsti'ative  legacy 

the  testator's  parting  with  the  thing  vr  is  thus  described : 

propertybequeathed,  or  if  from  any  cause  "The    points    of   difference  between 

it  should  be  lost  or  destroyed,  the  legacy  specific  and  demonstrative  legacies  are 

fails.     Then,  again,  such  legacies  are  not  these: 

liable  to  abatement  with  general  legacies,  "  A  specific  legacy  is  not  liable  to 

norarethey  liable  to  contribution  towards  abatement  for  the  paj-ment  of  debts,  but 

the  payment  of  debts."     Where  evident-  a  demonstrative  legacy  is  liable  to  abate 

ly  ihe  intent  was  to  give  specific  bonds,  it  when  it  becomes  a  general  leoaiy  by  rea- 

wasso  decreed.  son  of  the  failure  of  the  fund  out  of  which 

Davies  v.  Fowler,  L.  R.  16  Eq,  308  it  is  payable.  A  specific  legacy  is  liable 
(1873);  Walton  v.  Walton,  1  Johns.  Ch.  to  ademption,  but  a  demonstrative  legacy 
257  (1823);  Jacques  v.  Chambers,  2  CoH.  is  not.  A  specific  legacy,  if  of  stock,  car- 
435  (1846),  holding  also  that  the  legatee  ries  with  it  the  dividends  which  accrue 
may  select  his  stock  from  different  classes,  from  the  deatli  of  the  testator,  while  a 
but  that  he  must  pay  calls  ou  the  stock  demonstrative  legacy  does  not  carry  in- 
due at  the  time  of  the  testator's  death  but  terest  from  the  testator's  death." 

808 


CH.  XVIII.]  LEGACIES   AND   GIFTS   OF   STOCK.  [§  302. 

§  301.  If  a  specific  legacy  will  apply  equally  to  paid-up  stock 
and  to  stock  not  paid  up,  the  legatee  may  take  the  former.^  If 
the  testator  has  made  payments  on  the  stock  before  calls  have 
been  made,  the  legatee  is  entitled  to  the  benefit.^  If  there  is 
both  a  specific  and  a  general  legacy  of  the  same  stock,  the  specific 
is  to  be  first  satisfied,^  The  specific  legatee  takes  all  the  income 
and  profits  of  the  stock,*  whereas  the  general  legatee  has  no  in- 
terest in  the  stock  until  twelve  months  after  the  testator's  death.^ 
The  specific  legatee  takes  the  stock,  although  there  will  then  be 
no  property  left  to  pay  pecuniary  legacies.^  However,  he  can 
have  only  so  much  stock  of  that  kind  as  the  testator  dies  possessed 
of,'  and  if  the  latter  dies  possessed  of  none,  the  specific  legatee 
takes  none.^  The  specific  legatee  does  not  take  dividends  de- 
clared and  due  before  the  testator's  death,  although  such  dividends 
have  not  been  collected.^ 

§  302.  Legacies  of  stock  are  construeil  to  he  general,  if  the 
language  ivill  permit. — It  is  the  policy  of  courts  of  justice  to  up- 
hold and  carry  out  a  legacy,  and  implied  revocations  are  not 
looked  upon  with  favor.  Accordingly,  in  order  to  avoid  the 
danger  of  ademption,  to  which  specific  legacies  are  subject,  the 
rule  has  become  established  that  general  legacies  are  to  be  favored 
by  the  courts,  and  if  there  is  doubt  as  to  whether  a  legacy  be 
specific  or  general,  it  will  be  construed  to  be  of  the  latter  kind.^° 


'Millard  v.  Bailey,   L.  R.   1   Eq.  378  generally  ia  favor  of  the  legatees,  because, 

(1866);  Jacques  v.  Cliamhers,  supra.  although  a  specific  legatee  has  many  ad- 

^  Tanner  D.  Tanner,  11  Beav.  69(1848).  vantages,  he  is  exposed  to  m  'ny  perils. 

2  Barton  v.  Cooke,  5  Ves.  461.  "  lie  has  the  advantage  of  taking  tlie 

*  Loring  v.  Woodward,  41  N.  H.  391  very  thing  that  is  given,  although  the 

(1860),  holding  also  that  parol  evidence  general  assets  may  be  insufficient;  and  he 

cannot  siiow  a  contrary  intent  of  the  tes-  has  the  advant.iLce  of  taking  the  dividends 

tator.  or  interest  from  thu  death  of  t'.ie  testator. 

«•  Webster  v.  Hale,  8  Ves.  410  (1803).  But,  on  the  other  Iiand,  he  is  exposed  to 

«  Drinksvater  v.  Falconer,  2  Ves.  Sr.  the  very  great  peril  of  ademption." 
622(175.5).  Tifft   v.    Porter,    8    N.    Y.    516-520, 

'  Gordon  V.  Duff,  28  Beav.  519  (I860);  where  the  court  says:  "  The  inclination 

Ashton  V.  Ashton,  3  P.  AVins.  384  (1735).  of  the  courts  to  hokllegacies  to  be  general 

»  Evans  v.  Trip,  6  Mad.  91  (1821).  rather  tiian  specific,  and  on  whicli  the  rule 

»  Perry  v.  Maxwell,  2  Dev.  Eq.  (N.C.)  is  based,  that  to  make  a  legacy  specific  its 

487  (18;i4).  terms  must  clearly  require  such  a  construe- 

'"  Davies  v.   Fowler,  L.  11.  16  Eq.  308  tion,  rests  ui)on  solid  grounds.     The  pre- 

(1873),  where  the  court  says:  sumption  is  stronger,  that  a  testator  in- 

"  With   regard   to    specific    legacies,  tends  sotne  benefit  to  a  legatee,  tliaii  that 

the  doctrines  of  this  court  are  very  mi-  he  intends  a  ])enefit  only  upon  the  collater- 

nute,   and   very   refiner!   distinctions  arc  al  condition  that  he  shall  remain,  till  deith, 

drawn,  and  no  doubt  the  general  indina-  owner  of  the  pro])erty  bcqunatJied."     To 

tion  is  to  treat  a  legacy  as  general  rather  same  effect  see    I'^ckfold'a  Estate,  7  W^.  N. 

than    as   specific.     This   construction    ia  C.  (Penn.)  19  (1879). 

309 


302.] 


LEGACIES   AND   GIFTS   OF   STOCK. 


[CH.  XVIII. 


Where,  however,  tlie  intent  of  the  testator  clearly  was  to  give 
particular  stock  owned  by  him,  the  court  will  declare  the  legacy 
to  be  a  specific  one.  Thus,  wliere  the  testator  gives  the  legacy  of 
stock  by  describing  it  as  "my"  stock,  the  legacy  is  a  specific 
one,^  So  also  where  the  phrase  is  used,  "  standing  in  my  name  ;  "  ^ 
or,  "  which  I  hold  ; "  ^  or  a  direction  is  given  to  make  up  the  spec- 
ified amount  from  the  general  fund  if  the  testator  does  not  hold 
enough;*  or  the  testator  describes  the  stock  as  "now  lying  in  the 
3  per  cents. ;  "  ^  or  uses  the  word  "  such  ;  "  ^  or  makes  a  legacy  of 
stock  out  of  a  quantity  of  stock ; ''  or  in  another  part  of  the  will 
speaks  of  the  stock  as  that  of  which  the  testatrix  may  die  pos- 
sessed ;  ^  or  where,  after  several  legacies,  all  apparently  general, 
the  testator  bequeathes  the  remaining  stock  "standing  in  my 
name  ;  "  the  effect  of  all  these  is  that  the  legacies  are  specific.® 
A  legacy  of  all  the  dividends,  interest,  and  proceeds  from  stock  is 
a  specific  legacy,  even  though  the  testator  did  not  own  such  stock 


1  Walton  V.  Walton,  1  Johns.  Ch.  25*7 
(1823);  Loring  v.  Woodward,  41  N.  H. 
391  (1860);  Shuttleworth  v.  Greaves,  4 
Mylne  &  Cr.  35  (1838);  Miller  v.  Little, 
2  Beav.  259  (1840);  Hayes  v.  Hayes,  1 
Keen,  97  (1836);  Brainerd  v.  Cowdrey, 
16  Conn.  1  (1843).  The  omission  of  the 
word  "  my "  does  not  necessarily  make 
the  legacy  a  general  one.  Avelyn  v. 
Ward,  1  Ves.  Sr.  420  (1749).  The  word 
"  my  "  does  not,  however,  have  the  same 
significance  in  its  application  to  a  legacy 
of  an  annuity  as  it  has  to  a  legacy  of 
stock.  Kirby  v.  Potter,  4  Ves.  748  (1799). 
In  the  case  Parrott  v.  Worsfold,  1  Jac.  & 
Walker,  574  (1820),  a  legacy  of  "all  my 
stock  that  I  may  be  possessed  of  at  my 
decease,"  was  held  to  be  general  since 
there  was  no  "  individual  thing  given." 

-  Ludlam's  Estate,  13  Penn.  St.  188 
(1850);  Gordon  v.  Dufif,  28  Beav.  519 
(I860);  Kampf  v.  Jones,  2  Keen.  756 
(1837).  Where,  however,  other  parts  of 
the  will  indicate  that  tlie  legacy  was  gen- 
eral, it  was  held  to  be  general.  See  An- 
ther V.  Anther,  13  Sim.  422  (1843),  hold- 
ing also  that,  though  by  the  delay  of  the 
executor  beyond  a  year  in  purchasing  the 
stock,  it  rises,  the  legatee  is  entitled  to 
the  same  amount  as  if  it  had  been  bought 
at  the  rioht  time.  Fidelity  Trust  Com- 
pany's Appeal  (Penn.,  Oct.,  1885). 

^  Blackstone  v.  Blackstone,  3  Watts, 
835  (1839). 

*  Townsend  v.  Martin,  7  Hare,  471 
(1849),    holding   that   such   a   legacy   is 

310 


specific  and  not  demonstrative.  The 
case,  however,  of  McGuire  v.  Evans,  6 
Ired.  Eq.  (N.  C.)  269  (1848),  holds 
that  a  legacy  of  stock,  to  take  eff"ect 
in  case  other  legacies  do  not  absorb  that 
stock,  is  demonstrative;  also  that  in 
ca?e  of  legacies  of  the  same  stock  to  two 
different  persons,  each  takes  a  moiety. 
The  case  of  Mulling  v.  Smith,  1  Dr.  &  Sm. 
204  (1860);  Fountaine  «,  Tyler,  9  Price 
Ex.  94  (1821);  and  Queen's  College  v. 
Sutton,  12  Sim.  521  (1842),  hold  that 
such  a  legacy  is  specific  if  the  testator 
leaves  stock  enough,  but  is  general  if  he 
does  not  leave  enough. 

5  Morely  v.  Bird,  3  Ves.  628  (1800), 
and  holding  that  if  the  executor  has  sold 
the  stock  the  legatee  may  hold  him  liable 
for  its  value  one  year  after  the  testator's 
death. 

«  Davies  v.  Fowler,  L.  U.  16  Eq.  308 
(1873),  the  court  saying  that  a  legacy  is 
specific  when  a  meting  out  or  dividing  is 
evidently  intended. 

•>  Hasking  v.  Nicholls,  1  Y.  &  C.  Ch. 
478  (1842),  and  if  the  administrator  has 
paid  the  dividends  to  another,  be  is  per- 
sonally liable. 

*  Measure  v.  Carleton,  30  Beav.  538 
(1862).  This  case  also  holds  that  if  an 
exact  partition  of  the  stock  is  impossible, 
enough  will  be  sold  so  as  to  render  it  pos- 
sible. 

9  Sleech  v.  Thorington,  2  Ves.  Sr.  560 
(1754). 


CH.  xvin.] 


LEGACIES  AOT)  GIFTS   OF  STOCK. 


[§  303. 


at  the  time  he  made  the  will.^  There  has  been  some  difference  of 
opinion  as  to  whether  the  fact  that  the  testator,  at  the  time  of 
making  the  will,  possessed  an  equal  or  greater  amount  of  stock 
than  that  bequeathed,  and  of  the  same  kind,  is  to  be  taken  as  evi- 
dencing an  intent  to  make  the  legacy  specific.  The  weight  of 
authority  holds  that  such  a  fact  is  not  to  be  taken  into  considera- 
tion, and  that  if  the  words  of  the  legacy  make  it  general,  it  cannot 
be  construed  to  be  specific  simply  because  by  an  examination  of 
the  testator's  effects,  he  is  found  to  have  possessed  stock  similar 
to  that  described  in  the  will.^ 

§  303.  The  most  common  form  of  a  general  bequest  of  stock 
is  where  the  testator  merely  bequeathes  a  specified  number  of 
shares  of  a  specified  kind  to  the  legatees,  without  any  further 
words  indicating  that  he  then  held  or  expected  to  hold  the  stock 
bequeathed.^  A  direction  to  the  executors  to  invest  a  certain 
sum  in  specified  stock  for  the  benefit  of  the  legatee  is  a  general 
legacy.*  So  also  where  the  executors  are  directed  to  transfer  to 
the  legatee  certain  stock.^     A  legacy  of  the  residue  of  the  testa- 


'  Stephenson  v.  Dawson,  3  Beav.  342 
(1840).  See  also  Fidelity  Trust  Com- 
pany's Appeal  (Penn.,  Oct.,  1885). 

^  Robinson  v.  Addison,  2  Beav.  515 

(1840),  the  court  holding  that  the  legacy 

was  general,  and  saying  the  testator  "  in 

effect   gave   such   an    indefinite   sum    of 

money  as  would  suffice  to  purchase   so 

many  shares  as  he  liad  given."     Davis  v. 

Cain's  Exr.,  1  Ired.  Eq.  (N.  C.)  304  (1840); 

Bransdan  v.  Winter,    Ambl.  56  (1738) ; 

Simmons  v.  Vallunce,  4  Brown's  Ch.  346 

(1793)  ;  Bishop  of  Petersborough  v.  Mort- 

lock,  1  Brown's  Ch.  565(1784);  Boys  v. 

Williams,  2    Russ.    &,  Myl.   689    (1831); 

Partridge    v.    Partridge,     Cases    Temp. 

Talbot.  226(1736);  Tifft  d.  Porter,  8  N. 

Y.   516   (1853),    where  the   court   says: 

"  The  mere  possession  by  the  testator,  at 

the  date  of  his  will,  of  stock  of  equal  or 

larger  amount  than   the  legacy,  will  not, 

of  itself,    make    tiie    bequest     specific." 

Osborne  j;.  Me  Alpine,  4  lledf.  (N.  Y.  Surr.) 

1(1878);    Eckfeld'a   Estate,  7  W.  N.   C. 

(Penn.)  19    (1879);    Sponsler's    Appeal, 

107  Penn.  St.  95  (1884),  where  the  court 

also  lieM  that  a  codicil  repeating  a  general 

legacy  of  stock  will  entitle  the  legatee 

to  both   legacies.     In    Massachusetts    a 

doctrine  contrary  to    that  stated  in  the 

text,  prevails.     See  White  v.  Winchester, 

23    Mass.   48   (1827);     Metcalf  o.    First 


Parish,  128  Mass.  370  (1880).  To  same 
eff^ect.  Cuthbert  v.  Cuthbert,  3  Yeates 
(Penn.),  486  (1803);  Jeffreys  v.  Jeffreys, 
3  Atk.  120  (1744). 

^  Wilson  V.  Brownsmith,  9  Ves.  180 
(1803),  holding  also  that  if  there  is  not 
enough  of  such  stock  among  the  testator's 
assets,  the  deficiency  must  be  purchased 
for  the  legatee.  Pearce  v.  Billings,  10  R. 
I.  102  (1871),  the  court  saying  that  the 
evident  intent  of  the  testator  was  "  to 
have  the  stock  mentioned  purchased  for 
the  legatees  by  his  executor,  or  to  have 
the  legatees  furnished  with  the  means  to 
purchase  the  stocks  for  themselves."  The 
value  of  the  stocks  one  year  after  the  tes- 
tator's death  is  the  amount  to  be  paid  to 
the  legatees.  In  the  case  of  Purse  v. 
Snaplin,  1  Atk.  413  (1737),  where  two 
legacies  of  5,000^  each  were  given,  and 
the  testator  had  but  5,000/  of  stock,  the 
court  held  that  the  general  estate  must 
purchase  5,000/  of  the  same  stock. 

■»  Raymond  v.  Brodbelt,  5  Ves.  199 
(1880). 

'■>  Lambert  v.  Lambert,  11  Ves.  607 
(1805);  Sibley  v.  Perry,  7  Ves.  522  (1802), 
the  court  saying,  a  legacy  is  not  specific 
"  without  something  marking  the  specific 
thing,  tlie  very  corpus ;  witliout  describ- 
ing it,  as  standing  in  his  name,  or  by  tho 
expression,  '  my  stock,'  «fec." 

311 


§  305.] 


LEGACIES  AND  GIFTS   OF  STOCK. 


[CH.  xvin. 


tor's  stock  has  been  held  to  be  a  general  legacy.^  A  legacy  to  be 
paid  "  out  of  the  fonr  per  cents."  is  general.^  A  codicil  which  is 
general  in  form,  is  held  to  be  such,  although  it  is  but  an  increase 
of  a  previous  legacy  which  is  specific,  and  which  is  revoked  by 
the  codicil.^ 

§  304.  Amount  of  stoclc  conveyed  hy  certain  legacies. — A 
legacy  of  "  one  hundred  pounds,  long  annuities  "  has  been  held 
to  mean,  not  that  the  legatee  is  entitled  to  an  annual  income 
from  the  estate  of  one  hundred  pounds,  but  that  he  was  entitled 
to  have  that  amount  invested  for  him.*  A  will  reciting  the 
amount  of  stock  held  by  the  testatrix,  and  bequeathing  it,  or  so 
much  as  should  be  standing  in  her  name  at  her  death,  does  not 
give  to  the  legatee  stock  acquired  after  the  making  of  the  will, 
and  before  the  death  of  the  testatrix.^  A  bequest  of  stock  "  that 
I  possess  "  is  held  to  mean  stock  possessed  by  the  testator  at  the 
time  of  making  the  will.^ 

§  305.  There  has  been  some  controversy  and  doubt  as  to 
whether  a  legacy  of  the  testator's  "  money  "  would  give  to  the 
legatee  the  testator's  stock  in  a  corporation.  The  decided  w^eight 
of  authority  holds  that  it  does  not.'    IS  or  will  shares  of  stock  be- 


1  Parrott 
574   (1820) 


V.  "Worsfold,  1  Jac.  &  W. 
Contra,  Betliune  v.  Ken- 
nedy,' 1  Myl.  &  C.  114  (1835). 

•'  Deane  v.  Test,  9  Ves.  146  (1803). 

^  Johnson  v.  Johnson,  14  Sim.  313 
(1844). 

4  Atty.  Gen.  v.  Grote,  2  Russ.  &  Myl. 
699  (183"l'l;  Fonnereau  v.  Payntz,  1  Bro. 
Ch.  412  (1785).  See  Pearce  v.  Billings, 
supra.  Contra,  Stafford  v.  Horton,  1 
Bro.  Ch.  421  (1785). 

6  Hotham  v.  Sutton,  15  Ves.  319 
(1808).  So  also  of  a  leijacy  of  "the 
whole  of  my  stock  in  the  Housatonic 
Bank,  amounting  to  $6,000."  The  legatee 
does  not  take  stock  subsequently  ac- 
quired. Foote,  Appellant,  39  Mass.  299 
(1839);  Douglass  v.  Douglass,  Kay,  404. 
The  case  of  Fidelity  Trust  Company's 
Appeal  (Super.  Ct.  Penn.  October,  1885), 
states  that  at  common  law  a  specific 
legacy  of  stock  spoke  from  the  death  of 
the  testator,  and  that  the  English  Wills 
Act  of  1838,  and  the  Pennsylvania  act  of 
1879,  were  but  declaratory  in  that  respect. 
If  the  testator,  in  making  a  specified  be- 
quest  of  stock,  speaks  of  the   stock    as 

312 


"  now  standing  in  my  name,"  the  statute 
does  not  apply,  and  the  beciuest  speaks 
from  the  date  of  the  will.  In  Miller  v. 
Miller,  2  Beav.  259  (1840),  the  testator 
gave  "  one  share  to  each  child,  him  sur- 
viving." He  then  had  eight  shares  and 
seven  children.  At  his  death  he  had  ten 
shares  and  eleven  children.  Only  the 
eight  shares  were  held  to  pass. 

"  Cochran  v.  Cochran,  14  Sim.  248 
(1844).  This  rule  is  sometimes  changed 
by  statute.  See  in  England,  §  24,  Wills 
Act,  applied  in  Trinder  v.  Trinder,  L.  B., 
1  Eq.  695(1866),  and  Goodlad  ii.  Burnett, 
1  K.  <fe  J.  341;  Hepburn  v.  Skerving,  4 
Jur.  N.  S.  651  ;  Wagstaff  y.  W-agstaff,  L. 
R.,  8  Eq.  229;  Bothamley  v.  Shersan,  L. 
R.,  20  Eq.  304. 

'  Mullins  V.  Smith,  1  Dr.  &  Sm.  204 
(1860);  Hotham  v.  Sutton,  15  Ves.  319 
(1808);  Lowe  v.  Thomas,  Kay,  369  ;  afii'd, 
5  De  G.,  M.  &  G.  315  (1854);  Gosden  v. 
Dotterill,  1  Mvl.  &  K.  56  (1832);  Hund- 
leston  V.  Gouldsbury,  10  Beav.  647  (1847); 
Douglas  V.  Congreve,  1  Keen,  410,  424 
(183'6);  Willis  v.  Plaskett,  4  Beav.  208 
(1841);  Ogle  v.  Knipe,  L.  R.,  8  Eq.  436 


CH.  xvni.] 


LEGACIES  AND  GIFTS  OF  STOCK. 


[§  305. 


long  to  a  legatee  to  whom  the  testator  has  given,  by  a  last  will 
and  testament,  his  "securities  for  money,"  ^  or  "furniture,"  and 
all  claims  and  demands  of  whatever  nature,^  or  "•  every  other 
article,"  ®  or  "  ready  money,"  *  or  goods,^  or  "  money  and  effects,"  ^ 
but  they  will  pass  under  a  bequest  of  the  "personal  estate,"'  or 
"  residue  of  money,"  ^  or  "  chattels."  ^  If  the  testator,  in  describ- 
ing the  stock  bequeathed,  has  very  clearly  made  a  mistake  in  the 
description,  the  legacy  will  be  held  to  apply  to  the  stock  intended 
to  be  bequeathed.  Thus  where  the  testator  has  "city  bank" 
stock,  but  bequeaths  "mechanics  bank"  stock,  and  the  intent 
clearly  was  to  bequeath  the  former,  the  court  will  render  a  decree 
to  that  effect.^"  Where,  subsequently  to  the  making  of  the  will, 
and  before  the  death  of  the  testator,  the  stock  bequeathed  is 
changed  in  its  character  by  operation  of  law,  the  legatee  will 
nevertheless  be  entitled  to  the  stock  in  its  new  form.^^  In  Eng- 
land, where  "  shares  "  corresponds  to  the  American  "  stock,"  but 
"  stock  "  is  a  term  applicable  to  a  paid-up  interest  which,  like  a 
bank  deposit,  may  be  used  in  large  or  small  quantities,  a  bequest 
of  "  shares"  does  not  pass  "stock"  if  there  be  any  "  shares"  to 
which  the  legacy  may  apply .^^    The  words  "  funds  "  or  "  public 


(1869);  Ommaney  v.  Butcher,  1  Tur.  & 
R.  260,  272  (1823),  holding  also  that  a 
bequest  of  stock  for  an  indefinite  charity 
fails.  Beck,  Ex.  v.  McGillis,  9  Barb.  35, 
39  (1850).  Contra,  Waite  v.  Coombes,  5 
De  G.  &  S.  676  (1852);  Chapman  v. 
Reynr.lds,  28  Beav.  221  (1860),  where 
the  testator  had  no  property  but  stock. 
Bescoby  v.  Pack,  1  Sim.  &  Stu.  500 
(1823),  holding  that  "  money  "  will  pass 
the  "  funds,"  but  not  stock  in  private  cor- 
porations. Newman  v.  Newman,  26  Beav. 
218  ('1858),  where  the  legacy  was  of 
"  surplus  money."  Jenkins  v.  Fowler,  (N. 
H.  March,  1886). 

'  Turner  v.  Turner,  21  L.  J.  (Ch.)  843 
(1852). 

2  Delamater's  Estate,  1  Whart.  (Penn.) 
362  (1836). 

'  Collier  v.  Squire,  3  Rusa.  467  (1827). 

*  .May  V.  Grave,  3  De  G.  &  Sm.  462 
(1849). 

'  Cowling  V.  Cowling,  26  Beav.  449 
(1859).  Conira,  Kendall  v.  Kendall,  4 
Russ.  Ch.  360(1828). 

*  Bortou  V.  Dunbar,  30  L.  J.  (Ch.)  8 
(1861). 


'  Kermode  v.  Macdonald,  L.  R.,  3  Ch. 

584(1868). 

^  Dawson  v.  Gaskoin,  2  Keen,  14 
(1837);  Fulkeron  v.  Chitty,  4  Jones'  Eq. 
(N.  C.)  244(1858). 

'  Kendall  v.  Kendall,  supra. 

'^  Roman  Catholic  Orphan  Asylum  v. 
Emmons,  4  Redf.  (N.  Y.)  144  (1855); 
Door  V.  Geary,  1  Ves.  Sr.  255  (1749), 
holding  that  a  bequest  of  "  East  India 
stock"  will  apply  to  bank  stock,  when 
the  testator  had  the  latter  but  none  of 
the  former.  See  also  Trinder  v.  Trinder, 
L.  R.,  1  Eq.  695  (1866),  where  a  legacy 
of  "  Great  Western  Railway  "  stock  was 
held  to  apply  to  the  stock  of  a  road 
absorbed  liy  the  Great  Western  Railway 
Oakes  v.  Oakcs,  9  Hare,  666(1852),  where 
a  bc(piest  of  "shares"  was  held  to 
apply  to  "stock."  Galliui  v.  Noble,  3 
Mor.  Ch.  690  ;  Penticost  v.  Ley,  J.  &  W. 
207;  Clark  v.  Atkins,  90  N.  C.  629, 
where  "  bank  stock  "  was  held  to  pass 
bonds. 

"  See  §  306.  note  9. 

"^  Oakes  v.  Oakes,  9  Hare,  666  (1852). 

313 


306.] 


LEGACIES  AND  GIFTS  OF   STOCK. 


[CH.  XVIII. 


funds,"  will  include  long  annuities  ;  ^  and  "  foreign  funds  "  means 
securities  guaranteed  by  foreign  governments,^  but  "  funds"  will 
not  include  bank  stock,^  nor  East  India  stock.*  An  unconditional 
bequest  of  the  dividends  of  stock  is  a  bequest  of  the  stock  itself.^ 
But  a  bequest  of  a  specitic  sum  to  be  paid  from  stock  does  not 
bequeath  the  stock  itself,  although  amounting  to  a  charge  upon 
it.^  A  bequest  of  stock  to  a  legatee  "  to  draw  the  income  arising 
therefrom,  during  her  lifetime,  and  at  her  death  to  dispose  of  the 
same  as  she  shall  see  fit,"  vests  the  title  to  the  stock,  when  it  is 
set  apart,  in  the  legatee,' even  though  the  executors  are  directed  to 
collect  and  pay  to  her  the  dividends.''  A  bequest  of  the  "  rest 
and  residue  after  deducting "  certain  specific  legacies  of  stock, 
includes  those  legacies,  if  they  have  lapsed  by  reason  of  the  death 
of  the  legatees.^  A  general  bequest  of  stock  applies  to  full  paid 
as  well  as  partly  paid  stock.^  Legacies  may  be  made  of  stock 
over  which  the  testator  has  the  power  of  appointment,^"  and  a  will 
may  provide  for  an  annuity  to  be  derived  from  stock.^^ 

§  30(5.  Ademption  or  revocation  of  a  legacy  of  stocTc,  and 
abatement. — The  ademption  of  a  legacy  is  a  revocation  of  that 


J  Howard  v.  Kay,  27  L.  J.  (Ch.)  448 
(1858). 

2  Ellis  V.  Eden,  23  Beav.  543  (1857) ; 
Cadett  V.  Earle,  L.  R.  5  Ch.  D.  710 
(1877).  properly  holding  that  New  York 
and  Ohio  are  foreign  governments.  Cf. 
Longdale's  Settlement  Trusts,  L.  R.,  5  Ch. 
D.  710  (1877),  relative  to  French  railway 
securities. 

^  Slingsby  v.  Granger,  7  H.  L.  Cases, 
273(1859). 

■*  Brown  v.  Brown,  4  K.  <&  J.  704 
(1858). 

6  Collier  v.  Collier,  3  0.  St.  369 ;  Haig 
V.  Swiney,  1  Sim.  &  Stu.  487  (1823); 
Page  V.  Leapingwell,  18  Ves.  463  (1812); 
Fox  V.  Can;  16  Ilun,  566  (1879),  involv- 
ing a  similar  question.  Cf.  Blann  v. 
Bell,  2  De  G.,  M.  &  G.  775  (1852),  hold- 
ing that  this  rule  applies  only  to  the 
"funds,"  but  not  to  stock  in  private  cor- 
porations. ■ 

6  Wilson  V.  Maddison,  2  Y.  &  C.  Ch. 
372(1848). 

'  Onondaga  Trust  &  Deposit  Co.  v. 
Price,  87  N.  Y.  542  (1882). 

*  Carter  v.  Taggart.  16  Sim.  423 
(1848);  Shuttleworth  ii.  Greaves,  4  Myl. 
&  Cr.  35  (1838),  holding  that  a  legacy  of 
stock  lapses  as  to  those  dying  before  the 
testator,   though    it   is   given    to   them, 

314 


"their  executors,  administr.ators,  or  as- 
signs." 

'  Emery  v.  Wason,  107  Mass.  507 
(1871).  This  case  holds  also  that  where 
a  call  on  the  stock  becomes  due  the  day 
after  the  testator  died,  it  was  the  duty  of 
the  executor  to  pay  it  from  the  general 
fund. 

10  See  Ee  David's  Trusts,  1  Johns.  495 
(1859);  Innis  v.  Sayer,  3  Mac.  &  G.  606 
(1851);  La-wnds  ?^.  Lawnds,  I  You.  &  Jer. 
445  (1827)  ;  ^'annock  v.  Horton,  7  Ves. 
391  (1802).     Re  Gratwick's  Trusts,  L.  R. 

1  Eq   177  (1865);   Wari-en  ?'.  Pastlewaite, 

2  Coll.  Ch.  116  (1845);  Walker  v.  Mackie, 
4  Russ.  16  (1827),  disapproved  in  Hughes 
V.  Turner;  3  Myl.  &  K.  697  (1834). 

"  As  lo  the  construction  of  different 
provisions  in  wills,  where  an  annuity  on 
stock  is  created,  see  Innes  v.  ^litchell,  9 
Ves.  212  (1803);  Kerr  v.  Middlesex  Hos- 
pital, 2  De  G.,  M.  &  G.  576  (1852) ;  Ross  v. 
Borer,  2  Jo.  <$e  H.  469  (1862) ;  Yates  v. 
Maddan,  3Mac.  <fe  G.  532  (1857) ;  Blewitt 
V.  Roberts,  Cr.  &  Ph.  274  (1841);  Potter 
V.  Baker,  13  B.  273  (1851);  Robin- 
son v.  Hunt,  4  B.  4.50  (1841):  Hedges  v. 
Harpur,  3  De  G.  &  J.  129  (1858);  Evans 
V.  Jones,  2  Collyer,  516  (1846) ;  Mauserge 
V.  Campbell,  3  De  G.  &  J.  232. 


CH.  XVIII.]  LEGACIES   AND   GIFTS   OF   STOCK.  [§  306. 

legacy  in  part  or  wholly,  not  by  an  express  revocation  in  the  will, 
but  by  the  acts  of  the  testator.  Consequently  an  ademption  ap- 
plies only  to  specific  legacies.  An  ademption  of  a  specific  legacy 
of  stock  generally  arises  by  a  sale  of  the  stock  by  the  testator. 
If  the  specific  stock  bequeathed  is  not  owned  by  the  testator  at 
the  time  of  his  death,  the  legal  conclusion  is  that  the  specific 
legacy  is  adeemed,  and  the  legatee  takes  nothing.^  A  sale  of  the 
stock  bv  the  testator  after  the  will  is  made  revokes  or  adeems  the 
legacy,  and  it  is  as  if  never  naade.^  A  codicil  giving  all  the  "  per- 
sonal estate"  to  another  is  a  revocation  of  a  bequest  of  stock  in 
the  original  will.*  Where  the  testator  specifies  the  amount  of  his 
stock,  the  specific  legatees  of  it  abate  proportionately  with  the 
residuary  legatee,  where  upon  his  death  it  is  insufficient.^  The 
rule  is  otherwise  if  no  mention  is  made  of  what  amount  of  stock 
he  owns.^  If  the  general  property  of  the  testator  is  exhausted  in 
the  payment  of  the  debts  of  the  estate,  specific  legacies  of  stock 
abate  proportionately  with  other  specific  legacies.^  A  specific 
legacy  of  stock  is  not  adeemed  by  a  change  in  the  stock,  produced 
by  an  act  of  the  government.  Thus,  where  the  government  buys 
the  stock,  a  specific  legatee  takes  the  compensation  if  it  has  not 
yet  been  collected  by  the  testator.''  but  not  if  it  has  been  collected 
and  used  by  the  latter.^  A  change  by  law  of  the  funds  into  funds 
bearing  a  lower  rate  of  interest  does  not  adeem  a  specific  legacy 
of  it,^  even  though  the  testator  sells  the  former  and  buys  the  lat- 
ter kind  of  funds.^°     A  specific  legacy  of  stock  by  a  feine  covert, 

'  Ford  V.  Ford,  23  N.  H.  212  (1851),  De   Lisle   v.   Hodges.  L.  R.   1*7  Eq.  440 

although  not  a  stock  case,  says  in  regard  (1874);  Vivian  i'.  Mortlock,  21  Beav.  252 

to  this  branch  of  the  law:  "It  is  now  es-  (1855).     The  debts  of  the  estate  ma}'  be 

tablished  in  England  that  the  only  ques-  directed  to  be   paid  from  the  residue  of 

tion    is   wliether   the  specific   thing    re-  the  stock.     Choat  v.   Yeates,    1   Jac.    & 

mains  at   the   death  of  ihe  testator,  and  Walk.  102  (1819). 

that  the  intention  to  adeem  will  not  be  «  Sparks?^.  Weedon,  21  Md.  156(1863). 
considered  beyond  the  expressions  in  the  When  general  legacies  of  stock  abate  pro- 
will.  .  .  .  The  weight  of  American  portionately  with  otlier  general  legacies, 
authority  is  in  favor  of  the  English  rule."  the  stock  is  estimated  at  its  value  twelve 

*  Ashburncr    v.   Macguire,  2  Brown's  months  after  the  testatoi's  death.    Black- 

Ch.  108(1786);  White  v.  Winchester,  23  shaw  v.   Rogers,  cited  in  4  Brown's  Ch. 

Mass.    48  (I827J;    Humphreys   v.   Hum-  S49. 

phreys,    2   Cox,    184   (1789);     Hayes  v.  ^  Walton  v.  Walton,  7  Johns.  Ch.  257 

Hayes,  1  Keen,  97  (18S6);  Blackstone  ?;.  (1828). 
Blackstonf,  .S  Watts,  835  (1839).  »  Ludlam's  Estate,   13  Penn.  St.   188 

2  Kermode  v.  Macdonald,  L.  R.    1  Kq.  (1850). 
457  (1866);  affi'd,  L.  R.  3  Ch.  584(1808).  '••  Brown  v.   McGuire,  1  Beat.  Ir.  Ch. 

■•  Elwes    V.    Causton,    30    Beav.    554  358(1829). 
(1862);    following  I'age   v.   Leapiiigwell,  '"Partridge  v.  Partridge,  en ses  temp. 

18  Vi-s.  463  (1812).  Talbot,   226   (1786).     Ropor  on  I,ogacics, 

'  Petre  v.  I'etre,  14  Beav.  197  (1851) ;  p.  331,  2d  cd.   (1848),    is  inclined  to  the 

315 


§  308.]  LEGACIES   AND   GIFTS   OF   STOCK.  [CH.  XVIII. 

wlio  had  the  power  to  bequeath  it,  is  not  adeemed  by  the  fact  that 
she  had  the  stock  transferred  into  her  own  name  after  the  death 
of  her  husband.^ 

§  307.  Duty  of  executor  or  administrator  as  regards  a  speci- 
fic or  general  legacy  of  stocTc. — Where  a  legacy  of  stock  is  given 
it  is  the  duty  of  the  executor  or  administrator  to  carry  into  effect 
the  wishes  of  the  testator  by  turning  over  to  the  legatee  the  stock 
bequeathed  if  the  legacy  be  specific,  or  if  tlie  legacy  be  general 
by  either  setting  aside  for  the  legatee  the  required  amount  of  stock 
from  the  testator's  effects,  or  purchasing  the  same  for  the  legatee. 
The  specific  legacy  of  stock  vests  in  the  legatee  as  soon  as  the  ex- 
ecutor is  satisfied  that  the  general  fund  will  pay  the  debts  of  the 
estate  and  consents  to  such  vesting.  When  once  given  the  con- 
sent of  the  executor  is  irrevocable  and  only  a  Court  of  Chancery 
can  reach  the  stock  and  subject  it  to  the  testator's  debts.^ 

§  308.  Gifts  ofstocTc. — Shares  of  stock  in  a  corporation  may 
be  the  subject  of  a  gift.  No  formal  method  of  carrying  out  the 
gift  is  necessary.  A  formal  instrument  of  transfer,  duly  deliv- 
ered to  an  accent  with  directions  to  deliver  to  the  donee,  vests 
title  in  the  donee,  though  no  certificates  are  transferred.^  A  gift 
of  stock,  vested  by  a  due  transfer  into  the  name  of  the  donee, 
caimot  be  revoked  by  the  donor.*  In  order  to  constitute  a  gift  a 
perfectly  clear  intent  so  to  do  must  be  proved.^  Wliere  the  gift 
is  made  in  gratitude  for  care  to  be  bestowed  on  another,  the  gift 
will  fail  upon  the  death  of  the  donee,  it  being  proved  that  the 
stock  had  not  been  fully  and  finally  delivered.^     A  gift  of  the 


opinion  that  a  specific  legacy  of  stock  is  uary  lenatee.    Witters  v.  Sawles,  25  Fed. 

not  revived  by  a  purchase  of  similar  stock  Rep.  168  ( 1885). 

after  a  sale  of  the  stock  bequeathed.  ^  De  Caumont  v.  Bogert,  36  Hun,  382 

'  Dingwell  v.  Askew,  1  Cox's  Ch.  427  (1885),   treating  also  of  a  gift  as  an  ad- 

(IVBS).  vancement. 

^  Onondaga  Trust   &   Deposit  Co.  v.  *  Standing  v.  Bowring,  L.  R.  27  Cb. 

Price,  87  N.  Y.  542(1882);  Hill  ?>.  Rock-  D.    341  (1884),    where   the  donor  trans- 

ingham  Bank,  44  N.  H.  567  (1863),  hold-  ferred  into  the  joint  names  of  donor  and 

ing  that  the  legatee  should  sue  the  corpo-  donee,  and  afterwards  attempted  to  dis- 

ration  at  law  for  refusing  transfer  where  pose  of  the  whole  stock, 
the  parties  interested  in  the  will  assent ;  ^  Where,  however,   the   stock  is  pur- 

and  in  equity  if  both  the  corporation  and  chased   by  one   in   the  name  of  another, 

such  parties  do  not  assent.     A  decree  of  parol  evidence  may  show  as  against  the 

a  probate  court  that  the   legacy  of  stock  creditors  of  the  former  that  he  intended 

shall  be  turned  over  to  the  legatee  can-  the  stock  as  a  gift  to  the  latter.     Rider  v. 

not  be  required  by  the  corporation.     Un-  Kidder,  10  Ves.  361  (1805). 
der  the  Vermont  statute  it  is  the  duty  of  «  Jackson    v.   Twenty-third    St.    Ry. 

the  executor  to  transfer  stock  to  the  resid-  Co.,  88  N,  Y.  520  (1882).     When  a  gift  of 

316 


CH.  xrni.] 


LEGACIES   AND  GIFTS  OF  STOCK. 


[§308. 


dividends  of  stock  is  a  gift  of  the  stock  itself.^  A  gift  of  stock 
by  one  legatee  to  another,  in  the  belief  that  the  testator  so  in- 
tended the  stock  to  be  disposed  of,  cannot  be  revoked  after  an 
unsealed  instrument  of  transfer  is  signed  and  actual  transfer 
made,  even  though  it  is  afterwards  found  that  the  testator  had  no 
such  intent.2  A  stockholder  who  has  transferred  his  stock  into 
the  joint  names  of  himself  and  his  wife  cannot  dispose  of  his  in- 
terest by  a  last  will  and  testament.  It  passes  to  the  wife  as  the 
survivor.^  A  gift  of  stock,  donatio  causa  mortis,  may  be  made 
by  a  mere  delivery  of  the  certificate  to  the  donee.*  So,  also,  the 
delivery  and  acceptance  of  a  gift  of  stock  is  held  to  be  effectual 
where  the  donor  had  the  stock  transferred  into  the  name  of  the 
donee  and  took  out  certificates  in  the  donee's  name,  even  though 
the  donor  died  before  the  donee  knew  of  the  gift.^ 


stock  is  made  in  accordance  with  an 
agreement  to  compensate  the  donee  for 
taking  care  of  tlie  donor,  a  delivery  of 
the  certiticate  without  any  transfer  suf- 
fices. Keed  v.  Copeland,  50  Conn.  472 
(1883).  But  the  contract  to  make  the 
gift  must  not  be  in  opposition  to  public 
policy,  nor  in  fraud  of  the  rights  ol  other 
stockholders.  Kiekerson  v.  English,  6 
East.  Rep.  651  (Mass.  1886). 

'  See  ^  305. 

'  Delamater's  Estate,  1  Whart.  (Penn.) 
362  (1836). 

'  Dummer  v.  Pitcher,  5  Sim. 35  (1831); 
affi'd  2  M.  <fe  K.  262  (1833).  A  gift  of 
stock  direct  from  the  husband  to  the  Avife 
is  legal.  She  thereupon  takes  a  sole  and 
separate  estate  therein.  Deming  v.  Wil- 
liams, 26  Conn.  226  (1857).  The  case  of 
Francis  v.  New  York  <fe  B.  El  R.  R.  Co.,  17 
Abb.  N.  C.  1  (N,  Y.  1885),  holds  that  when 
a  gilt  of  stock  is  made  to  a  minor,  it  is  com- 
plete and  irrevocable,  so  far  as  the  donor  is 
C(jncern('d,  but  the  minor  may, upon  attain- 
ing majority,  either  accept  or  refuse  it. 

^  (iryines  v.  Hone,  Exr.  49  N.  Y.  17 
(1872);  Walsh  v.  Sexton,  55  Barb.  251 
(186'J);  Allerton  v.  Lang,  10  Bosw.  362 


(1863).  The  last  two  cases  hold  that  the 
certificates  need  not  even  be  endorsed  or 
transferred,  but  that  a  mere  delivery 
without  any  writing  is  sufficient.  A  do- 
natio causa  mortis  of  stock  is  revoked  by 
the  recovery  of  the  donor,  even  though 
it  is  registered.  Stainland  v.  Willott,  3 
Mac.  &  G.  664  (1850).  In  England  rail- 
way stock  is  not  the  subject  of  a  donatio 
causa  mortis,  by  a  delivery  of  the  certifi- 
cate, since  the  transfer  can  be  by  deed 
only.  Moore  v.  Moore,  43  L.  J.  (Ch  )  617 
(1874). 

^  Robert's  Appeal,  85  Penn.  St.  84 
(1877),  In  Maryland  it  is  held,  that  a 
mere  transfer  of  the  certificates  of  stock 
without  a  registry  on  the  corporate  book, 
is  incomplete  as  a  gift,  and  cannot  be  en- 
forced against  the  personal  representa- 
tives of  the  deceased  donor.  Baltimore 
Retort,  tfec,  Co.  v.  Mali,  13  Am.  &  Eug. 
Corp.  Cas.  49  ( 1 886).  But  a  written  mem- 
orandum left  by  a  decedent,  to  the  effect 
that  he  thereby  gives  certain  stock  to  a 
person,  but  retains  the  same  during  life,  in 
order  that  he,  the  donor,  may  have  the  divi- 
dends, is  not  a  valid  gift.  Jie  Shield,  53  L. 
T.  N.  S.  5  (1885). 


317 


CHAPTER  XIX. 

SALES  OF  STOCK.— COMPETEI\"CY  OF   PARTIES  TO  BUY  AND 

SELL  STOCK. 


§309-310.  (a)  Competency  of  a  corpora- 
tion to  purchase  shares  of  its  own 
capital  stock. 
311-312.  Rule  in  the  United  States. 

313.  Statutory  provisions. 

314.  The  stock  is  not  merged. 

315.  (6.)  Purchase  by  a  corporation  of 
stock  in  another  corporation. — 
I'ui-chase  by  railroad. 

316.  Purchases  of  stock  by  banks  and 
pledges  to  banks. 

317.  Purchases  of  slock  by  insurance, 
manufacturing,  and  other  corpora- 
tions. 

318.  (c.)  Infants  as  purchasers  of  stock. 

319.  (d.)  Married  women  as  purchasers 
or  vendoi's  of  stock. 

320.  (e.)  Competency  of  miscellaneous 
parties. 

321.  (/.)  Sales,  purchases,  and  trans- 
fers by  agents. 


§  322.  (cf.)  Purchases  of  stock  by  guard- 
ians, executors,  and  trustees. 
(h.)  Sale  or  pledge   of  stock  by 
trustee  in  breach  of  his  trust. 
Liability  of  trustee. 
Transferee  of  stock  from  trustee, 
transfei'ring   in   breach   of    trust, 
not  protected    if    he    take    with 
notice. 

Purchaser  with  notice  that  his  ven- 
dor sells  as  trustee,  may  neverthe- 
less be  protected. 
Eights  and  liability  of  the  corpora- 
tion allowing  a  transfer  by  a  trus- 
tee in  breach  of  his  trust. 
(i.)  Sales  of  stock  by  a  guardian. 

329.  (;'.)  Sales  by  executor  or  adminis- 
trator. 

330.  Duty  and  liability  of  the  corpora- 
tion. 


323. 

324. 
325, 


326. 


327. 


328. 


§  309.  {a.)  Competency  of  a  corporation  to  purchase  sliares  of 
its  own  capital  stoch. — In  England,  a  long  line  of  decisions  have 
established  the  rule  that,  at  common  law,  a  corporation  cannot 
purchase  shares  of  its  own  capital  stock.^  This  rule  is  enounced 
clearly  and  decisively,  and  is  closely  adhered  to.^  The  coiporation 
may  be  given  an  express  power  for  this  purpose,  but  unless  so 
^iven,  the  purchase  is  held  to  be  beyond  the  legal  powers  of  the 
directors  and  of  the  whole  body  of  stockholders.^     The  object  of 


'  He  Marseilles  Extension  Ry.  Co.,  L. 
R.  1  Ch.  161  (1871) ;  Evans  v.  Coventry, 
25  L.J.  (Ch.)  489,501  (1856);  Cross's 
Case,  38  L.  J.  (Ch.)  583  (18G9);  Morgan's 
Case,  1  De  G.  &  Sm.  760  (1849) ;  JEz  parte 
Morgan,  1  Mac.  &  G.  225  (1849);  Eyre's 
Case,  31  Beav.  177  (1862).  Cf.  Taylor  v. 
Hughes,  2  J.  (feLat.  (Irish  Ch.)  24 ("1844). 

•■'  Zulueta's  Claim,  L.  R.  5  Ch.  444 
(1879),  the  court  saying:  "A  pur- 
chase by  a  company  of  their  own  shares 
is  not  a  legal  transaction,  unless  there 
is  a  clear,  distinct,  undoubted,  and  special 

318 


authority  authorizing  them  to  do  so." 
Hope  V.  International  P'inancial  Soc, 
L.  R.  4  Ch.  Div.  327  (1876),  holding 
also  that  a  stockholder  may  enjoin  the 
purchase.  "  The  law  1  take  to  be  plain 
and  covered  by  many  decided  cases,  that 
it  is  not  competent  to  a  company  to  take 
the  moneys  which  have  been  subscribed 
for  its  capital  for  the  purpose  of  buying 
up  the  shares  of  that  company;  "  distin- 
guishing Teasdale's  Case,  L.  R.  9  Ch.  54. 
2  Zulueta's  Claim,  supra;  Hcpe  v.  In- 
ternational Financial  Soc,  supra.    Under 


CH.  XIX.]  COMPETENCY    TO   BUY  AND   SELL   STOCK.  [§  309. 

the  rule  is,  to  preserve  the  rights  of  the  corporate  creditors,  and 
also  to  confine  the  corporation  within  the  express  powers  given  it, 
and  the  implied  powers  necessary  to  its  transaction  of  business.-' 
If  the  sale  is  completed,  and  the  corporation  afterwards  became 
insolvent,  the  stockholder  who  sold  the  stock  to  the  corporation  is 
liable,  on  the  winding  up,  as  though  he  never  had  made  such  a 
sale.'^  If,  however,  the  stockholder  sells  to  a  person,  not  knowing 
that  the  latter  is  purchasing  as  a  trustee  for  the  corporation,  the 
vendor  is  not  liable  on  such  stock.^  The  directors  authorizing  or 
directing  a  purchase  for  the  corporation  of  shares  of  its  own 
capital  stock,  are  liable  personally  to  the  same  extent  tliat  the 
selling  stockholder  would  have  been  had  the  sale  not  taken  place* 
Generally  the  transfer  is  made,  not  to  the  corporation  directly,  but 
to  a  trustee  on  behalf  of  or  for  the  benefit  of  the  corporation. 


an  express  power  to  the  directors  to  enter 
into  any  contract  and  engagement  tliat 
seemed  best  for  the  compai)y,  such  a  pur- 
chase was  upheld.  Singer's  Case,  W.  N. 
(1869)  206;  Cuckburn's  Case,  4  De  G.  & 
Sm.  177  (1850),  where  power  was  given  by 
the  deed  of  settlement.  See,  however. 
Ward's  Case,  29  W.  R.  768  (1881),  where 
an  express  power  to  purchase  its  own 
stock  was  held  not  to  authorize  a  traffick- 
ing in  that  stock — ihe  buying  and  selling 
for  purposes  of  gain. 

'  Id.  Compiire,  however,  Ward's  Case, 
29  W.  R.  768  (1881),  where  the  court 
says :  "  If  the  company  could  not  ques- 
tion it,  neither  can  a  creditor,  for  he  can 
obtain  notlang  but  what  the  company  can 
get  from  the  shareholders." 

2  Walters'  2d  (^ase,  3  De  G.  (fe  Sm.  244 
(1850);  Hichiiiond's  Exrs.  Case,  3  De  G. 
<fe  Sm.  96  (1849);  Munts' Case,  22  Beav. 
55  (1850),  wheie  the  stockholders  disa- 
greed and  tlie  corporation  bought  out  one 
faction  ;  Daniell's  Case,  22  Beav.  43 
(1850);  Bennett's  Case,  5  De  G.,  M.  <fe  G. 
284  (1854),  wh(!re  the  stockholders  diea- 
gi-ecd  concerning  the  validity  of  a  lease, 
and  the  corporation  bought  out  part. 
If,  however,  the  corporation,  six  years 
after  the  transfer,  discovers  that  the 
transfer  was  invalid,  and  summarily  ro- 
transtc's  to  the  vendor,  ihf  latter  may  ap- 
ply to  a  court  of  equity  to  compel  the  cor- 
poration to  keep  the  stock.  Gardiner  v. 
Victoria  Estates  Co.,  12  Ct.  of  Ses.  (Sc. 
4th  Fcries),  1356  (1885). 

2  Nicoi's  Case.  3  De  G.  <fe  J.,  387 
(1858);  Grady's  Case,  1    De  G.,  J.  &   S. 


488  (1863),  where  the  vendee  was  the 
managing  agent  of  the  corporation,  and 
the  sale  of  the  stock  was  to  stop  litiga- 
tion. Richmond's  Case,  3  De  G.  <fe  Sm. 
96  (1849),  holds,  however,  that  if  the 
vendor's  selling  agent,  his  solicitor,  knew 
that  the  sale  was  for  the  benefit  of  the 
corporation,  the  stockholder  himself  is 
chargeable  with  knowledge.  See  JRe  Or- 
pen,  32  L.  J.  (Ch.)  633  "(1863),  holding 
that  it  is  a  question  for  the  jury  whether 
the  vendee  purchased  for  the  corporation 
or  for  himself.  Johnson  v.  Lailin,  6  Dill. 
65  ;   103  U.  S.  800.     See  also  ^  251. 

*  "  For  every  share  which  they  have 
bought  up  they  are  liable  to  stand  in  the 
shoes  of  the  persons  whom  they  may,  by 
buying  the  shares,  have  discharged  from 
liability,  and  to  pay  up  the  remainder  of 
the  unpaid  portion  of  the  capital  which 
these  persons  would  have  had  to  pay  if 
they  had  not  been  thus  discharged." 
Evans  V.  Coventry,  25  L.  J.(Ch.)  489,  501 
(1850).  To  same  effect.  Land  Credit  Co. 
of  Ireland  v.  Fermoy,  L.  R.  8  Eq.  Cas.  7 
(1869);  Marzette's  Case,  42  L.  T.,  N.  S. 
206  (1880).  The  directors  may  have  con- 
tributions from  each  other  for  sums  paid 
out  by  their  authority  for  such  jiurciiases, 
and  for  which  one  or  more  has  been  held 
liable  to  the  corporation.  Ashhnrst  i<.  Ma- 
son, L.  11.  20  \'(\.  225  (1876).  'I  he  direct- 
ors are  not  liable  to  the  vendor  of  the 
stock  for  the  failure  of  tlie  corporation  to 
complete  their  purchase  for  ii.  of  its  own 
stock.  Abeles  v.  Cochran,  22  Kan.  405 
(1879). 

319 


§311.]  COMPETENCY   TO   BUY  AND   SELL   STOCK.  [CH.  XIX. 

This  practice  is  not  at  all  necessary,  and  has  no  effect,  other  than  a 
transfer  direct  to  the  corporation  itself,  unless  it  be  that  the  vendor 
of  the  stock  may  not  know  that  his  vendee  purchases  for  the 
corporation,  and  thereby  escapes  liability  on  the  winding  up.  If 
the  contract  is  executory,  the  corporation  may  repudiate  it  and 
refuse  to  pay  the  purchase-money  for  the  stock.^  If,  however, 
the  sale  is  completed,  the  stock  belongs  to  the  corporation,  and  does 
not  pass  to  the  vendor's  assignee  in  bankruj^tcy." 

§  310.  Where  the  transfer  of  stock  to  the  corporation  is  made 
by  one  of  the  original  subscribers  for  stock,  it  frequently  becomes 
a  difficult  question  to  decide  whether  the  transaction  was  a 
cancellation  of  the  subscription  contract  or  was  a  sale  of  the  stock 
to  the  corporation.  Each  case  turns  largely  on  its  own  j^eculiar 
facts  and  circumstances.  If  the  transaction  is  a  cancellation,  it  is 
legal.  In  England,  if  it  is  a  sale,  it  is  illegal.  The  courts  seem  to 
favor  a  construction  whereby  the  transaction  is  held  to  be  a  sale, 
and  the  stockholder  made  liable  on  the  winding  up.^ 

§  311.  Bule  in  the  United  States. — In  this  country  the  com- 
mon-law right  of  the  corporation  to  purchase  its  own  stock  is 
directly  the  opposite  of  the  English  doctrine,  and  is  established 
by  a  long  line  of  decisions.^     The  corporation  may  not  only  pur- 


1  The  corporation  may  even  refuse  to  yond  the  powers  of  the  directors.  In 
pay  the  price  to  the  brokers  employed  by  Illinois  in  Chicago,  P.  &  Southwestern  R. 
its  directors  to  buy  the  stock.  Zulueta's  R.  Co.  v.  President,  (fee,  of  Town  of  Mar- 
ciaira,  L.  R.  5  Ch.  444  (1879).  This,  of  seilles,  84  111.  145  (1876),  the  court  said 
course,  does  not  authorize  the  corporation  "We  entertain  no  doubt  that  a  rail- 
to  retain  the  stock  so  purchased.  road  company  may,  for  legitimate  pur- 

-  Great  Eastern  Ry.  Co,  ■».  Turner,  42  poses,  purchase   shares   of  stock  which 

L.  J.  (Ch.)  83  (1873).  have  been  issued  to  individuals.     Such 

3  Hall's   Case,  L.  R.  5  Ch.  "707  (1870),  is  believed  to  have  been  the  general  cus- 

distinguishing  Soell's  Case,  L.  R.  5   Ch.  torn  of  such  bodies,  nor  have  we  known 

22.     See  also  Thomas'  Case,  L.  R.  13  Eq.  the  power  to  have  been  questioned."     A 

437  (1872);  Teasdale's  Case,  L.  R.  9  Ch.  contract  whereby  the  corporation  agreed 

54(1873);  Duke's  Case,  L.  R.  1  Ch.  Div.  to   take   back  the   stock   unless   certain 

622  (1876).  things  were  done  within  a  certain  time, 

*  The  leading  case  is  City  Bank  of  was  sustained,     s.  c.  Id.  643,  where   the 

Columbus  V.  Bruce,  17  K  Y.  507  (1858),  court  says  "  the  power  of  the  directors  of 

•where  a  corporation  received  $133,000  of  a  company,  when  not  prohibited  by  their 

its  own  stock  in  payment  of  debts  due  the  charter  to  purchase  shares  of  stock  of 

corporation,  the  court  saying  it  is  "not  their    company,"     is    well     recognized, 

aware  of  any  common  law  principle  which  Clapp   v.   Peterson,    104   111.   26  (1882); 

forbids  it."    See  also  Verplanckv.  Mcrcan-  Chetlain  v.  Republic  Life  Ins.  Co.,  86  111. 

tile  Ins.  Co.,1  Edw.  Ch.  84(1831).    In  the  220  (1877);  Eraser  v.  Ritchie,  8  Bradw. 

case  of  Barton  v.  Port  Jackson  &  U.  F.  P.  554  (1881),  where  a  perfectly  solvent  con- 

R.  Co.,  17  Barb.  397  (1854),  a  purchase  by  cern  sold  certain  property  and  took  its 

a  plankroad  company  of  its  own  stock  was  own  stock  in  payment.     Dupre  v.  Boston 

held  to  be  against  public  policy  and  be-  Water  Power  Co.,  114  Mass.  37  (1873), 

320 


CH.  XIX.]  COMPETENCY   TO   BUY  AND   SELL   STOCK. 


[§  311. 


chase  shares  of  its  own  capital  stock,  but  may  take  them  in  pledge 
or  raortgao^e.  The  purchase  may  be  by  authority  of  the  directors, 
and  need  not  be  authorized  by  the  stockholders  in  meeting  assem- 
bled. In  Illinois  and  Massachusetts  this  doctrine  is  enounced 
clearly  and  explicitly.  In  Kansas,  on  the  other  hand,  a  contrary 
doctrine  is  sustained,  and  the  English  rule  is  adopted  in  its  integ- 
ritj} 


the  court  saying:  "In  the  absence  of  leg- 
islative provision  to  the  contrary,  a  cor- 
poration may  hold  and  sell  its  own  stock, 
and  may  receive  it  in  pledge  or  in  pay- 
ment in  the  lawful  exercise  of  its  corpo- 
rate powers."  Leland  v.  Hayden,  1U2 
Mass.  542  (1869);  Crease  v.  Babcock,  51 
Mass.  525,  557  (1846),  holding  that  the 
stockliolders  are  not  liable  for  the  defi- 
ciency caused  by  part  of  the  stock  being 
owned  by  the  corporation.  In  Pennsyl- 
vanin,,  in  Eby  v.  Guest,  94  Penn.  St.  160 
(1880),  and  Early  &  Lane's  Appeal, 
89  Id.  411  (1879),  it  was  held  that  "  the 
assii;nraent  of  the  stock  of  a  corporation 
to  itself,  as  collateral  security  for  a  loan, 
divests  the  title  of  the  assignor  so  far  as 
to  prevent  a  sale  of  it  under  a  Ji.  fa. 
against  the  assignor."  But  in  Coleman 
V.Columbia  Oil  Co.,  51  Penn.  St.  74(1865), 
where  a  stockholder  had  accepted  the 
benefit  of  the  purchase,  and  then  objected 
to  its  legality,  the  court  said  :  "  The  em- 
ployment of  corporate  funds  to  speculate 
in  the  stock  of  the  company  to  which  the 
funds  belong,  is  not  a  practice  to  be  en- 
couraged, but  the  present  plaintiff  is  not 
in  position  to  censure  the  practice."  He 
"  should  have  sought  an  injunction 
against  the  company  to  restrain  the  pur- 
chase, or  to  cancel  it  if  done  before  he 
had  knowledge  of  it ;  or  if  he  would  bring 
an  action  at  law  he  should  have  declared 
for  his  share  of  the  funds  whicli  he  com- 
plains were  misapplied  in  buying  the 
shares."  In  Ohio  Mie  early  case,  Taylor 
V.  Miami  Ex.  Co.,  6  Ohio  Rep.  17G  (18:5:5), 
held  that  a  bank  may  receive  from  the 
stockliolders  transfers  of  stock  in  payment 
cf  debts  previously  contracted  by  them. 
See  (ilso  State  of  Ohio  v.  Franklin  Bank 
of  Columbus,  10  Ohio  Rep.  91,  97  (1840). 
But  in  Cappin  v.  Greenlees,  38  O.  St.  275 
(1882),  the  court  refused  to  enforce  an 
executory  contract  for  tiic  sale  to  the  cor- 
poration of  its  own  stock,  and  said  :  "  The 
doctrine  that  corporations,  when  not  pro- 
hibited by  tlieir  charters,  may  buy  and 
sell  their  own  stock,  is  supported  by  a 
line  of  authorities.     .     .     .     But,  never- 


theless, we  think  the  decided  weight  of 
authority,  both  in  England  and  m  the 
United  States,  is  against  the  existence  of 
the  power,  unless  conferred  by  express 
grant  or  clear  implication.  The  founda- 
tion principle  upon  which  these  latter 
cases  rest  is  that  a  corporation  possesses 
no  powers  except  such  as  are  conferred 
upon  it  by  its  charter,  either  by  express 
grant  or  necessary  implication."  The 
proposed  purchase  was  held  to  be  invalid 
under  the  constitutional  provision  impos- 
ing a  personal  liability  on  all  stockhold- 
ers. In  Georgia,  in  the  case  Hartridge 
V.  Rockwell,  R.  M.  Charlton,  200  (1826), 
the  court  held:  "If  fron  tlie  course  of 
business  or  the  state  of  things  the  capital 
of  the  bank  cannot  be  usefully  employed 
in  loans,  there  can,  I  think,  be  no  objec- 
tion against  the  purchase  of  its  own 
stock."  The  legislature,  howevei-,  thought 
differently,  and  by  the  Penal  Code  of 
1 8.33  made  such  jjurchases  a  penal  offense. 
See  Robinson  v.  Beale,  26  Ga.  17  (1858), 
where  the  purchase  was  held  to  be  au- 
thorized under  a  power  to  purchase 
goods,  (fee.  See  also,  as  supporting  the 
doctrine,  Farmers  &  Mechanics  Bank  «. 
Champlain  Transportation  Co.,  18  Vt. 
131, 139  (1846);  Iowa  Lumber  Co.  v.  Fos- 
ter, 49  Iowa,  25  (1878),  under  a  power  to 
purchase  "  property  that  may  be  deemed 
desirable  in  the  transaction  of  its  busi- 
ness." State  Bank  of  Ohio  v.  Fox,  3 
Blatchf.  431  (1856),  where  the  stock  was 
taken  in  payment  of  a  debt  due  the  cor- 
poration. Of.  Re  Republic  Ins.  Co.,  3 
Biss.  452,457  (1873).  Compare  also 
Thompson  on  Liability  of  Stockholders, 
§§  234,  242. 

'  German  Sav.  Bank  v.  Wulfelcuhler, 
19  Kan.  60(1877),  holding  that  a  bank 
cannot  purchase  its  own  stock,  except  ia 
a  few  cases  for  the  purpose  of  securing 
some  previously  existing  debt,  liy  so 
doing  the  bank  "  might  reduce  the  amount 
of  its  capital  stock  below  the  amount  re- 
quired by  law,  and  might  also  inii)air  or 
even  d(?stroy  all  security  given  by  law  to 
the  creditors  of  the  baidv."     Person  sell- 


[21] 


321 


§  312.]  COMPETENCY   TO   BUY  AND   SELL   STOCK.  [ciI.  XIX. 

A  corporation  may  take  its  own  stock  by  way  of  gift  ^  or 
bequest.^ 

§  312.  The  difference  between  the  English  and  American  doc- 
trine is  largely  due  to  the  fact  that  in  England  corporate  creditors 
have  no  greater  rights  than  the  corporation  has,  and  hence  would 
be  liable  to  an  unreasonable  risk  if  the  corporation  could  purchase 
shares  of  its  own  capital  stock.  In  this  country  the  familiar  prin- 
ciple that  the  capital  stock  is  a  trust  fund  for  the  benefit  of 
creditors  obviates  this  objection  to  a  purchase  by  a  corporation 
of  its  own  stock.  In  Illinois,  the  State  where  the  rights  of 
the  corporation  to  make  such  purchases  is  most  clearly  and  deci- 
sively established,  the  collateral  principle  that  such  purchases  are 
to  be  declared  illegal  and  voidable  at  the  instance  of  corporate 
creditors,  who  are  injured  thereby,  is  distinctly  stated  and  rigidly 
applied.^  If  the  corporation  is  insolvent  at  the  time  of  the  pur- 
chase, it  is  clearly  an  invalid  transaction,  and  \\ill  be  set  aside.* 
The  better  rule  goes  still  further,  and  declares  that  if  a  corpora- 
tion, by  a  purchase  of  shares  of  its  own  capital  stock,  thereby  re- 
duces its  actual  assets  below  its  capital  stock,  or  if  the  actual  assets 
at  that  time  are  less  than  the  capital  stock,  such  purchase  may  be 
impeached  and  set  aside,  and  the  vendor  of  the  stock  rendered 
liable  thereon  at  the  instance  of  a  corporate  creditor.^     Such  a 


ing  the  stock  to  the  bant  is  liable  to  it  ceptions,  when  a  stockholder  conveys  his 
for  the  price  received,  even  though  he  stock  to  the  company,  and  receives  in  re- 
used an  intermediate  dummy  in  the  trans-  turn  a  jDortion  of  the  capital,  he  holds  the 
fen  The  corporation  may  contract,  at  money  so  received  subject  to  the  superior 
the  time  of  issuing  its  stock,  to  purchase  equities  of  creditors."  But  the  selling 
it  at  any  time  from  the  holder.  Bent  v.  stockholder,  not  knowing  that  his  vendee 
Hart,  10  Mo.  App.  143  (1881).  buys  for  the  corporation,  is  not  liable. 

1  Lake  Superior  Iron  Co.  v.  Drexel,  90  Johnson  v.  Laflin,  5  Dill.  65  ;  103  U.  S. 

N.  Y.  87,  where  its  legality  was  assumed.  800. 

■^  Rivanna   Nav.    Co.    v.   Dawsons,   3  *  Currier  v.  Lebanon  Slate  Co.,  56  N, 

Gratt.  19  (1846).  H.  262  (1875). 

3  Clapp  V.  Peterson,  104  111.  26  (1882);  ^  pi-aser  v.  Ritchie,  8  Bradw.  (HI.)  554 
Peterson  v.  111.  Land  &  Loan  Co.,  6  Bradw.  (1881),  holding  that  the  right  of  the  cor- 
257  (1880).  In  Crandall  v.  Lincoln,  52  poration  to  purchase  its  own  stock  is  sub- 
Conn.  73  (i884),  where  stock  was  bought  ject  to  certain  restrictions,  "one  of  wliich 
for  the  corporation  by  a  corporate  agent,  is  that  it  shall  not  be  done  at  such  time 
the  latter  was  held  liable  to  the  receiver  and  in  such  manner  as  to  take  away  the 
of  the  corporation  for  the  money  so  ex-  security  upon  which  the  creditors  of  the 
pended.  The  court  said :  "  The  statute  corporation  have  the  right  to  rely  for  the 
forbidding  the  company  to  make  divi-  payment  of  their  claims ;  or,  in  other 
dends  payable  from  the  stock,  and  to  loan  words,  so  as  not  to  diminish  tlie  fund 
money  upon  a  pledge  of  its  stock,  by  ne-  created  for  their  benefit.  Each  case  must, 
cessary  implication  forbids  the  company  therefore,  depend  upon  and  be  determined 
from  purchasing  its  stock.  ...  As  by  its  own  facts  and  circumstances.''  Gil- 
a  rule,  to  which  there  are  few,  if  any,  ex-  lett  v.  Moody,  S  N.  Y.  479  (1860). 

322 


CH.  XIX.]       COMPETEJfCY  TO  BUY   AKD   SELL   STOCK. 


[§  314. 


rule   would   go   far   towards   reconciling   the   decisions   in   this 
country. 

§  313.  Statutory  provisions. — Frequently  statutes  are  passed 
expressly  prohibiting  a  corporation  from  purchasing  shares  of 
its  own  stock.^  The  national  banks  in  this  country  are  prohibited 
from  so  doing  by  the  statutes  of  the  Federal  government.^  In 
I^ew  York,  by  statute,  both  moneyed  ^  and  railroad^  corporations 
are  prohibited  from  purchasing  shares  of  their  own  capital  stock, 
except  that  moneyed  corporations  are,  by  implication,  allowed  to 
invest  their  surplus  profits  in  sucli  purchases. 

§  314.  The  stoclv  is  not  merged. — ■When  a  coi-poration  buys 
shares  of  its  own  capital  stock,  the  capital  stock  is  not  reduced  by 


1  General  Statutes  of  Colorado  (1883), 
p.  189,  §35;  p.  183,  §10.  la  Pennsyl- 
vania, on  the  ot'.er  hand,  the  corpora- 
tion may,  with  the  approval  of  the  stock- 
holders, "  invest  the  surplus  or  other 
funds  or  earnings "  in  the  purchase  of 
shares  of  its  own  capital  stock. 

-  R.  S.  of  IT.  S.  §  5201.  "  Xo  associa- 
tion shall  make  an}-  loan  or  discount  on 
the  security  of  the  shares  of  its  own  capi- 
tal stock,  nor  be  the  purchaser  or  holder 
of  any  such  shares,  unless  such  security 
or  purchase  shall  be  necessary  to  prevent 
loss  upon  a  debt  previously  contracted  in 
good  faith,  and  stock  so  purchased  or  ac- 
quired shall  within  six  months  fi-om  the 
time  of  its  purchase  be  sold  or  disposed 
of  at  public  or  private  sale,  or  in  default 
thereof  a  receiver  may  be  appointed  to 
close  up  the  business  of  the  association." 
See  Joiinson  v.  Laflin,  5  Dill.  65;  103  U. 
S.  800;  holding  tluit  if  a  stockholder  in 
good  faith  and  without  notice  sells  his 
stock  to  one  who  purchases  for  the  bank, 
the  sale  is  valid  so  far  as  he  is  concerned 
and  he  is  not  liable  tliereon.  See  also 
Bank  v.  Lanier,  11  Wall.  369  (1870). 

When  the  president  of  the  bank  buys 
its  stock  for  tlie  bank  irself,  taking  title 
in  his  own  name,  he  is  liable  as  a  stock- 
holder. The  purchase  for  the  bank,  how- 
ever, is  void.  Bundv  v.  Jackson,  24  Fed. 
Rep.  628  (1885).  Although  a  national 
bank  must  sell  its  stock  taken  in  pay- 
ment of  a  debt  within  six  months,  it  may 
sell  on  credit,  taking  a  note  in  payment 
and  the  stock  as  collateral.  Union  Nat'l 
Bank  v.  Hunt,  76  AIo.  439  (1882).  Where 
a  national  bank  receives  its  own  stock  in 
pli  dge  at  the  time  of  making  the  loan, 
anil  sells  the  pt(jck  as  collateral,  on  fail- 
ure   of    the   debtor   to    pay,    the    latter 


cannot  complain  that  the  statute  has 
been  violated.  Nat'l  Bank  of  Xenia  v. 
Stewart,  107  U.  S.  676  (1882).  See  also 
Gold  Mining  Co.  v.  National  Bank,  96  U. 
S.  640,  (1877);  Shoemaker  v.  Nat.  Me- 
chanics' Bank,  31  Md.  396;  O'Hare  v. 
Second  Xat.  Bk.,  77  Penn.  St.  96;  Stewart 
V.  Nat.  Union  Bank,  2  Abb.  (X.  S.)  424 
(1869).  A  national  bank  president  and 
directors  are  not  liable  criminally  tor  pur- 
chasing the  stock  of  the  bank  for  the 
bank  itself.  United  States  t».  Britton,  107 
U.  ^^.  192  (1882J ;   Id.  108  U.  S.  655  ( 1 882). 

3 1  R.  S.  ch.  18,  title  2,  art.  1,  g  1  (5) 
(p.  1367,  7th  ed.).  "The  evident  in- 
tention was,  to  prohibit  a  division  of 
the  capital,  of  any  jiortion  of  it,  among 
the  stockholders,  by  whatever  instrumen- 
tality the  powers  of  the  corporation  in 
doing  the  act  might  be  exerted."  (iillet 
V.  Moody,  3  N.  Y.  479,  487.  See  also 
U.  S.  trust  Co.  V.  U.  S.  Fire  Jus. 
Co.,  18  N.  Y.  199,  226  (1858).  But 
purchasers  of  the  stock  from  a  banking 
corporation  that  had  purchased  it  in  vio- 
lation of  the  statute  cannot  complain. 
They  cannot  impeach  their  own  title. 
Case  of  the  Reciprocity  Baik,  22  N.  Y.  9, 
17(1860).  Xor  can  the  vendur  of  the. stock 
to  the  bank  claim  that  the  sale  was  invalid. 
He  is  estopped.  United  States  Trust  Co. 
V.  Harris,  2  Bosw.  75,  91  (1857). 

•*  N.  Y.  Session  Laws,  1850,  ch.  140 
§  8  (p.  1547,  7th  ed.  of  R.  S.),  the  statute 
reading  "It  shall  not  be  lawiul  for  such 
company  to  use  any  of  its  funds  in  the 
purchase  of  any  stock  in  its  own,  or  in 
any  other  corporation."  Id.,  Laws  1881, 
ch.  468,  §  12,  with  the  addition  "  except  so 
far  as  the  same  may  be  agreed  ui)on  in 
its  articles  of  association,"  in  eases  of  cer- 
tain railroad  corporations. 

323 


§  315.] 


COMPETENCY   TO   BUY   AND   SELL   STOCK.  [CH.  XIX. 


that  amount,  nor  is  the  stock  merged.^  So  long,  however,  as  tlie 
corporation  retains  the  ownership,  the  stock  is  lifeless,  without 
rights  or  powers.  It  cannot  be  voted  nor  can  it  draw  dividends, 
even  though  it  is  held  in  the  name  of  a  trustee  for  the  benefit  of 
the  corporation.'^  But  at  any  time  the  corporation  may  resusci- 
tate it  by  selling  it,  and  transferring  it  to  the  purchaser.  Such 
sale  may  be  made  upon  the  authority  of  the  corporate  directors.^ 
It  may  be  sold  at  its  market  value,  and  need  not  be  held  for  its 
par  value,  as  is  necessary  in  an  original  issue  of  stock.* 

§  315.  (&.)  Purchase  by  a  corporation  of  stoclc  in  another 
corporation. — Purchase  hy  railroad. — It  may  be  stated  as  a  gen- 
eral rule,  with  but  few  exceptions,  that  a  corporation  has  no  im- 
plied power  to  purchase  shares  of  the  capital  stock  of  another 
corporation.  Especially  is  this  the  rule  as  regards  railroad  cor- 
porations.^ It  has  been  firmly  settled  by  well-considered  cases 
that  one  railroad  company  cannot  purchase  shares  of  stock  in 
another  railroad  company,  especially  where  the  purchase  is  for 
purpose  of  controlling  or  absorbing  the   latter.^     In   a   few  in- 


'  State  D.  Smith,  48  A^t.  266  {1876); 
Williams  v.  Savage  Mfg.  Co.,  3  Md.  Ch. 
418.451  (1851):  City  Bk.  of  Columbusv. 
Bruce,  17  N.  Y.  507\l858);  State  Bank 
of  Ubio  V.  Fox,  3  Blatchf.  431  (1856),  the 
court  saying:  "The  stuck  was  not  ex- 
tinguished or  destroyed  by  the  purcliase 
thereof  by  the  corporation."  Vail  v. 
Hamilton,  85  N.  Y.  453  (1881) ;  American 
Ry.  Frog  Co.  v.  Haven,  101  Mass.  398 
(1869) ;  Commonwealth  v.  Boston,  tfec.  R. 
R.  Co.,  2  New  Eng.  Rep.  647  (Mass. 
1886) ;  Ex  pn-f.e  Holmes,  5  Cow.  426 
(1826).     See  also  §  282. 

5  See  Chap.  XXXVHL 

3  State  Bank  of  Oiiio  v.  Fox,  3  Blatchf. 
431  (1856) ;  State  v.  Smith,  48  Vt.  266 
(1876).     See  also  §  282. 

*  Assumed  in  Otter  v.  Brevoort  Pe- 
troleum Co.,  50  Barb.  247  (1867). 

^  See  Green's  Brice's  Ultra  Vires,  <fec. 
(2ded.)91. 

®  The  most  important  case  is  Central 
R.  R.  Co.  V.  Collins,  40  Ga.  582  (1869), 
■where  a  stockholder  in  one  railroad  ob- 
tained an  injunction  against  its  purchase 
for  purposes  of  consolidation,  of  stock  in 
a  rival  and  competing  railroad.  The 
court  declared  the  purchase  to  be  beyond 
the  corporate  powers  and  contrary  to 
public  policy,  and  says  "  it  is  a  general 
principle  that  a  railroad  company,  with- 

324 


ou^  express  authority  given  by  the  legis- 
lature to  make  the  purchase,  cannot  pur- 
chase stock  in  another  railroad  company." 
Angell  &  Ames,  §  392.  To  same  eflfect,  Ha- 
zelhurstz'.  Savannah,  G.  &  N.  A.  K.  R.  Co., 
43  Ga.  13,  57  (1871),  the  court  saying:  "If 
one  railroad  may,  at  its  opti  >n,  buy  the 
stock  of  another,  it  practically  under- 
takes a  new  enterprise  not  contemplated 
by  its  charter.  Ihis  it  cannot  do  by  any 
implication.  The  power  so  to  do  must  be 
cleur."  In  the  case  El  kins  v.  Camden  & 
Atlantic  R.  R.  Co.,  36  New  Jersey  Eq. 
R.  5  (1882),  a  similar  injunction  was 
granted.  Such  purchase  is  not  author- 
ized by  a  power  to  lease  other  lines,  nor  to 
build  them.  "The  purchase  of  a  rival 
railroad  is  (not  to  speak  of  public  policy) 
foreign  to  tlie  objects  for  which  the  de- 
fendant was  incorporated.  •  •  •  As  a 
purchase  with  a  view  to  extinguishing 
competition,  the  transaction  is  clearly  ul- 
tra vires."  It  is  immaterial  that  the  com- 
plainant purchased  stoclc  for  the  purpose 
of  obtaining  the  injunction.  Salomons  v. 
Laing,  12  Beav.  339,  353  (1850);  Great 
Northern  Ry.  Co.  v.  Eastern  Counties  Ry. 
Co.,  21  L.  J.  (Ch.)  837  il851),  where  the 
object  was  to  control  the  corporation. 
The  court  said  it  was  an  "  attempt  to 
carry  into  effect,  without  the  intervention 
of  Parliament,  what  cannot    lawfully  be 


CH.  XIX.]  COMPETENCY  TO  BUY  AND  SELL   STOCK. 


[§  315. 


stances,  particular  corporations,  bj  their  charters,  are  given  the 
power  to  invest  in  other  railroad  stocks,  and  in  other  instances 
general  statutes  to  that  effect  prevail.^  In  New  York,  on  the  other 
hand,  such  purchases  are  prohibited  by  statute,  excepting  by  cor- 
porations to  build  railroads  in  foreign  countries.^  In  other  States 
also,  such  purchases  are  prohibited  by  statute.^    In  Kansas  it  is 


done  except  by  Parliament,  in  the  exer- 
cise of  its  discretion  with  reference  to 
the  interest  of  the  public.  Maunsell  v. 
Midland,  Great  Western  Ry.  Co.,  1  Hem. 
&  M.  130  (1863),  relative  to  the  power  of 
a  railroad  company  to  subscribe  for  the 
stock  of  another  railroad.  Central  R.  R. 
Co.  of  X.  J.  V.  Pennsvlvania  R.  R.  Co.,  31 
N.  J.  Eq.Rep.  4*75,  494  (1879),  where  the 
defendant  was  enjoined  from  building 
another  railroad,  by  means  of  an  inde- 
pt-ndent  ci>rporati(jn  operated  by  dum- 
mies. The  court  said  :  "  A  corporation 
cannot  in  its  own  name  subscribe  for 
stock  or  be  a  corporation  under  the  gen- 
eral railroad  law,  nor  can  it  do  so  by  a 
simulated  compliance  with  the  provisions 
of  the  law  through  its  agents  as  pretend- 
ed corporators  and  subscribers  for  stock." 
Pearson  v.  Concord  K.  R.  Co.  (New  Hamp- 
shire Supr.  Ct.  Aug.  30,  1883),  where  a 
railroad  had  purchased  a  controlling  in- 
terest in  the  stock  of  a  connecting  rail- 
road and  was  managing  it  in  the  interest 
of  the  forn^er  road.  A  suit  by  a  stock- 
holder of  the  defrauded  road  to  enjoin 
such  acts  was  sustained.  The  court  said : 
".It  can  no  more  make  a  permanent 
investment  of  funds  in  the  stock  of 
another  road,  than  it  can  engage  in  a 
general  banking,  manufacturing,  or  steam- 
boat business.  It  is  neither  incidental  to 
the  purposes  of  its  incorporation,  nor 
necessarj'  in  the  exercise  of  the  powers 
conf.  rred  by  its  charter.  If  it  can  pur- 
chase any  portion  of  the  capital  stock  of 
the  ('oncord  road,  why  may  it  not  buy 
up  all  the  stock  of  the  latter  corporation, 
and  tlius  engagr-  in  the  business  for  which 
its  chaiter  gives  it  no  authority?  And 
what  would  hinder  a  banking  corporation 
from  becoming  a  manufacturing  com- 
panj",  or  a  manufacturing  company  from 
becoming  a  railroad  coriioration."  See 
also  §  60.  Of.  Great  Western  Ry.  Co. 
V.  Metropolitan  Ry.  Co.,  32  L.  J.  (Ch.) 
382  (18H3).  Where  a  railroad  company,  in 
the  name  of  one  of  its  leased  lines,  con- 
tracted to  purchase  a  majoiity  of  the 
Block  of  still  annthir  line,  the  vendor  rep- 
resenting iliat  the  last  line  was  unincum- 
bered, the  lirst  menlioued  company  may 


avoid  the  contract  by  proving  that  an  in- 
cumbrance rested  on  the  road  to  be  sold. 
Southwestern  Ry.  Co.  v.  Papot,  67  Ga. 
675(1881).  The  rule,  above  stated,  does 
not  prevent  a  controlling  stockholder  in 
one  railroad  corpoiation  from  becoming 
the  controlling  stockholder  in  another 
railroad  corporation.  Havemeyer  v. 
Havemeyer,  43  Super.  Ct.  (N.  Y.)  506; 
45  Id.  464;  afR'd,  86  N.  Y.  618;  O'Brien 
V.  Breitonbach,  1  Hilt.  304. 

1  Thus  by  ch.  276,  Laws  1836  of 
Maryland,  the  Baltimore  <fe  Ohio  R.  R. 
Co.  was  authorized  to  subscribe  to  the 
stock  of  other  railroads  to  a  specified  ex- 
tent. See  Mayor  v.  Baltimore  &  Ohio 
R.  R.  Co.,  21  Md.  50  (1863).  In  Ohio 
the  Revised  Statutes  (1880)  provide  that 
"  any  [railroad]  company  may  aid  anoth- 
er in  the  construction  of  its  road,  by 
means  of  subscription  to  the  capital 
stock  of  such  company  or  otherw'ise  for 
the  purpose  of  forming  a  connection  of 
the  roads  of  the  companies,  when  the 
road  of  the  company  so  aided  does  not 
form  a  cfimpeting  line,"  (taken  from  Act 
of  March  3rd,  1851,  §4).  See  Zabriski 
V.  Cleveland,  C.  &  C.  R,  R.  Co.,  23  How. 
381  (1859).  The  case  While  v.  Syracuse 
&  Utica  R.  R.  Co.,  14  Barb.  559"(1853), 
held  to  be  constitutional  and  valid,  a 
general  law  allowing  any  New  York 
railroad  to  subscribe  to  the  stock  of  the 
Great  Western  R.  R.,  Canada  West. 

2  New  York  Session  Laws  1850,  §  140, 
§  8;  Laws  1881,  ch.  468,  §  12,  as  to 
railroad  corporations.  If  one  road  has 
been  leased  to  another,  the  latter  niay  ex- 
change its  stock  for  st(!ck  in  the  I'ornier. 
N.  Y.  Session  Laws  1867,  ch.  254,  as 
am'd  by  Laws  1879,  ch.  5o3. 

^  In  Pennsylvania  the  statute  prohibits 
any  corporati(jn  from  using  ''  its  funds  in 
the  purchase  of  any  stock  in  any  other 
corporation,  or  to  hold  the  same,  except 
as  collateral  security  for  a  prior  indebted- 
ness." Brightley's  Digest,  vol.  I,  p.  343, 
§  30.  So  also  General  Statutes  of  Colo- 
rado (1883),  p.  183,^10  and  p.  189,  i^  35; 
Code  ofTenn.  (1884),  j5  2490;  Indiana  R. 
S.  (1881),  3858.  See  8  Southern  Law  Rev. 
369. 

325 


§  316.] 


COMPETENCY  TO   BUY   AND   SELL   STOCK.  [cH.  XIX. 


held  that  a  raUroad  company  may  purchase  stock  in  a  connecting 
company  with  a  view  to  consolidation.^ 

§  316.  Purchases  of  stock  T)y  l)anlis  and  lyleAges  to  hanks. — 

A  banking  corporation  has  at  common  law  no  power  to  purchase 
or  invest  in  the  stock  of  another  corporation,  whether  that  other 
corporation  be  itself  a  bank  or  of  a  different  business.^  The  bank 
is  organized  for  the  purpose  of  receiving  deposits,  and  loaning 
money,  not  for  the  purpose  of  dealing  in  stocks.  Any  attempt 
to  engage  in  such  transactions  is  a  violation  of  its  charter  rights, 
and  of  its  duty  towards  the  stockholders  and  the  public.  There 
is  a  difference  of  opinion  as  to  whether  a  pledge  of  stock,  as  col- 
lateral security  for  a  loan  made  by  the  bank  at  the  time  of  pledg- 
ing the  stock,  is  legal.  The  weight  of  authority  holds  that  such 
a  pledge  of  stock  is  valid  and  may  be  enforced.^  This  rule  is  in 
accordance  with  a  widespread  custom  of  banks,  and  seems  to  have 
been  denied  in  but  one  case.      As  regards  a  pledge  of  stock  to  a 


'  Ryan  v.  Leavenworth,  A.  &  N.  W. 
Ry.  Co.,  21  Kan.  365  (1879).  The  court 
said:  "  Neither  the  interests  of  the  pub- 
lic nor  the  interests  of  the  companies 
would  be  sacrificed  or  prejudiced  neces- 
sarily, if  the  roads  were  operated  under 
one  management,  or  if  the  two  companies 
were  consolidated  upon  equitable  turms, 
so  as  to  form  a  continuous  line  of  rail- 
road." 

2  Talmage  v.  Pell,  1  N.  Y.  328,  347 
(1852),  the  court  saying  that  banks  "  have 
uo  power  to  purchase  State  or  other 
stocks,  for  the  purpose  of  selling  them 
at  a  profit,  or  as  a  means  of  raising 
money,  except  where  such  stocks  have 
been  received  in  good  faith,  as  security 
for  a  loan  made  by,  or  a  debt  due  to  such 
association,  or  where  taken  in  payment, 
in  whole  or  in  part,  of  such  loan  or  debt." 
Nassau  Bank  v.  Jones,  95  N.  Y.  115,  120 
(1884).  "  It  is  scarcely  conceivable  that 
it  can  be  seriously  urijCd  that  a  moneyed 
corporation,  having  under  its  charter  the 
right  to  tr;insact  a  banking  business  onl}^^ 
may  legally  engage,  as  a  corporation,  in 
the  construction  of  railroads,  or  in  fur- 
nir^hing  money  for  such  an  object,  in  ex- 
change for  the  stock  of  a  railroad  corpo- 
ration." First  Natl.  Bank  v.  Natl.  Ex- 
change Bank,  92  U.  S.  122.  128(1875), 
where,  in  reference  to  national  banks,  the 
court  said :  "  Dealing  in  stocks  is  not 
expressly  prohibited,  but  such  a  prohibi- 
tion is  implied  from  the  failure  to  grant 
the  power."  Royal  Bank  of  India's  Case, 
L.  R...  4  Ch.  252' (1869);  Franklin  Co.  v. 
Lewiston  Institution  for  Savings,  68  Me. 

326 


43  (1877),  the  court  saying,  "it  is  not 
within  the  authority  of  the  trustees  of  a 
savings  bank,  to  invest  its  funds  in  the 
stock  of  manufacturing  corporations,  un- 
less expressly  authorized  so  to  do  by  its 
charter  or  the  public  laws  of  the  State." 
The  bank  is  not  liable  to  the  corporate 
creditors  on  the  stock. 

^  Royal  Bank  of  India's  Case,  supra. 
"  Making  advances  upon  shares  in  public 
companies  is  within  the  ordinary  C"Urse 
of  the  dealing  of  banker.-."  The  stock 
pledged  was  stock  in  another  bank.  To 
same  effect  lie  Barned's  Banking  Co.,  L. 
R.,  3  Ch.  105  (1867);  Shoemaker  v. 
Natl.  Mechanics  Bank,  1  Hughes  (Ct.  Ct. 
Md.),  101  (1869),  as  applicable  to  national 
banks;  also  National  Bank  v.  Case,  99  U. 
S.  628  (1878),  where  the  court  says: 
"  There  is  nothing  in  the  argument  on,  be- 
half of  the  appellant  that  the  bank  was  not 
authorized  to  make  a  loan  with  the  stock  of 
another  bank  pledged  as  collateral  securi- 
ty. That  is  an  ordinary  mode  of  loaning, 
and  there  is  nothing  in  the  letter  or  spirit 
of  the  National  Banking  Act  that  jirohibits 
it.  But  if  there  were,  the  lender  could  not 
setup  its  own  violation  of  law  to  escape  the 
responsibility  resulting  from  its  illegal  ac- 
tion." Such  a  pledge  to  a  national  bank  is 
not  prohibited  by  the  statute, that  the  bank 
shall  not  take  a  real  estate  mortgnge  as  se- 
curity. So  held  where  the  property  of  the 
corporation  whose  stock  was  pledged  con- 
sisted of  real  estate.  Baldwin  v.  Canfield,  1 
N.  W.  Rep.  261  (foot  paging)  (1879).  See 
also  Sistare  v.  Best,  88  N.  Y.  527. 

*  Franklin  Bank  v.  Commercial  Bank, 


CH.  XIX.]  COMPETENCY  TO   BUY  AND  SELL   STOCK. 


[§31' 


bank,  to  secure  a  debt  previously  contracted,  its  legality  is  un- 
questioned, and  is  free  from  the  objections  made  to  a  pledge 
contemporaneous  with  the  loan.^ 

§  317.  Purcliases  of  stocTc  hj  insurance,  manufacturing, 
and  other  comiyanies. — An  insurance  company  has  no  power  or 
leo-al  riffht  to  subscribe  for  stock  in  a  savings  bank  and  building 
association  ;  ^  nor  to  purchase  stock  in  another  insurance  company.^ 
It  is  difficult  to  state  any  rule  as  regards  the  right  of  a  manufac- 
turing or  trading  corporation,  to  purchase  shares  of  the  capital 
stock  of  another  corporation.  It  has  been  held  that  neither  a 
note  selling  company,^  nor  a  lumber  company,^  has  power  to 
invest  in  the  shares  of  a  bank;  nor  a  steamship  company  to  sub- 
scribe for  stock  in  a  dry-dock  company.^  On  the  other  hand,  it 
has  been  held  that  a  steamboat  company  may  purchase  stock  in 
another  rival  line,  even  though  the  evident  purpose  be  to  injure 
it.''  It  is  clearly  legal  for  a  manufacturing  corporation  to  take 
the  stock  of  another  in  payment  of  a  debt.^  In  JSTew  York,  manu- 
facturing corporations  are  prohibited  by  statute,  from  purchasing 
stock  in  any  other  corporation,^  unless  such  other  corporation 
either  produces  or  consumes  the  articles  in  which  the  former 
corporation  is  interested.^" 


Religious  and   charitable  and  other 


36  0.  St.  3.50  (1881),  where  the  legality 
of  the  plf^dge  was  denied,  and  the  right 
of  the  pledgee  to  have  tlie  stock  regis- 
tered in  its  name  not  granted. 

'  First  National  Bank  v.  Natl.  Ex- 
change Bank,  92  U.  S.  122-128.  "la 
the  honest  exercise  of  the  power  to  compro- 
mise a  doubtful  debt  owing  to  a  bank,  it  can 
hardly  be  doubted  that  stocks  may  be  ac- 
cepted in  payment  and  satisfaction,  with  a 
view  to  their  subsequent  sale  or  conver- 
sion into  money,  so  as  to  make  good  or  re- 
duce an  anlicijiiited  loss." 

'■'  Mutual  Sav.  Bank  <fe  Bldg.  Assn.  v. 
Meriden  Agency  Co.,  24  Conn.  159  (185.5), 
holding  till!  insurance  company  not  liable 
on  the  stock. 

"  Re  Liquidators  of  the  British  Nation 
Life  Assurance  Association.  L.  R.,  8  Ch. 
Div.  (',79  (1878),  the  court  refusing  to  hold 
the  former  liable  on  a  wimling  up,  and 
saying:  "The  more  or  less  similarity  of 
the  objects,  or  even  absolute  identity  of 
the  objects,  does  not  affect  the  principle. 
It  is  the  entering  into  a  new  contract  of 
partnership  with  new  persons  under  a 
new  constitution,  wiiich  is  absolutely  ultra 
vires  and  void,  unless  specially  provided 


for  and  authorized."  To  same  effect  Berry 
V.  Yates,  24  Barb.  199  (1857). 

^  Joint  Stock  Discount  Co.  v.  Brown, 
L.  R.,  8  Eq.  381  (1869). 

5  Sumner  ii.Marcy,3  W..&M.105  (1847). 

^  New  Orleans,  F.  &  H.  S.  Co.  v.  Ocean 
Dry-dock  Co.,  28  La.  Ann.  173  (1876). 

'  Booth  V.  Robinson,  55  Md.  419 
(1880).  This  decision  goes  to  the  extreme 
length  in  allowing  one  corporation  to  in- 
vest in  the  stock  of  another.  A  manu- 
facturing corporation  is  not  presumed  to 
be  incapable  of  purchasing  stock  in  an- 
other corporation.  Parker  v.  Bernal,  66 
Cal.  112(1881). 

**  Ilowe  V.  Boston  Carpet  Co.,  82  Mass. 
493  (1860). 

"  As  regards  New  York  manufactur- 
ing corporations,  sec  Laws  18-18,  ch.  40, 
§  8,  as  changed  by  Law.s  1866,ch.  838,  §  3, 
as  amended  by  Laws  1876,  ch.  358,  allow- 
ing the  corporation  to  i)iirehase  stock  in 
other  c(jr]K)rations  furnishing  it  with  ma- 
terial or  taking  itstinisiied  jjroducts. 

'ON.  Y.  Session  Laws,  1848,  ch.  40, 
§8  (p.  1732,  R.  S.,  7lh  cd.);  1868.  ch. 
838  (p.  1743,  R.  S.,  7tli  ed.),  as  am'd  by 
Laws  1876,  ch.  358. 

327 


§  318.]  COMPETENCY  TO  BUY  AWD   SELL   STOCK.  [CH.  XIX. 

corporations,  not  for  profit,  have,  it  seems,  implied  power  to 
invest  their  funds  in  stock  of  other  corporations.^  There  has 
been  some  controversy,  whether  one  corporation  could  sell  all 
its  property  to  another  corporation,  taking  pay  in  stock  of  the 
latter,  and  dividing  such  stock  among  the  shareholders  of  the 
selling  corporation.  The  weight  of  authority  holds  that  such  a 
transaction  is  ultra  vi7'es,  and  may  be  prevented  by  any  stock- 
holder of  the  former  corporation.*  "Where  a  corporation  owns 
stock  in  the  name  of  a  trustee  for  the  corporation,  it  is  obliged 
to  indemnify  such  trustee  for  calls  paid  by  him.^  The  stock 
owned  by  a  corporation  may  be  sold  by  its  general  business  agent 
and  financial  manager  and  representative,  he  having  apparent 
power  to  sell,  and  the  governing  body  not  objecting.* 

§  318.  (c.)  Infants  as  purchasers  of  stocl{. — An  infant  is 
incompetent  to  purchase  shares  of  stock.  Most  cases  of  this 
class  arise  upon  a  winding  up  of  the  corporation,  wdien  the  infant 
is  placed  upon  the  list  of  contributories,  and  in  defense  infancy 
is  set  up.^  An  infant's  purchase  of  stock  is  voidable  and  not 
void.®  This  seems  to  be  the  rule  finally  arrived  at  by  the  Eng- 
lish courts,  after  som.e  hesitation  and  diiference  of  opinion.  The 
transfer  is  similar  to  a  deed  w^hich  passes  an  interest  to  an  infant 
even  when  coupled  with  a  liability,  if  it  be  for  his  benefit  to 
accept  it.''  Consequently  an  infant,  upon  coming  of  age,  is  bound 
to  elect  'whether  he  will  afiirm  or  disafiirm  a  purchase  of  stock 
made  by  him  while  yet  an  infant.^     He  may  disaffirm,  while  still 


'  Pearson  v.  Concord  R.  R.  Co.  (New  diction  to  aid  a  dissenting  stockholder  in 

Hampshire    Sup.    Ct.,    Aug.    30,    1883).  such  a  case,  has  been  justly  ciiticised  and 

"  Certain    classes   of    corporations    may  is  clearly  poor  law. 

rightfully  invest    their    moneys   in   the  ^  Goodson's   Claim,    28   "W.    R.    760 

stock  of  other  corporations,  such  as  le-  (1880). 

ligious  and  charitable  corporations,  and  ■*  Walker  v.  Detroit  Transit  Ry.  Co., 

corporations  for  literary  purposes.     The  4Y  Mich.  388  (1 882).     See  also  Sistare  y. 

power  is  not  expressly  mentioned  in  their  Best,  88  N.  Y.  527.     That  the  corporate 

charters,  is  necessarily  implied,  for  the  treasurer  may  sell  the  stock,  see  Hoklen 

preservation   of  the    funds   with   which  v.  Metropolitan  Natl.  Bk.,  138  Mass.  48. 
such   institutions   are   endowed,   and    to  ^  See  §§  250,  63. 

render  their  funds  productive."     To  same  *  Lumsden's  Case,    L.  R.,  4   Ch.    31 

effect  Hodges  v.  New  Eng.  Screw  Co.,  1  (1868). 
R.  I.  312  (1850).  ^Id. 

"Taylor  v.   Earle,   8   Hun,   1  (ISYe);  *  Where,   however,    the    corporation 

Froth! nghamt;.  Barney,  6  Hun,  366.    Con-  becomes  insolvent  just  before  or  just  after 

tra,  Treadwell  v.   Salisbury  Mfg.   Co.,  7  the  infant  conies  of  age,  he  need  not  affirm 

Grav,    393  ;    Hodges    v.    New    England  or  disaffirm,  but  mav  await  the  act'on  of 

Screw   Co.,    1    R.  L  312  (1850);   Id.,   3  the  corporation.     Mitchell's  Case,  L.  R., 

R.   L  312  (1853).      The  last  case,  hold-  9  Eq.  363  (1870).     Where  he  is  silent  for 

ing  that  a  court  of  equity  has  no  juris-  two  years  after  coming  of  age,  and  corpo- 

328 


CH.  XIX.]  COMPETENCY   TO   BUY    AND    SELL   STOCK. 


[§  319. 


an  infant,  and  is  then  not  liable  on  calls.^  The  plea  of  infancy  is 
a  good  defense,^  but  the  plea  must  allege  a  disaffirmation  within 
a  reasonable  time  after  becoming  of  age.^  Where  a  stockholder 
sells  his  stock  through  a  stock  exchange  jobber,  and  the  sale  is 
made  to  an  infant,  the  jobber  is  liable  to  the  vendor  for  calls  paid 
by  him  in  consequence  of  such  infancy.^ 

§319.  {cl.)  Mai'Tied  women  as  purchasers  or  vendors  of 
stocli. — At  common  law,  a  married  woman's  rights  as  regards 
shares  of  stock  were  the  same  as  prevailed  with  reference  to 
other  personal  property  purchased  or  owned  by  her.  She  had 
no  material  rights.  Modern  statutes  have,  however,  completely 
changed  her  rights  of  property  and  of  contract.  These  statutes 
are  so  different  in  form  and  effect,  that  it  is  necessary  for  the 
purpose  of  ascertaining  the  status  of  a  married  woman  as  a 
stockholder,  to  consult  the  statute  law  of  the  State  of  her  domi- 
cile, and  also  of  the  State  of  the  corporation  itself.^  In  England, 
the  severity  of  the  common  law  has  been  but  partially  modified 
by  statute.® 


rate  insolvency  then  occurs,  he  is  bound. 
Idem.  For  other  cases  of  ratification,  see 
references  in  §§  6.3,  250. 

'  Newry  &  Emiiskillen  E,y.  Co.  v. 
Coombe,  3  Ex.  565,  578  (1849).  "He 
became  a  shareholder  by  contract  during 
infancy,  and  during  infancy  he  disaffirmed 
the  contract,  therefore,  in  my  opinion,  he 
ceased  to  be  a  shareholder,  liable  to  be 
sued  for  calls." 

-  JMrkcnhead,  L.  <fe  C.  J.  Ry.  Co.  v. 
Pilcher,  5  Ex.  24  (1850). 

8  Dublin  <fe  Wicklow  Ry.  Co.  v.  Black, 
8  Ex.  181  (1852). 

*  Nickalls  v.  Merry,  L.  R.,  1  H.  L.  530 
(1875). 

'■  'I'he  wife's  capacity  to  transfer  is  de- 
termined bv  the  law  of  her  domicile.  Hill 
V.  Pine  River  Bk.,  45  N.  H.  800  (18G4); 
Dow  V.  (;ould  &  C.  S.  M.  Co.,  31  Cal  629 
(1867),  holds  that  in  California,  a  gift  of 
stock  from  husband  to  wife  ia  valid,  and 
tliat  after  such  gift,  he  coidd  not  sell  and 
transfer  it  as  his  own.  Leitch  v.  Wells,  48 
N.  Y.  5S5.  The  case  f/f  Stanwood  v.  Stan- 
wood,  17  Mass.  57(1820), holds  that  where 
the  liusband  does  not  have  the  stock  trans 
ferred  to  himself  on  the  cf)rporate  bonks, 
but  drclares  it  to  be  his  wife's  stock,  there 
is  no  reduction  of  it  to  his  possession. 
See  also  Wall  v.  Toinliiisoii,  16  Ves.  413 
(1809),  to  the  effect  that  a  transfer  of  the 
wife's  stock  to  the  bu.sband  as  trustee,  is 


not  a  reduction  to  possession;  also  Arnold 
V.  Rugo-les,  1  R.  I.  165  (1837);  Wildman 
V.  Wildman,  9  Ves.  174  (1803);  and  Slay- 
maker  V.  Bank  of  Gettysburg,  10  Penn. 
St.  373  (1849).  to  the  effect  that  only  a 
registry  will  reduce  the  wife's  stock  to 
the  possession  of  the  husband.  Tlie  wife's 
stock  standing  in  her  name  at  the  time 
of  and  after  marriage,  is  not  subject  to 
her  husband's  debts.  Cochrane  v.  Cham- 
bers, Arabl.,  79  n.  (1825).  Contra,  Stam- 
ford Bk.V  Ferris,  17  Conn,  259  (1845). 
In  Connecticut  it  is  held,  that  the  wife  is 
not  liable  in  assumpsit  to  her  husband's 
creditors,  to  whom  she  has  pledged  her 
stock,  although  she  subsequently  pledges 
it  to  another.  An  express  promise  to  pay 
on  her  part  is  necessary.  Piatt  v.  Hawk- 
ins, 43  Conn.  139  (1875).  Curtis  v. 
Steever,  36  N.  J.  Law,  304  (1873).  clearly 
and  properly  holds  that  the  wife's  stock, 
held  l>y  her  as  her  separate  estate,  is  not 
subject  to  her  husband's  debts.  See  also 
Cornell's  Case,  18  VV.  N.  Cases,  289  (Penn. 
Nov.,  1886)  and  t^g  62,  250,  308. 

«  By  33  &  34  Vict.,  c.  93,  t<  4,  mar- 
ried women  may  purchase  or  take  paid 
up  stock,  or  stock  upon  which  thei-e  can 
be  no  liability,  but  if  taken  without  the 
consent  of  lii-i'  husband,  he  nuiy  apply  to 
th(!  court  and  have  it  turned  over  to  him- 
self. Previous  to  this  act,  the  corporation 
might  refuse  to  register  her  as  a  slock- 

329 


§  S20.]  COMPETENCY   TO  BUY  AND  SELL   STOCK.  [CH.  XIX. 

§  320.  (e.)  ComiJetency  of  miscellaneous  imrtics. — A.  sale  of 
stock  by  a  person  nooi  compos  mentis  is  void.  The  corporation 
is  bound  absolutely  to  know  of  the  lunacy  of  a  transferrer,  even 
though  it  allows  a  registry  on  his  ordinary  signature  and  power 
of  sale.^  An  assignee  in  bankruptcy  or  for  the  benefit  of  credit- 
ors, takes  only  the  interest  and  equitable  rights  of  his  assignor. 
A  previous  unrecorded  transferee  of  the  insolvent's  stock  is  pro- 
tected.^ A  partner  may  accept  stock  as  collateral  security  for  a 
loan  from  the  firm,^  and  may  sell  and  transfer  partnership  stock.* 
A  director  of  the  corporation  itself  may  buy  and  sell  its  stock 
like  any  other  individual.  The  information  which  he  has  of  the 
affairs  of  the  corporation,  whereby  he  is  enabled  to  buy  or  sell 
at  an  advantage  over  the  person  with  whom  he  deals,  does  not 
affect  the  validity  of  the  transaction.  He  is  entitled  to  the  bene- 
fit of  his  facilities  for  information.  There  is  no  confidential 
relation  between  him  and  a  stockholder,  so  far  as  a  sale  of  the 
stock  between  them  is  concerned,  and  so  long  as  he  remains  silent, 
and  does  not  actively  mislead  the  person  with  whom  he  deals, 
the  transaction  cannot  be  set  aside  for  fraud.^  A  joint  owner  of 
stock  cannot  transfer  the  interest  of  the  other  joint  ow:ner  where 
the  stock  is  registered  in  the  name  of  both.^  On  the  death  of 
one,  the  survivor  takes  title  to  the  whole  stock.''' 


holder,  but  now,  the  corporation    must  Co.,  10  Mass.  476  (1813).     Cf.  Sargent  v. 

accept  her  the  same  as  any  other  applicant  Franklin  Ins.  Co. ,  8  Pick.  90  (1829). 
for  resjistrv.     Regina  v.  Carnatic  Ry.  Co.,  ^  Board    of  Coni'rs   of  T.   County  v. 

42  L.'J.  (Q.  B.)  169  (1873).     Under  this  Reynolds,  44  Ind.  509  (1873);  Carpenter 

act,  she  may  transfer  her  stock  only  after  v.  I)anforth,  52  Barb.  581  (1868).     This 

it  has  been  formally  set  aside  by  statutory  case  was  disapproved  by  the  commenta- 

authorit.y,  as  her  separate  property.    How-  tor  to  Story's  Eq.  Juris.  r2th  ed..  229,  n., 

ard  V.  Bk.   of  Eng.,   L.    R.,   19    Eq.  295  but    the  disapproval  is  omitted  in  the 

(1875).     AVhere  the  corporation  lias   al-  13th  ed.     So  also  Grant  w.  Attrill,  11  Fed. 

lowed  a  transfer  by  a  mariied  woman,  it  Rep.  469  (1882),  where  the  sale  was  in- 

cannot  cancel  the  registry.   Ward  t'.  South-  duced    by   threat   of  assessments.      See 

eastern  Ry.  Co.,  2  El.  &  El.  812  (1860).  also  Johnson  «;.  Laflin,  5  Dill.  65,  83(1878); 

•  Chew  V.  Bank  of  Baltimore,  14  Md.  Jones  v.  Alley  (U.  S.  Ct.  Ct.  111.,  July  13th, 

299(1859).  1886);  Gilbert's  Case,  L.   R.,  5  Ch.  559 

'■^Dickinson  v.  Central  Natl.  Bk.   129  (1870).      See  also  Heman  «-.  Britton,    14 

Mass.  279  (1880);  Purchase  v.  New  York  Mo.  (App.)  109;  affi'd  84  Mo.  657. 
Exchange   Bank,    3    Rob.    (N.    Y.)    164  «  Standing  v.  Bowring,  L.  R.,  27  Ch. 

(1865).      Contra,  Shipman  v.   Mina,  Ins.  D.  341(1884);  Comstock  ?'.  Buchanan,  57 

Co.,  29  Conn.  245  (1860),  wher(j  the  pre-  Barb.  127  (1864).     But  if  the  other  joint- 

vious  transferee  delayed  unreasonably  in  owner  dies  first,  the  previous  transfer  of 

claiming  ownership  of  the  stock.  the  survivor  is  effective  and  conveys  the 

^  Weikersheim'sCase,  L.  R.,  8  Ch.  831  whole.      Slaymaker  v.  Bank  of  Gettys- 

(1873).      In  Comstock  v.  Buchanan,   57  burg,  10  Penn.  St.  373  (1849). 
Barb.    127   (1864),    however,    where   the  ''Garrick  v.   Taylor,  3   L.  T.  (N.  S.) 

stock   was  registered    in    both   partners'  460(1860);   Hill's  Case,  L.  R.,  20  Eq.  585 

names,  a  contrary  rule  was  upheld.  (1874). 

••  Quiver   v.   Marblehead    Social   Ins. 

330 


CH.  XIX.]         COMPETENCY  TO   BUY  AND    SELL   STOCK  [§  321. 


§  321.  (/.)  Sales,  imrcliases,  and  transfers  hy  agents.— Wheve 
stock  is  purchased  by  ooe  person  in  his  own  name  by  due  au- 
thority for  himself  and  another,  the  latter  is  a  part  owner,  and 
has  rio-hts  and  liabilities  as  such.^  The  Statute  of  Frauds  does 
not  apply  to  such  an  arrangement.^  Stock  may  be  purchased  by 
an  agent,  and  in  making  such  a  purchase  the  agent  is  not  per- 
mitted to  make  a  secret  profit,  even  though  he  acts  without  com- 
pensation.^ A  honafiie  purchaser  for  value,  and  without  notice 
of  stock  from  a  vendor  who  delivers  the  certificates  therefor  in- 
dorsed in  blank  by  another,  or  indorsed  by  the  vendor  liimself,  is 
protected  and  entitled  to  the  stock,  although  it  afterwards  trans- 
pires that  the  agent  was  selling  as  agent  of  another  and  had  been 
guilty  of  a  breach  of  trust.^  But  the  transferee  is  not  protected 
where  he  isnot  a  5(9?i«.^>Ze  purchaser.^  "Where  the  same  person 
acts  as  agent  for  both  the  transferrer  and  the  transferee,  and  ab- 


'  Stover  V.  Flack,  41  Barb.  162  (1862). 

2  See  Ch.  XX. 

3  Kimber  v.  Barber,  L.  R.  8  Ch.  56 
(1872),  Ijolding  that  where  a  person  of- 
fers to  buy  for  another,  stock  at  a  ceitain 
price,  but  buys  it  at  a  less  price  and 
keeps  the  difference,  he  is  liable  to  the 
vendee  for  his  gains. 

4  Honold  V.  Meyer,  36  La.  Ann.  585 
(1884);  Strano;ev.  Houston  &  T.  C.  R.R. 
Co.,  53  Tex."  162  (1880);  Dovey's  Ap- 
peal, 97*Penn.  St.  153  (1881).  and  see 
many  cases  in  Clinpter  on  Stock  Brokers, 
where  liiis  principle  of  law  is  often  in- 
volved. The  case  of  Taylor  v.  Great,  <fec., 
R.  R.  Co.,  4  De  G.  (fe  J,,  559,  to  the  con- 
trary, turns  on  the  English  doctrine  that 
transfers  in  blank  are  not  valid.  The 
case  of  Donaldson  v.  Gillet,  L.  R.  3  Eq. 
2*74  (186G),  wliere  the  pledgee  of  one  who 
held  the  certificate  indorsed  to  himself 
was  not  protected,  since  the  pledgor  had 
purchar^ed  as  agent  and  had  fraudulently 
taken  tith;  in  liisown  name,  would  not  be 
good  law  in  tliis  country,  where  the  fail- 
ure to  have  the  transfer  reiiislered  has 
no  effect  (m  the  pledgee's  lights  under 
such  circumstances.  The  case  of  McNeil 
V.  Tenth  National  Bank,  40  N.  Y.  325 
(1871),  is  not  only  the  leading  case  on  the 
estoppel  of  the  principal  from  re|)udiatiiig 
the  sale  or  pledge  of  liis  stock  by  his 
atjent,  whom  he  intrusted  with  the  cer- 
tificates indorsed  in  blank,  but  it  is  one 
of  the  leailitig  cases  on  the  law  of  the 
qurtsi  negotiability  of  stock.  Rum  ball  v. 
Metropolitan  Bank,  L.  li.  2  Q.  B  D.  11(4 
(1877),    where    a    broker    committed    u 


breach  of  trust.  The  court  said  the  stock- 
holder "is  in  the  position  of  a  person 
who  has  made  a  representation,  on  the 
face  of  his  scrip,  that  it  would  pass  with 
a  good  title  to  any  one  on  his  taking  it  in 
good  faith  and  for  value,  and  who  has 
put  it  in  the  power  of  his  agent  to  hand 
over  the  scrip  wiih  this  representation  to 
those  who  are  induced  to  alter  their  posi- 
tion on  the  faith  of  the  representation  so 
made."  Moodie  v.  Seventh  Nat'l  Bk,  3 
Weekly  N.  C.  118  (1876),  holding  that 
if  the  purchaser  takes  partly  for  an  an- 
tecedent debt  he  is  not  a  bona  fuh  holder 
to  that  extent.  Dovey's  Appeal,  97  Penn. 
St.  153  (1881).  An  assignee  in  insol- 
vency of  the  agent  does  not  take  the 
stock.  See  §  320.  An  agent  to  col- 
lect dividends  who  loans  the  stock  at  a 
profit,  is  liable  for  its  loss,  even  though 
he  informed  the  owner  of  the  loan,  and 
she  did  not  object.  Persch  v.  Qniggle, 
57  Penn.  St.  247  (1868).  A  bona  fide 
])urchaser  from  the  agent  is  protected, 
t^tate  Bk.  v.  Cox,  11  Rich.  Eq.  344(18GO); 
West,  &c.,  Co.'s  Ap|.eal,  81  Penn.  St.  19 
(1870);  Otis  V.  Gardner,  1('5  111.  436 
(1883);  Gulickw.  Markham,  6  Daly,  129 
(1875);  Martin  v.  Sedgwick,  9  lieiiv.  333 
(1846);  Appeal  of  Liiinard,  6  East.  Rep. 
877  (Penn.  1886). 

''  Talmage  v.  Third  Nat'l  Bk.  91  N. 
Y.  531  (1883);  Crocker  v.  Crocker,  31 
N.  Y.  507  (1S05);  Weaver  v.  Borden,  19 
N.  Y.  286(1872),  where  the  agent  IVaudu- 
Icntly  bought  in  his  own  name  and  (hen 
fraudulently  sold. 

331 


§  322.]  COMPETENCY   TO    BUY   AND  SELL   STOCK.  [cH,  XIX. 

sconds  with  tlie  purchase  price  after  the  certificates  have  heen 
delivered,  but  before  registry  on  the  corporate  books,  the  trans- 
feree is  protected.^  An  agent's  power  to  sell  stock  does  not  au- 
thorize him  to  pledge  it.^ 

A  person  who  knows  or  has  the  means  of  knowing  that  an- 
other person  holds  stock  as  an  agentonly,  cannot  take  such  stock  in 
pledge  from  the  agent,  although  the  latter  represents  that  the 
money  is  to  be  used  for  his  principal.  The  principal  may  recover 
the  stock  if  he  has  not  authorized  the  pledge.^  The  real  owner  of 
stock  may  compel  the  nominal  owner  to  transfer  the  stock  to 
him.*  The  corporation  may  disregard  the  nominal  holder  and 
allow  the  real  owner  to  sell  and  transfer  the  stock.^  Where  the 
corporation  knows  that  the  vendor  is  selling  as  the  agent  of  the 
stockholder,  who  has  given  to  the  agent  the  certificates  indorsed 
in  blank,  it  must  see  to  it  that  the  agent  has  full  power  to  sell  the 
stock  and  is  liable  for  allowing  a  registry  where  the  agent  has  not 
such  power.® 

§  322  [g.)  Purcliases  of  stock  hj  guardians,  executors,  and 
trustees. — In  England,  at  an  early  day,  the  common  law  rule  w^as 
declared  to  be  that  guardians,  executors,  and  trustees  had  no  right 
to  invest  the  trustee  fund  in  the  stocks  of  private  corporations, 
and  that  if  they  did  so  they  themselves  were  personally  liable  for 
the  moneys  so  invested.'*  The  rigor  of  this  rule  has  been  relaxed 
somewhat  in  Enghuid,  by  statute  and  by  orders  in  chancery,  so 
that  such  investments  may  be  made  in  the  stock  of  the  banks  of 
England  and  of  Ireland  and  the  East  India  Company.^  In  this 
country,  aside  from  a  few  dicta  and  a  few  decisions  to  the  con- 
trary, the  English  rule,  in  its  original  integrity,  is  upheld  and  fol- 


'  Ex  parte  Shaw,  L.  R.  2  Q.  B.  D.  463  receiving  with  notice,  may  be  joined  as 

(1877).  a  party  defendant. 

2  Merchants  Bk.  of  Canada  v.  Livings-  '  Trafford  v.  Boehm,  3  Atk.  440  (1746), 

ton,  74  N.  Y.  223  (1878).  where   the  investment  was   in   bank  and 

2  Fisher   v.   Brown,    104    Mass.    259  South  Sea  stock.     Lewis  on  Trusts,  281 

(1870).  (7th  ed.  1S79),  says  that  "  unless  specially 

*  Colquhoun  «.  Courtenay,    43   L.   J.  given  power,  it  is  i^ettled  in  England  th it 

(Ch.)  338  (1874).  a  trustee  may  not  invest  the  trust  fund  in 

^  Sabin  v.  Bank  of  Woodstock,  21  Vt.  the  stock  of  any   private   company,  as 

353  (1849),  holding  also  that  the  nominal  South  Sea  stock,  bank  stock,  &c.,  for  the 

holder  is  not  protected,  although  he  sub-  capital  depends  upon  the   management  of 

sequently  becomes  the  real   owner  of  the  governors  and  directors,  and  is  subject  to 

stock.  loss." 

«  Woodhouse  v.   Cresent  Mutual  Ins.  « Lord    St.   Vincent's   Act,    22   &  23 

Co.,  35  La.  Ann.  238  (1882),  holding  also  Vict.  ch.  35,  §  32;  23  A  24  Vict.  ch.  38. 
that  the  transferee,  who  is  charged  with 

332 


CH.  XIX.]  COMPETENCY   TO   BUY   AIsT)  SELL   STOCK. 


[§  323. 


lowed.  The  weight  of  authority  clearly  holds  that  the  inyest- 
ment  of  trust  funds  in  the  stock  of  railroad,  insurance,  bank, 
manufacturing,  or  other  corporations,  are  made  at  the  peril  of  the 
trustees.^  The  cestui  que  trust  may  hold  the  trustee  liable  for 
the  amounts  so  invested,  together  with  interest  upon  the  same. 
"Where  the  trustee  is  authorized  to  purcliase  stock  he  is  not  liable 
for  the  embezzlements  of  an  agent  whom,  with  due  care,  he  em- 
ploys to  make  the  purchase.^ 

§  323.  (/i.)  Sale  or  ])ledcj6  of  stock  ly  trustee  in  Ireacli  of  Ms 
trust. — It  is  the  function  and  duty  of  a  trustee  to  keep  and  pre- 
serve the  trust  property,  and  to  apply  the  income  according  to 


'  In  New  York  the  case  of  King  v.  Tal- 
bot, 40  N.  Y.  76  (1869).  affi'g  50  Barb. 
453,  clearly   enounces   and  sustains  tins 
rule.     The  court  said:  "  The  moment  the 
fund  is  invested  in  bank,  or  insurance,  or 
railroad  •  stock,  it  has  left  the  control  of 
the  trustees;  its  safety  and  the  hazard, 
or  risk  of  loss,  is  no  longer  dependent  up- 
on  their  skill,  care,  or   discretion,  in   its 
custody  or   management,  and   the   terms 
of  the  investment  do  not  contemplate  that 
it  ever  will  be  returned  to  the  trustees. 
,     .     .     The  fund  has  been  voluntarily 
placed  in  a  condition  of  uncertainty,  de- 
pendent upon  two  contingencies:     First, 
the  practicability  of  making  the  business 
profitable,    and,   second,   the    judgment, 
skill  and  fidelity  of  those  who  have  the 
management    of    it    for    that    purpose." 
Adair  v.  Brimmer,74  N.Y.  5a9,  55 1(  1878), 
where  the  trustees  were  held  liable  for 
Belling  coal   lands,  taking   in   pay   coal 
stocks,  they  being  authorized  by  the  will 
to  invest  in  such  securities  as  they  deemed 
safe.  Mills  v.  Hoffman,  26  Hun,  504  (188'2); 
reversed  in  92  N.  Y.  181,  but  not  on  this 
point.     Ackerman  v.  Emott,  4  Barb.  626 
(1848).  Sec  also  Berry  v.  Yates,  24  Barb. 
210;    Brown   v.    Campbell,  Hopkins  Cli. 
(2d    ed.)    265    (1824).     In    Pennsylvania 
the  rule  is  the  same.     Nyce's  Appeal,  5 
Watts  &   Serg.    254  0843),  holdmg  the 
trustee  liable   for   investment  in    United 
States  bank  stock,  although  the  guardian 
approved   of    the    trustee's    investment. 
Norris  v.  Wallace,  3  Penn.  St.  319  (1846), 
where  the  investment  was  in  the  slock  of 
a  suspended  bank.     Worrell's  Appeal,  9 
Penn.   St.  508   (1848);  navigation    stock 
not   good,  although   dividends  had   been 
accepted  by  the  cestui  qw^  Iruxl ;  sustained 
on  2d  appeal,  23  Penn.  St.  (18.".4).     Rush's 
Estate,  12  Penn.  St.  375   (1849),  stock  in 
Lehigh  Coal   and    Nav.    Co.    not    good. 


Hemphill's  Appeal,  18  Penn.  St.  303 
(1852),  United  States  bank  stock  not 
good.  Pray's  Appeal,  34  Penn.  St.  100 
(1859),  manufacturing  corporation  stock 
not  good,  the  works  being  unfinished. 
Barton's  Estate,  1  Pars.  24,  doubted. 
Ihmsen's  Appeal,  43  Penn.  St.  431  (1862), 
railroad  stock  not  good.  In  iSew  Jersey 
the  rule  is  the  same.  Gray  v.  Fox,  1  N.  J. 
Eq.  Rep.  259  (1831);  Halsted  v.  Meekers, 
Exrs.  18  K.  J.  Eq.  Rep.  136  (1866);  Ward 
V.  Kitchen,  30  N.  J.  Eq.  Rep.  31  (1878). 
Also  in  New  Hampshire.  Kimball?;.  Red- 
ing, 31  N.  H.  352  (1855),  stock  in  con- 
templated railroad  not  good.  French  v. 
Currier,  47  N.  H.  88,  99  (1866),  unpro- 
ductive stock  nut  good.  In  Massachu 
setts  the  tendency  is  to  favor  a  contrary 
rule,  although  no  case  seems  to  have 
clearly  decided  that  such  investments  are 
legal,  in  the  case  of  Harvard  College  v. 
Amory,  26  Mass.  446  (1830),  express 
power  was  given.  In  Lovell  v.  Miuot,  37 
Mass.  116  (1838),  the  stock  was  taken  as 
security.  Kinmouth  v.  Brigham,  87  Mass. 
270,  and  Brown  v.  French,  125  Mass.  410, 
were  not  cases  of  investment  in  stocks. 
Several  of  the  Southern  States  clearly 
uphold  the  rule  that  trustees,  Ac.  may 
iuvest  the  trust  funds  in  stocks.  Boggs 
V.  Adger,  4  Rieh.  Eq.  (S.  C.)  408  (1852), 
United  States  bank  stock  good.  Wash- 
ington V.  Emory,  4  Jones'  Eq.  (N.  C.)  32 
(1858),  railroad  stock  good.  Gray  v. 
Lynch,  8  Gill  (Md.),  403  (1849).  bank 
fetock  good.  Smyth  v.  Burns,  25  Miss.  422 
(1853),  bank  stock  good.  Lamar  v.  Mi- 
cou.  112  U.  S.  452  (1884).  and  IM  U.  S. 
218  (speaking  for  Georgia  and  Alabama), 
bank  and  railroad  stock  good,  but  not 
Confederate  bonds.  See  also  on  this  sub- 
ject, generally,  40  Am.  Dec.  515,  notes. 

''  Speight  V.  Gaunt,  L.R.  9  App.  Casea, 
1  (1883). 

333 


§  324.]  COMPETENCY   TO  BUY  AND  SELL   STOCK.  [cH.  XIX. 

tlie  terms  of  the  insiruinent  creating  the  trust.  As  a  general 
rule  it  is  not  his  duty  or  his  right  to  sell  or  change  the  invest- 
ment. Unless  the  instrument  creating  the  trust  authorizes  the 
sale  of  the  trust  property,  it  is  a  breach  of  trust  for  the  trustee  to 
make  a  sale.  In  this  respect  the  powers  of  a  trustee  differ  widely 
from  those  of  an  executor  or  administrator,  and  the  rule  applies 
to  a  trustee  holding  in  trust  shares  of  stock.^  Moreover,  under 
ordinary  circumstances,  a  tiustee  cannot  sell  stock  held  in  trust, 
although  such  rule  be  for  the  purpose  of  investing  the  proceeds 
in  other  stock  or  other  pi-operty.^ 

§  324.  LiaMUty  of  trustee. — Where  a  trustee  improperly  sells 
shares  of  stock  belonging  to  the  trust  estate,  the  cestui  que  trust 
has  a  riffht  to  elect  to  have  the  stock  restored  or  the  amount  re- 
ceivcd  for  it  paid  over,  together  with  interest  from  the  time  of  the 
sale.^  Were  the  rule  otherwise,  in  case  there  was  a  decline  in 
the  value  of  the  stock,  the  trustee  would  profit  by  his  own  breach 
of  trust.  The  trust  attaches  to  any  stuck  standing  in  the  name  of 
the  trustee,  and  althougii  the  same  certificates  are  not  retained,  an 
equal  amount  of  other  similar  stock  owned  by  the  trustee  may  be 
applied  to  the  trust.^  And  in  all  cases,  where  the  trustee  has  sold 
stock  belonging  to  the  trust  estate  in  breach  of  his  duties  as  trus- 

1  Boblea's  Estate,  '75  Penn.  St.  312  investing  in  real  estate  maj^  be  compelled 
(18'74);  Bayard  y.  Farmers  &  M.  Bank,  to  rei^lace  it.  Earl  Powlet  v.  Herbert,  1 
52  Penn.  St.  232  (1866),  the  court  say-  Ves.  297  (I'ZQl).  (7/.  Bohlen's  Estate,  75 
ing:  "  There  is  a  marked  difference  be-  Penn.  St.  312(1874).  Tha  cestui  qiie  trust 
tween  the  powers  of  an  administrator  or  may  waive  the  objection.  Duncan  v. 
executor,  and  those  of  an  ordinary  trus-  Jaudan,  15  Wall.  171.  The  case  of 
tee.  The  common  duty  of  the  latter  is  Washington  v.  Emory,  4  Jones'  Eq.  32 
not  adnainistration  or  sale,  but  custody  (1858),  holds  that  a  change  in  the  invest- 
and  management.  No  purchaser,  eitlier  ment  is  allowable  if  there  is  good  reason 
of  land  or  personalty,  would  be  safe  in  to  believe  that  the  estate  will  be  bene- 
buying  from  a  known  trustee  without  fited.  Trustees  should  sell  tlie  stock  if 
looking  at  the  nature  and  extent  of  liis  depreciation  is  probable.  Ward  v. 
trust."  Jaudon  v.  National  City  Bank,  8  Kitchen,  30  N.  J.  Eq.  31  (1878).  But 
Blatchf.  430  (1871),  the  court  saying:  not  liable  for  faikire  to  sell  if  in  good 
"  A  trustee  presumptively  holds  his  trust  faith  and  sound  discretion.  Bowker  v. 
property  for  administration  and  not  for  a  Pierce,  130  Mass.  262  (1881).  Cannot 
sale."  Affi'd,  15  W\all.  165  (1874),  where  change  stock  bequeathed.  Murray  v. 
the  court  says:  "  The  party  taking  such  Feinour,  2  Md  Ch.  418  (1851).  Nora 
stock  on  pledge  deals  with  it  at  his  peril,for  good  investment  to  a  stock  investment, 
theieisno  presumption  of  a  right  to  sell  it.  In  re  Warde,  2  Johns.  <fe  H.  101  (1861); 
as  there  is  in  the  case  of  an  executor.  In  "Waite  v.Whorwood,2  Atkyns,  159  (1741). 
the  former  case  the  property  is  held  for  cus-  ^  Harrison  a;.  Harris  n,  2  Atkyns,  121 
tody,  in  the  latter,  for  adm'inistration.  It  (1740);  Bostock  «).  Blakeney,  2  Brown's 
masters  not  whether  the  stock  is  pledged  Cii.  K.  653(1789);  Pococky.  Reddington, 
for  an  antec  'dent  debt  of  the  trustee  or  for  5  Vesey,  800  (1801);  Long  v.  Stewart,  5 
money  lent  him  at  tlie  time.  It  is  unlawful  Ve3ey,'809  n.  (1801) ;  Hart  v.  Ten  Eyek, 
to  use  it  for  either  purpose."  2  Johns.  Ch.  62,  117  (1816). 

2  Trustee  selling  stock  for  purpose  of  *  Piukett  v.  Wright,  2  Hare,  120  (1842). 

334 


CH.  XIX.]  COMPETENCY  TO   BUY  AND  SELL   STOCK.  [§  325. 

tee,  he  may  be  held  liable  in  damages,  by  the  cestui  que  trust  or 
his  representative,  for  the  value  of  the  stock.^ 

§  325.   Transferee  of   stock  from  trustee,  transferring   in 
Ireach  of  trust,  not  protected  if  he  talces  ivith  notice.— A  vendee 
or  pledgee  of  stock,  directly  from  a  trustee,  is  or  is  not  protected 
in  his  interest  in  the  stock,  according  as  he  is  or  is  not  chargeable 
with  notice  of  the  fact  that  the  stock  belongs  to  a  trust  estate, 
and  that  the  trustee  is  using  it  in  breach  of  his  trust.     Anything 
that  is  sufficient  to  put  a  party  on  inquiry  is  considered  equiva- 
lent to  actual  notice,  if  inquiry  be  not  made  and  reasonably  satis- 
fied.    The  law  imputes  to  a  purchaser  the  knowledge  of  a  fact  of 
which  the  exercise  of  common  prudence  and  ordinary  diligence 
would  have  apprized  him.     This  is  called  constructive  notice,  and 
has  the  same  effect  as  an  actual  notice  of  the  trusteeship.     The 
most  common  instance  of  a  constructive  notice  that  stock  being 
sold  belongs  to  a  trust  estate,  is  where  the  words  "  trustee,"  or 
"  in  trust,"  either  with  or  without  the  name  of  the  cestui  que  trust, 
are  written  on  the  face  of  the  certificate  of  stock  after  the  nam.e 
of  the  person  in  whose  name  it  stands  on  the  corporate  books. 
It  is  well  established  that  such  words,  indicating  a  trustee  owner- 
ship, are  notice  to  the  purchaser  that  his  vendor  is  selling  trust 
property,  and  that  he  buys  at  his  peril.^     In  California,  however, 
it  is  held,  that  although  the  word  "  trustee  "  on  the  face  of  the 
certificate,  followed  by  the  name  of  the  cestui  que  trust,  may  give 
notice  that  it  is  trust  property,  yet  that  where  the  word  '^  trustee  " 
is  but  a  cloak  for  an  agency,  for  the  purpose  of  shielding  the  real 
owner  from  liability  on  his  stock,  and  from  the  fact  being  known 
that  he  is  dealing  in  stocks,  the  court  will  disregard  it,  and  will 
not  protect  him  against  his  agent's  unauthorized  sale  of  the  stock.^ 

'  This  principle  of  law  is  assumed  in  cestui  que   trust."      Gaston   v.   American 

the  cases  on  this  subject.  Ex.   NaU.    Hk.   29   N.    J.   Eq.    Rep.    98 

«  Shaw    V.  Spencer,    100    Mass.    382  (1878);  Walsh  !'.  Stille,  2  Parsons'   Sel. 

(1868),  the  court  saying  that  the  word  Cases  in   Eq.  (Penn.)  17  (1842)  ;  Smions 

"  trustee "   means  trustee  for   some   one  v.    Southwestern    R.    R.  Bank,  5   Rich, 

whose  name  is   not  disclosed,   and  that  Eq.  270(1853),  where  a  Master  in  Chan- 

a   custom     of  trade    disregarding    such  eery  held  the    stock   in   his  own    name 

words  on  certificates   of  stock  is  illegal  officially.     Loring  v.  Brodie,    1".4  Mass, 

and  ineffectual  to  protect  the  purchaser.  453  (1883)  ;  Lorincr   v.    Salisbury  Mill.-, 
To  same  effect,  Jaudon  v.  National  City     125  Id.  138  (1878);  Sweeney   v.  Bk.  of 

Bank,  8  Blatchf,  (1871) ;  afil'd,  15  Wall.  Montreal,  5    Canadian  Law   Times,   503 

10"),    176,  where  tlie  court  says  the  pur-  (1885). 

chasers  "  are  chargeable  with  constructive  ^  Brewster  v.  Rime,  42  Cal.  139  (1871); 

notice  of  everything  wi)ich,upon  inquiry,  Thompson  v.  Tolund,  48  Cal.  99  (1874). 
they    could  have  ascertained  from    the 

335 


§  226.]  COMPETENCY  TO   BUY  AND   SELL   STOCK.  [CH.  XIX. 

There  are  many  other  facts  which  will  prevent  the  vendee  from 
claiming  that  he  is  a  honajide  holder  of  the  stock.  Thus,  if  the 
stock  is  pledged  by  the  trustee,  who  is  a  director  of  a  bank  which 
is  prohibited  from  loaning  to  its  directors,  the  bank  is  not  a  Ijona 
fide  holder,  though  without  notice  or  knowledge  of  the  trustee- 
ship.^ 

In  England,  the  House  of  Lords  have  decided  that  cer- 
tificates of  stock  in  railway  companies  are  not  negotiable 
in  any  respect,  and  that  a  transferee  of  the  certificate  is 
not  protected,  until  he  has  obtained  registry  in  the  corpo- 
rate books.^  In  this  country  a  different  rule  prevails,  and 
it  is  accepted  and  assumed  as  elementary,  that  a  hona  fide 
purchaser  for  value  of  stock  belonging  to  a  trust  estate  and  sold 
in  breach  of  trust,  is  nevertheless  protected  in  his  purchase, 
although  he  has  not  registered  on  the  corporate  books  the  trans- 
fer. A  hona  fide  purchaser  through  several  mesne  conveyances, 
starting  from  a  trustee  who  sells  the  stock  in  breach  of  trust,  is 
protected 


3 


§  326.  Purcliaser  tcitli  notice  tliat  Ms  vendor  sells  as  trustee, 
may  nevertheless  de  protected. — The  mere  fact  that  a  purchaser 
of  stock  knows  he  is  buying  from  a  trustee,  and  that  the  stock  be- 
longs to  the  trust  estate,  does  not  put  the  purchaser  to  any  inquiry 
beyond  ascertaining  whether  the  trustee  has  power  to  sell  the 
stock  or  vary  the  investment.  If  he  has  such  power  the  purchaser 
will  be  protected,  although  the  trustee  uses  the  money  for  his 
own  private  purposes,  provided  the  purchaser  has  no  notice  of 
such  an  intent  on  the  part  of  the  trustee.*     The  purchaser  has  a 


*  Albert  v.  Savings  Bk.  of  Baltimore,  brook  v.  New  Jersey  Zinc  Co.,  5Y  N.  Y. 

2  Md.  159,  171  (1852).  616  (1874),  it  was  held  that  a  successful 

■■*  Shropshire  Union  Rj's.  &  Canal  Co.  suit,  in  a  State  not  the  State  of  the  cor- 

V.   Queen,    L.    R.,    7   H.    L.    496  (1875).  poration,  to  remove  a  trustee,  does  not 

Of.   Dodds   V.    Hills,   2   H.    <fe   M.    424  affect  a  hona  fide  purchaser  of  the  certif- 

(1865).  icate  irom  the  trustee,  the  pui'chase  being 

2  Salisbury    Mills  v.    Townsend,   109  made  pending  the  suit,  and  that  the  cor- 

Mass.  115  (ls71);  Stinson  v.  Thornton,  poration   allowing   registry   of  the  new 

56  Ga.  377(1876);  Cohen  v.  Grayun,  4  trustee  as  holder  of  the  stock,  and  issuing 

Md.  Ch.  357  (1848),  where,  however,  the  new   certificates    to    him,    is    liable    in 

trustee   has  been   removed   by  a  court,  damages  to  the  purchaser  from  the  old 

and    another  trustee    appointed,  in    tlie  trustee. 

State  of  the  corporation,  a  purchaser  of  *  Perry    on    Trusts,    §    225,    3d  ed. 

the  certificates  held  by  the  old  trustee  is  (1882);    Lewiu  on  Trusts,  417,  7th    ed. 

not  protected,   his  purchase   being  after  (1879);    Godefrai    on  Trusts,    125,    127 

the  removal.     Sprague  v.  Cachigo  Mfg.  (1879). 
Co.,  10  Blatchf.  173  (1872).     But  in  llai- 

336 


CH.  XTX.]  COMPETENCY  TO   BUY   AND   SELL   STOCK.  [§  327. 

right  to  assume  that  the  object  of  the  sale  is  to  invest  the  funds 
in  a  permanent  investment  or  to  discharge  liabilities.^  Where, 
however,  the  purchaser  knows  that  his  vendor  sells  or  jjledges  the 
stock  as  trustee,  and  that  the  sale  or  pledge  is  for  the  private 
debts  or  purposes  of  the  trustee,  the  purchaser  is  chargeable  with 
knowledge  of  the  breach  of  trust,  and  is  not  protected.^  Nor  is  a 
pledgee  of  stock  from  a  trustee,  acting  as  trustee,  protected 
where  the  trustee  is  authorized  merely  to  sell  the  stock.^  Power 
to  sell  does  not  confer  power  to  pledge,* 

§  327.  Eights  and  liaMlity  of  the  corporation  allowing  a 
transfer  hy  a  trustee  in  hreach  of  his  trust. — Wliere  a  corpo- 
ration has  notice  tliat  a  stockholder  holds  his  stock  as  trustee  for 
another,  and  the  means  of  ascertaining  the  character  of  that 
trust  are  within  the  power  of  the  corporation,  it  is  bound  to  re- 
fuse to  allow  a  registry  of  the  trustee's  transfer  until  it  is  satis- 
fied that  the  trustee  has  power  to  make  the  transfer.^  If  the  cor- 
poration allows  the  transfer  and  the  trustee  had  no  power  to  make 
it,  the  corporation  is  liable  to  the  cestui  que  trust.  The  fact  that 
the  certificate  runs  to  the  holder  as  "  trustee  "  is  sufficient  notice 
to  the  corporation.®  Notice  to  a  board  of  directors  is  notice  to 
all  subsequent  boards.'^  The  corporation  is  bound  to  see  that  the 
sale  by  the  trustee  is  made  in  accordance  with  the  terms  of  the 
trust.  Thus  it  is  liable  if  it  permits  a  sale  and  transfer  by 
one  trustee  when  there  are  two  trustees,  and  a  general  power 
of   attorney    by   the   other  trustee    authorizing   sales    will   not 


1  Asliton  V.  Atlantic  Bank,  85  Mass.  52  Penn.  St.  232  (1866),  where  a  refusal 

217  (1861),  where  the  trustee  sold  land,  of  the  curporation  to  transfer  until  the 

took  notes  in  payment  and  stock  as  collat-  terms  of  tjie  trust  were  examined  by  its 

eral,  and  sold  the  notes  with  the  coUat-  attorney  and  found  to  allow  the   trustee, 

eral.  was  sustained.     The  corporaliou  cannot,, 

^  Jaudon   v.   National  City   Bank,    8  however,  retain  the  cojjiL's  of  the  probate 

Blatchf.  430;    affi'd,   15   Wall.   165,   sitb  records    used  in   investigating.     Bird    v. 

nom.  Duncan  y.  Jaudon  ;    Walsh  v.  Stillo,  Chicago,  I.  &  N.   K.   R.    Co.,   137     Mass. 

2  Parson's   Sel.  Cases  in  Eq.  (Penn.)  17  428(1884). 

(1842);    White    v.   Price,    2y    lluu,    394  '^  Loring  i).  Salisbury  Mills,  125  Mass. 

(1886);  Simmons  i'.  Southwestern   R.  R.  138(1878).     See  also  g  3;;0. 

Bank,  5   Rich.   Eq.    tVi  (1853);  Shaw?;.  In  the  case  Stockdale   v.    South    Sea 

Spencer,   100  Mass.   382  (1808),  holding  Co.,  Barnardiston's  Ch.  (folio)  36:!  ( 1740), 

also  that  silence,  while  the  vendee  pays  the  court  said,   however,    "  Tliosi;  groat 

an  assessment,  is  no  waiver.  companies  are  only  to  consider  thy  [)erson 

^  Loring    v.  Brodie,     134  Mass.  453  in  whose  name  the  stock  is  standing,  un- 

(1883).  less  the  trust  of  that  stock  is  declared  in 

*  .Merchants  Bk.  of  Canada  v.  Living-  their  books." 

ston,  74  N.  Y.  223  (187H).  •>  Mechanics'  Bank  of  Alex.  v.    Scton, 

'  Bayard  v.  Farmers'  <Si  Mechanics'  Bk.,  1  Pet.  299  (1828). 

[22]  337 


§  328.]  COMPETENCY  TO   BUY   AND   SELL   STOCK.  [CH.  XIX. 

protect  the  coi'ijoration  in  its  registry  of  the  transfer  signed  by 
one.-^  It  is  liable  for  allowing  a  registry  of  a  trustee's  transfer 
when  the  trust  is  for  an  unmar];ied  woman,  to  take  eifect  when 
she  shall  rnarry.^  If  there  are  several  cestui  que  trustent,  the 
corporation  is  liable  for  allowing  one  of  them  to  transfer  the 
whole  interest  in  the  stock,  where  by  mistake  of  tlie  corporation 
the  stock  had  been  registered  in  the  name  of  that  one,  and  not  in 
the  name  of  the  trustee.^  If,  however,  the  cestui  que  trust  is 
guilty  of  laches  in  taking  steps  to  obtain  his  rights  the  corporation 
is  discharged.*  The  remedy  of  the  cestui  que  trust  is  in  equity, 
not  at  law.^  A  waiver  of  former  breaches  of  trust  is  no  waiver 
of  the  one  complained  of,  and  a  judgment  against  the  trustee 
himself  is  no  bar  to  the  suit  against  the  corporation  except  to  the 
extent  that  satisfaction  has  been  obtained.^  The  coi'poration  may 
be  compelled  by  the  court  to  purchase  an  equal  amount  of  stock 
and  register  it  for  the  benefit  of  the  cestui  que  trust.'' 

%  328.  (i.)  Sales  of  stock  hj  a  guardian. — At  common  law 
a  guardian  may  sell  the  personal  property  belonging  to  him  as 
guardian,  without  obtaining  any  special  license  or  authority,  and 
a  hona  fide  purchaser  from  him  of  such  proj^erty  is  protected 
and  is  entitled  to  the  property,  even  though  the  guardian  mis- 
appropriates the  proceeds  of  the  sale.^  This  rule  applies  to  shares 
of  stock.^  In  most  of  the  States,  however,  statutes  have  been 
passed,  requiring  guardians  to  obtain  the  consent  of  a  court,  be- 


1  Bohlen's  Estate,   75  Penn.   St.    312  °  Lamar  v.  Micou,  112  U.  S.  452,  475 

(1874),  nor  where  the   signatures   of  the  (1884),  the  court  saying:   •' He  had  the 

other  trustees  are  forged  by  one.     Cot-  authority,  as  guardian,  without  any  or- 

tam  XL  Eastern  Counties  Ry.  Co.,  1  J.  &  der  of  court,  to  sell  personal  property  of 

H.  243  (1860).  his  ward  in  his  own  possession,   and  to 

^  Magwood  V.  R.  R.  Bk.,  5  S.  C.   379  reinvest  the  [iroceeds."     See  also  Bank  of 

(1874).  Va.  V.  Craig,  6  Leigh,  399,  432  (1835),  to 

3  Farmers'  <fe  M.  Bk.  v.  Waynaan,  5  Gill  the  same  effect,  and  holding  that  the  cor- 

(Md.),  336  (1847).  poration  is  not  liable  for  a    breach  of 

<  Albert  v.  Sav.  Bk.   of  Baltimore,   1  trust  by  the    guardian    in    selling    the 

Md.   Ch.  407  (1849)  ;  affi'd    2    Md.    159  stock.     The  court  said :  "  If  the   guard- 

(1852).  ian  defrauds  his  ward,  his  sureties  are  re- 

5  Loring  v.  Salisbury  Mills,  125  Mass.  sponsible  ;  if  the  purchaser  combines  in 
188  (1878).  the    fraud,  he    too     is    chargeable,  but 

6  i(j_  the  bank  cannot  interfere  and  arrest  the 
'  Bohlen's  Estate,  supra.  transfer  of  its  stock  by  the  legal  holder 
*  Field  V.  Schieffelin,  7  Johns.  Ch.  150  of  the   scrip,  upon  such    pretences,     it 

(1823) ;  Ellis  v.  Prop,  of  E.  M.  Bridge,  2  would  trammel  and  embarrass  ^uch  trans- 
Pick.  243  (1821),  holding  that  a  bonafide  actions,  so  as  to  impede  materially  tiiat 
purchaser  from  the  guardian  of  a  person  transferable  character,  which  is  one  of 
non  compos  mentis  is  protected.  the  most  valuable  attributes  of  stock." 

338 


CH,  XIX.]  COMPETENCY  TO   BUT   AND   SELL   STOCK. 


[§  329. 


fore  selling  the  personal  property  of  bis  ward.^  If  such  a  statu- 
tory permission  to  sell  is  required,  and  the  vendee  of  stock  has 
notice  that  his  vendor  sells  as  guardian,  the  vendee  is  bound  to 
see  that  the  requisite  permission  to  sell  has  been  given.^  An 
order  of  the  court  allowing  the  guardian  to  sell  is  not  authority 
to  him  to  pledge  the  stock,  and  the  pledgee  is  bound  to  take  notice 
of  that  fact.^  T7here  stock  is  sold  by  a  foreign  guardian,  accord- 
ing to  the  laws  of  the  State  of  the  guardianship,  title  passes  and 
the  purchaser  is  protected.* 

§  329.  (J.)  8ales  of  stock  hj  an  executor  or  administrator. — 
It  is  the  duty  of  an  executor  or  administrator  of  an  estate  to  collect 
the  assets,  pay  the  debts,  and  distribute  the  remainder  according 
to  the  provision  of  the  will  or  of  the  Statute  of  Distribution.^ 
In  order  to  pay  the  debts,  the  executor  may  sell  the  personal 
property  of  the  estate.  Accordingly,  the  rule  has  become  estab- 
lished that  the  purchaser  of  personal  property  from  an  executor 
or  administrator  is  not  bound  to  ascertain  whether  the  sale  is 
necessary  in  order  to  pay  the  debts  of  the  estate,  nor  to  see  that 
the  proceeds  of  the  sale  are  applied  to  the  debts.  If  he  buys  in 
good  faith,  and  for  value,  he  is  protected.  Such  also  are  the 
rules  applicable  to  sales  of  stock  by  an  executor  or  administrator.* 
The  executors  in  the  State  of  the  decedent  may  transfer  the  stock 
of  the  estate,  and  convey  a  title  which  the  corporation  is  bound 


1  Mass.  R.  S.  c.  V9,  §  21. 
"  Atkinson  v.  Atkiuson,   90  Mass.  15 
(1864). 


Graniteville    Mfg.  Co. 


11 


3  Webb  V 
S.  C.  396  (1878) 

*  Ross  V.  Southwestern  R.  R.  Co.,  53 
Ga.  514(1874). 

'  Keylinge's  Case,  1  Eq.  Cases,  Abr. 
239  (1702),  holding  that  where  the  ex- 
ecutor holds  the  stock  for  several  years, 
and  it  declines  in  value,  he  is  chargeable 
with  its  value  one  year  after  the  death  of 
the  testator. 

6  Leitch  V.  Wells,  48  N.  Y.  585  (1872), 
holding  that  tlie  bona  fide  transferee  is 
protected,  although  the  executors  had 
previously  set  aside  the  sanae  stock  to 
apply  to  the  payment  of  a  certain  amount 
ciiargeabU;  by  the  will  to  the  estate  an- 
nually. Woods'  Appeal,  92  I'enn.  St.  379 
(i88(j),  holding  thai  a  6ona ^'ie  transl'eree 
of  the  executor's  transferee  is  protected, 
altiiough  tiie  latter  would  not  have  been, 
and  although  the  former  was  aware  that 


his  title  came  from  an  executor.  The 
court  held  that  letters  of  administration 
are  always  evidence  of  power  to  sell,  and 
that  an  executorship  differed  widely  from 
a  trusteeship  as  regards  the  right  to  sell. 
Prall  V.  Tilt,  27  JST.  J.  Kq.  393  (1876 1; 
affi'd,  28  N.  J.  Eq.  479  (1877).  where  the 
will  authorized  advances  to  the  sons,  and 
they  represented  to  the  transferee  that 
the  stock  was  so  advanced  to  them  by  the 
executor.  Lowry  v.  Commercial  &  F. 
Bk.  of  Baltimore,  Taney  (IT.  S.  C.  Ct.), 
310  (1848).  In  this  case  the  purchaser 
had  no  knowledfre  or  notice  that  the 
transferrer  sold  the  stock  as  an  executor, 
Clark  V.  South  Metropolitan  Gas  Co.,  54 
L.  J.  (Ch.)  259  (1885),  sustaining  a  sale 
of  stock  by  an  administratrix  of  an  ad- 
ministrator. Re  London,  Ac,  Tel.  Co., 
L.  R.  9  Eq.  633  (187w;,  sustaining  the 
title  of  a  bona  fide  purchaser  from  the  ex- 
ecutrix as  against  an  assignee  in  bank- 
ru[)tcy  of  the  deceased,  the  assignee  hav- 
ing delayed  his  application  for  five  years. 

339 


§  329.]  COMPETENCY  TO   BUY   AND   SELL   STOCK.  [CH.  XIX. 

to  recognize,  although  the  corporation  itself  is  domiciled  in  an- 
other State.^  The  rule  is  otherwise,  however,  as  regards  executors 
appointed  in  jurisdictions  out  of  the  United  States.^  An  execu- 
tor may  pledge  estate  stock  at  his  bank  on  a  representation  that 
the  money  is  to  be  used  for  the  estate,  and  the  bank  will  .be  pro- 
tected although  the  note  given  by  the  executor  is  renewed  several 
times  and  the  proceeds  of  transaction  were  passed  to  tlie  execu- 
tor's private  account.^  So  also  a  honaficle  purchaser  of  stock  from 
a  life  tenant,  to  whom  the  administrator  improperly  transferred 
it,  is  protected.  The  remainderman's  remedy  is  on  the  adminis- 
trator's bond.*  Where,  however,  the  transferee  of  the  executor 
knows  that  the  transaction  is  not  for  the  benefit  of  the  estate,  but 
is  a  breach  of  trust,  he  is  not  protected.^  Frequently  statutes 
are  found  requiring  executors,  w^hen  selling  personal  property  of 
the  estate,  to  sell  the  same  at  public  auction.  When  such  a  stat- 
ute exists,  a  purchaser  at  private  sale  is  not  a  honafide  purchaser, 
and  is  not  protected,  and  is  liable  for  the  stocks  and  dividends  paid 
thereon  after  his  purchase.^  The  honafide  transferee  of  such  a  pur- 
chaser, however,  is  protected.^  An  executor  may  have  the  duties 
of  a  trustee  to  perform,  and  then  become  subject  to  the  rules  gov- 
erning trustees  in  their  transfers  of  stock.^ 


'  Middlebrook  v.   MerchaBts  Bank,  3  ment  of  the  executor's  personal  debts,  is 

Keyes  (N.  Y.),  135  (1866);  Luce  w.  Man-  not  a  purchaser  in  good  faith,  and  acquires 

Chester,  &c.,  R.  R.  Co.,  2  New  Eng.  Rep.  no  rights  over  the  prior  title  or  rights  of 

263  (N,  H.,  1886).  other  persons."     Also,  that  a  purchaser, 

'•*  Alfonso's  Appeal,  70  Penn.  St.  347  buying  with  knowledge  that  the  right  of 

(1872),  holding   that,   in    Pennsylvania,  the  executor  to  sell  is  denied  and  is  being 

executors  of  a  decedent,  whose  domicile  contested,  is  not  a  bona  fide  holder.     Cf. 

was  in  Cuba,  have  no  authority  under  Keane  w.  Robarts,  4  Madd.  Cti.  332(1819), 

letters  testamentary  in  Cuba  to  transfer  where  it  was  held  that  where  the  cxecu- 

stock    in    a    Pennsylvania    corporation,  tor  did  business  through  an  agent,  the 

"  Domestic  creditors,  legatees,  or  nextof-  application  of  the  proceeds  from  sale  of 

kin,  should  not  be  sent  abroad  in  quest  of  the  stock  to  the  running  account  between 

propel  ty  to  answer  their  claims  when  the  the  executor  and  his  agent  was  legal, 
decedent  left  property  within  the  jurisdic-  ^  Nutting  v.  Thompson,   57  Ga.  418 

tion  of  the  State  that  can  be  applied  to  (1876),  the  court  saying  also  that  factors 

meet  their  demands."  or  brokers,  acting  for  third  persons,  are 

2  Goodwin  v.  American  National  Bk.,  also    liable.     Nutting   v.   Boardman,    43 

48  Conn.  550  (1881).  Ga.  598  (1871),  holding  that  the  adminis- 

^  Keeney  v.  Globe  Mill  Co.,  39  Conn,  trator's  bondsmen  are  not  proper  parties 

145  (1872).  to  the  suit.    Weyer  v.  Second  Natl.  Bank 

5  t'ralli).  Hamil,28N.  J.  Eq.  66(1877).  of  Franklin,  57  Ind.  198  (1877),  holding 

The  facts  in  this  case  ditfei'cd  from  those  the  purchaser  liable. 

inPralb'.  Tilt,  .sM/^'J-rt,  in  that  the  transferee  ^Nutting   v.    Thomason,    46    Ga.    34 

knew  that  the  stock  was  still  owned  by  (1872). 

the  executrix.     White  v.  Price,  39  Hun,  «  White  v.  Price,  39  Hun,  394  (1886); 

394  (1886),  the  court  saying:  "  A  person  Prall  f.  Tilt,  swjt»-a. 
who  takes  title  from  an  executor,  in  pay- 

340 


CH.  XIX.]  COMPETENCY   TO   BUY  AND   SELL   STOCK.  [§  330. 

§  330.  Duty  and  liability  of  the  corporation. — There  lias 
been  g-reat  difficulty  in  ascertaining  the  rights  and  duties  of  the 
corporation  in  allowing  and  refusing  to  allow  a  registry  on  tlie 
corporate  transfer  book  of  a  sale  of  stock  by  an  executor  or  ad- 
ministrator. The  Bank  of  England,  at  an  early  day,  assumed  the 
power  to  refuse  to  allow  a  registry  of  an  executor's  transfer  of 
stock,  that  had  been  specifically  bequeathed,  unless  the  executor 
satisfied  the  bank  that  the  sale  was  necessary  to  pay  the  debts  of 
the  estate.  The  courts,  however,  compelled  it  to  allow  registry 
without  investigating  specific  legacies  or  the  application  of  the 
proceeds  of  the  sale.-^  In  this  country  the  question  of  the  liability 
of  the  corporation  has  arisen  on  a  different  state  of  facts.  The 
cases  of  Lowry  v.  Commercial  &  Farmers  Bank  of  Baltimore,^ 
and  Stewart  v.  Firemen's  Ins.  Co.,^  clearly  establish  the  rule  that 
where  the  corporation  has  reasonable  notice  of  the  fact  that  the 
executor  is  committing  a  breach  of  trust,  in  that  a  transfer  of 
stock  by  him  is  made  several  years  after  the  estate  should  have 
been  wound  up,  it  is  under  obligation  to  refuse  to  allow  a  registry 
of  his  transfer,  and,  having  allowed  it,  the  corporation  is  liable  to 
the  parties  injured  thereby.  Where,  however,  the  executrix  has 
power  given  by  the  will  to  apply  the  stock  to  her  own  use  in  case 
of  need,  the  corporation  is  not  bound  to  ascertain  whether  such  a 
state  of  need  exists,* 

In  Indiana  it  is  held  that  where,  by  statute,  executors'  sales 
are  to  be  at  public  auction,  the  corporation  is  bound  to  ascertain 
whether  the  statute  was  complied  with,  and  to  be  liable  for  allow- 
ing a  registry  when  tlie  sale  was  a  private  one.^  In  general,  a 
a  corporation  has  a  right  to  assume  tliat  the  executor  is  transfer- 


'  Pearson  v.  Bk.  of  Eng.,  2  Brown's  wrong  by  permitting   the   transfer,  but 

Ch.  Kep.  529  (ITSg);  Bk.  of  Eng.  t).  Mof-  co-operated  in   it  by  certifying  that  the 

fat,  3   Id.  260  (1791);  Hartga  v.   Bk.  of  title   of  transferee   was   good.      Justice, 

Eng.,   3  Ves.  55  (1790);  Bk.  of  Eng.  v.  therefore,    requires   that  it  should  bear 

Parsons,  5  Ves.  665  (1800);  Bk.  of  Eng.  the  loss." 

V.  Luun,   15   Ves.  oC8  (1809);   Austin   v.  »  53  Md.  5G4  (1880),  holding  also  that 

Bk.  of  Eng.,  8  Ves.  522  (1803);  Marryatt  the  corporation  was  bound  to  take  notice 

r.  Id.,  Id.   524,  n.  (1793);  Aynsworlh  v.  of  the  contents  of  the  will,  a  position  that 

Id.,  Id.;  Franklin  v.  Id.,  1   lluss.  Ch.  575  is  denied  by  the  case  of  Ilutchins'  Admr. 

(1820);   Churchill  v.  Id.,  II  M.  <fe  W.  323  v.  State  Bank,  53  Mass.  421  (1847). 

(1843);  Iluniberstone  v.  Chase,   2  Y.  dt  •*  Hutchins'    Admr.    v.    State    Bank, 

C.  Ex.  Rei).  209  (1836),  where  the  execu-  supra. 

tor  represented  that  the  specific  legatee  '  Weyer  v.  Second  Natl.  Bk.  of  Frank- 
had  died.  lin,  57  Iild.  198  (1877).     A  contrary  view 

5  Taney  (U.  S.    C.  Ct.),  310  (1848).  seems  to  be  iield  in  Southwestern  R.  R. 

The  court  said  the  corporation  "  not  ordy  Co.  v.  Thoiuason,  40  Ga.  Rep.  408  (1809). 
enabled  the  executor  to  perpetrate  the 

341 


§  330.]  COMPETENCY   TO   BUY   AND   SELL   STOCK.  [CH.  XIX. 

rino-  the  stock  for  the  purposes  of  the  estate.  It  is  not  obliged 
to  inquire  into  tlie  purposes  of  the  parties,  nor  to  investigate 
whether  the  transaction  is  in  good  faith  or  is  fraudulent.^ 


'  Crocker  v.  Old  Colony  R.  R.  Co.,     ManufacturersNatLBk.,  71  Me.448;  Good- 
IST  Mass.  417  (1884).     See  also  Carter  v.     win  v.  American  Natl.  Bk,  48  Conn.  660. 


342 


CHAPTER  XX. 

SALES  OF  STOCIC.— FORMATION,  LEGALITY,  ENFORCEABILITY, 
AND  PERFORMANCE  OF  A  CONTRACT  TO  SELL  STOCK. 


A. — Formation  and  Performance  of  Cox- 
tracts  TO  Purcuase  Stock. 

§  331.  Shares  of  stock  are  transferable. 

332.  Picstrictions  on  right  to  sell  stock. 

333.  Contract  for  sale  of  stock  may  be 

valid  witliout  delivery  or  specific 
time  for  delivery. 

334.  Method  of  performance  or  offer  of 

performance  by  vendor. 

335.  Remedy  by  action  for  damages  for 

breach  of  contract  to  buy  or  sell 
stock. 

336.  Miscellaneous  defenses  to  an  ac- 

tion for  damages  for  failure  to 
complete  a  contract  for  the  sale 
of  stock. 

337-38.  Specific  performance  as  a  rem- 
edy for  breach  of  a  contract  to 
sell  stock. 

339-40.  Statute  of  frauds  as  affecting 
sales  of  stock. 


B. — Gambling  Sales  of  Stock. 
§  341.  What  are  gambling  sales  of  stock. 


342.  Statutes  prohibiting  wager   con- 

tracts,   and   also    certain   stock 
contracts. 

343.  Test  of  legality  of  stock  transac- 

tion. 

344.  When  intent  to  deliver  is  question 

for  the  jury  and  when  not. 
345-46.  Gambling  stock  contracts    as 
aflfecting  the  relations   between 
the  principal  and  his  broker. 

Gambling  stock  transactions  as 
affecting  notes,  bonds,  mort- 
gages, Ac,  growing  out  thereof. 

Sales  as  affected  by  the  legality 
of  the  purposes  for  which  the 
stock  is  obtained. 


347. 


348. 


C. — Fraud  as  Affecting  a  Sale  of  Stock. 
§  349.  Extent  of  subject  treated  herein. 
350-51.  What  has  been  held  to  consti- 
tute a  fraud  herein. 
352-53.  Fraud  may   be   by  corporate 
reports  or  prospectus. 

354.  Remedies  for  the  fraud. 

355.  Action  for  deceit. 

356.  Remedy  in  equity. 

357.  Fraud  in  selling  stock  may  amount 

to  a  conspiracy. 


A.— Formation  and    Performance   of   Contracts   to 

Sell  Stock. 

§  331.  Shares  of  stock  arc  transferable. — That  shares  of 
stock  in  a  corporation  are  transferable  the  same  as  other  per- 
sonal property  is  a  principle  of  law,  coeval  with  the  existence 
of  stock  itself.  The  few  decisions,  holding  that  shares  of  stock 
■vvero  real  estate,  were  exceptional  rulings,  and  are  no  longer  con- 
sidered to  be  good  law.^  Courts  of  law  and  of  equity  have 
guarded  jealously  the  facilities  for  the  transfer  of  title  to  stock, 
and  all  unreasonable  attempts  to  restrain  the  right  or  readiness 


'  See  Ch.  I. 


343 


332.] 


THE   CONTRACT   TO   SELL. 


[CH.  XX. 


of  passing  title,  have  been  declared  void  as  against  public  policy, 
Tiie  right  to  transfer  stock  is  of  vital  importance,  since  the  two 
chief  causes  of  the  jDhenomenal  growth  of  corporations  in  recent 
times,  are  the  limited  liability  of  the  members,  and  the  readiness 
of  withdrawing  from  the  corporation  by  a  transfer  of  the  interest 
a  member  has  therein.^  The  common  law  regards  shares  of  stock 
as  personal  property,  capable  of  alienation  or  succession  in  any  of 
the  modes  by  which  personal  property  may  be  transferred.^ 

§  332.  Restrictions  on  right  to  sell  stocli. — The  right  of  a 
stockholder  to  sell  and  transfer  his  stock,  cannot  be  restrained 
by  a  by-law  of  the  corporation.^  An  agreement  or  contract, 
however,  between  the  members  or  a  part  of  them,  not  to  sell 
except  on  certain  conditions,  is  valid,  unless  it  amounts  to  an 
unreasonable  restraint  of  trade.*  The  right  of  transfer  is  some- 
times limited  by  sttaute,  as  in  New  York,  where  stock  in  rail- 
road or  manufuctui'ing  corporations  cannot  be  transferred  until 
all  calls  thereon  shall  have  been  fully  paid.^  Where  the  charter 
or  a  statute  forbids  transfers  before  the  full  capital  stock  is  paid 
in,  any  transfer  before  such  payment  has  been  held  to  be  void.® 


'  See  §  339.  "  Many  persons  enter 
these  companies  for  the  very  reason 
that  they  are  not  like  ordinary  partner- 
ships, but  they  are  partnerships  from 
■which  members  can  retire  at  once,  and 
free  themselves  from  responsibility  at  any 
time  they  please,  by  going  into  the  market 
and  disposing  of  and  transferring  their 
shares  without  the  consent  of  directors 
or  shareholders,  or  anybody,  provided 
onlj'  it  is  a  bona  fide  transaction."  West- 
on's Case,  L.  R.,  4Ch.  20,2'7(1868)._  "It 
is  one  of  the  leading  objects  of  an  incor- 
porated body  to  avoid  the  operation  and 
effect  of  this  doctrine  of  the  law  of  part- 
nership. Accordingly,  in  this  country, 
shares  in  corporations  are  universally 
bought  and  sold  without  reference  to  the 
consent  of  the  other  shareliolders."  "  The 
restrictions  on  the  right,  bona  fide,  to  sell 
and  transfer  shares,  must  be  found  in  ex- 
press legislative  enactments,  or  in  author- 
ized by-laws."  Dillon,  J.,  in  Johnson  v. 
Laflin,  5  Dill.  63  (1878). 

■^  Mobile  Mutual  Ins.  Co.  v.  Cullum,  49 
Ala.  558  (1873);  Cole  v.  Ryan,  52  Barb. 
168  (1868);  Heart  v.  State  H\i.  2  Dev. 
Eq.  Ill  (1831);  Allen  v.  Montgomery  R. 

344 


R.  Co.,  11  Ala.  437,  451  (1847);  Boston 
Music  Hall  v.  Cory.  129  Mass.  435  (1880); 
Sargent  v.  Franklin  Ins.  Co.,  8  Pick.  90 
(1829);  Chouteau  Spring  Co.  v.  Harris, 
20  Mo.  382  (1855);  Poole  v.  Middleton, 
29  Beav.  646  (1861);  Bright  well  v.  Mal- 
lorv,  10  Yerg.  (Tenn.)  196''(1836). 

'3  Fechheimer  v.  Xatl.  Ex.  Bk.  (Va. 
May,  1884);  Bank  of  Attica  v.  Manufac- 
turers and  T.  Bk.,  20  N.  Y.  501  (1859); 
Orr  V.  Bigelow,  14  N.  Y.  556(1856);  Sar- 
gent V.  Franklin  'Ins.  Co.,  8  Pick.  90 
(1829);  Moore  v.  Bk.  of  Com.,  52  Mo.  377 
(1873),  the  court  saying:  "The  right  of 
alienation  is  an  incident  of  property,  and 
a  by-law  prohibiting  this  right,  or  impos- 
ing any  restrictions  on  its  exercise,  would 
be  in  restraint  of  trade  and  against  pub- 
lic policy."     See  also  Cb.  on  Liens. 

4  Griffith  V.  Jewett,  15  Week.  L.  Bui. 
419.    See  §  340,  note  5. 

5  N.  Y,  Session  Laws,  1850,  ch.  140, 
§  8;  1848,  ch.  40,  §  8. 

6  Merrill  v.  Call,  15  Me.  428.  The 
case  of  Quiner  v.  Marblehead  Ins.  Co..  10 
Mass.  476  (1813),  holds  that  nevertheless 
such  a  transfer  vests  in  the  transferee  all 
the  transferrer's  interest  in  the  stock. 


CH.  XX.]  THE   CONTRACT  TO   SELL.  [§  ^22. 

In  England,  sometimes,  express  authority  is  given  to  the  direc- 
tors, b}^  the  articles  of  association,  to  refuse  to  permit  a  transfer, 
unless  the  same  is  satisfactory  to  them.^  They  have  this  power, 
however,  only  by  this  express  authority,  and  it  is  not  extended 
by  implication.^  The  power  must  be  reasonably  exercised,  and  its 
exercise  must  be  free  from  fraud,  caprice,  and  arbitrary  power.^ 
But  the  board  may  refuse  to  give  its  reasons  for  refusing  to  allow 
the  transfer,  and  in  that  case  it  \v\\\  be  presumed  to  have  had  sufH- 
cient  reason  for  the  refusal.*  Although  a  transfer  is  rejected  by  the 
directors  the  transferee  is  nevertheless  entitled  to  dividends,  and  the 
title  to  the  stock.^  The  corporation  cannot  refuse  to  allow  a  registry 
on  the  ground  that  there  was  no  consideration  for  the  transfer ;  ^  nor 
because  a  claimant  of  the  stock  notifies  it  not  to  make  the  regis- 
try.' A  registry  of  a  transfer  of  stock  cannot  be  refused  merely 
because  the  old  stockholder  is  indebted  to  the  corporation.  This 
would  give  the  corporation  a  lien  on  the  stock  of  its  shareholders, 
and  such  a  lien  cannot  exist  even  by  way  of  a  by-law,  although 
of  course  it  may  be  granted  by  the  charter  itself.^  A  by-law, 
however,  it  has  been  held,  may  be  made,  prohibiting  a  registry  of 
transfer,  until  the  old  stockholder  has  liquidated  his  indebtedness 
to  the  other  stockholders.^  Such  a  by-law,  however,  can  have 
effect  only  as  a  contract  of  which  the  stockholder  is  to  be  given 
notice  upon  his  becoming  such. 


'  Shortridge  v.  Bosanquet,  16  Beav.  besides,  operate  as  a  restraint  upon  the 

84  (1852) ;  Bargate  v.  Shortridge,  6  H.  L.  disposition  of  property  in  the  stock  of  the 

Cases,  297  (1855).  corporation,  in  the  nature  of  restraint  of 

2  Weston's  Case,  L.  R.,  4  Ch.  App.  20  trade,  which  the  courts  will  not  tolerate." 
(1868);  fiilhert's  Case.  L.  R.,  5  Ch.  App.  » -phey  cannot  refuse  to  allow  any  trnns- 

569  (WiO);  Chappell's  Case,  L.  R.,  6  Ch.  fers.    Robinson ?'.  Chartered  Bank,  L.  R.,1 

App.  902  (1871).     lie  Stranton  Iron   &  Eq.  32  (18C5),  and  an  objection,  not  to  the 

Steel   Co.,    L.   R.,    16    Eq.    559    (1873).  transferee,  but  to  the  purpose  of  tlie  (rans- 

Judge  Dillon,  in  Johnson  v.  Laflin,  5  Dill,  ferrer,  in  respect  to  voting,  is  not,  suffi- 

65,  78 ;  afii'd  103  U.  S.  800,  says :  "  Such  cient.     Moffatt  v.  Farquhar,  L.  R.,  7  Ch.  D. 

a  power  is  so  capable  of  abuse  and  so  591  (1878). 

foreign  to  all  received   notions,  and  the  "•  Ex  parte  Penny,  L.   R.,  8  Ch.  446 

universal  [iractice  and  mode  of  dealing  in  (1872). 

these  stocks,  that  it  cannot,  in  the  absence  ''  Poole  v.   Middleton,    29   Beav.    646 

of  legislative  ex[)reHsion,  be  held  to  exist."  (1861). 

See  al.«o  Farmers  &  M.  Bk.  v.  Wasson,  48  •*  Helm  v.  Swiggett,  12  Tnd.  194  (1859). 

Iowa,  33(1  (1878),  the  court  holding  that  '  Ex  parte  Sargent,  L.  R.,  17  Eq.  273 

a  by-law  that  transfers  (jf  f^tock  shall  not  (1873). 
be  valid  unless  approved  b}'  tlie  board  of  "  See  Ch.  XXIT. 

directors  caimot  restrain  transfers.     "  Its  •'  Peo{)le  v.   Miller,   N.  Y.   Supr.  Ct., 

enforcement  would  operate  as  an  infringe-  Daily  Reg.,  April  10th,  1886,  a  case  nris- 

ment  upon  the  properly  rights  of  otliers,  ing  in  the  Cotton  Exchange  of  New  York 
which  the  law  will  not  permit.     It  would, 

345 


^§  333,  334.] 


THE   CONTRACT  TO   SELL. 


[CH.  XX. 


§  333.  Contract  for  sale  of  stock  may  he  valid  witliout  de- 
livery or  specific  time  for  delivery. — Generally  a  sale  of  stock  is 
attended  with  an  immediate  delivery  of  the  certificates  therefor, 
or  it  is  asrreed  that  the  certificates  shall  be  delivered  at  some 
specified  time  in  the  future.  If,  however,  the  vendor  offers  to 
sell  his  stock  and  the  vendee  accepts  the  offer,  the  contract  is 
complete  and  binds  both  parties,  although  nothing  has  been  said 
as  to  the  time  when  the  certificates  of  stock  shall  be  delivered. 
The  law  implies  that  the  contract  will  be  performed  by  a  delivery 
of  the  certificates  immediately  or  within  a  reas'onable  time,  and 
either  party  may  insist  upon  carrying  out  the  contract.^  Where 
the  vendor  says,  in  his  contract,  "  I  have  sold  "  certain  stock,  de- 
liverable at  seller's  option,  within  a  specified  time,  a  sale  i?i 
presenti  is  made  and  the  vendor  assumes  to  have  the  stock  and 
to  hold  it  for  the  benefit  of  the  purchaser  until  delivery.^  An 
agreement  to  purchase  stock  when  the  corporation  is  created,  is 
enforceable  only  after  a  complete  and  legal  incorporation  is  ef- 
fected.^ A  sale  of  stock  with  an  agreement  to  take  it  back  when- 
ever the  vendee  desires,  is  an  enforceable  contract.* 

§334.  Metliod  of  performance  or  offer  of  performance  l)y 
vendor. — A  person  who  is  under  contract  to  sell  and  deliver 


'  "  The  performance  of  a  contract,  or 
the  tender  of  performance,  is  no  part  of 
the  contract.  The  making;  of  a  contract 
is  one  thing,  but  the  performance  thereof, 
or  the  tender  of  performance,  is  another 
and  quite  different  thing.  The  contract 
set  up  in  the  paragraph  in  question  is  an 
executory  one,  by  which  the  plain- 
tiff agreed  to  sell  to  the  defend- 
ant the  shares  of  the  stock,  and  the 
defendant  agreed  to  pay  him  therefor 
the  sum  of  $2,500.  No  time  was  fixed 
for  the  performance;  the  law  will  imply 
therefore  that  it  was  to  be  performed  im- 
mediately, or  perliaps  within  a  reasonable 
time.  Had  a  future  clay  been  agreed  up- 
on for  the  performance  of  the  contract  on 
each  side,  there  could  have  been  no  doubt 
as  to  its  validity,  or  the  right  of  either 
party  to  enforce  it,  he  having  done  all  he 
was  required  to  do  on  his  part.  The  fact 
that  no  time  was  agreed  upon  for  per- 
formance does  not  change  the  character 
of  the  contract.  The  contract  did  not 
pass  any  title  to  the  stock,  but  it  was, 
nevertheless,  a  valid  contract,  and  one 
which  either  party  can   enforce,  he   hav- 

346 


ing  been  in  no  default  himself."  Bruce 
V.  Smith,  44  Ind.  1  (1873);  Kerchuer  v. 
Gettys.  18  S.  C.  521  (1882);  Cheale  v. 
Kenward,  3  De  G.  &  J.  27(1858).  An 
agreement  of  the  vendor  of  railroail  bonds, 
to  take  back  the  bonds  whenever  the 
vendee  desired  him  to  do  so,  is  a  valid 
and  enforceable  contract.  Fitzpatrick  v. 
Woodruff,  96  N.  Y.  561  (1884).  Cf. 
Meyer  v.  Blair,  N.  Y.  Daily  Keg.  Nov.  11, 
1886.  Usage  may  determine  what  is  a 
reasonable  time  for  delivery.  Seven  days 
held  reasonable.  Stewart  v.  Cauty,  8  M. 
<fc  W.  160(1841).      (7/.  §339. 

'  Currie  v.  White,  45  N.  Y.  822(1871). 
W^hen  the  option  is  exercised  the  time 
of  delivery  as  fi.xed  is  as  though  that 
time  had  been  specified  in  the  original 
contract.  Kelley  v.  Upton,  5  Duer,  336 
(1866),  holds  otherwise  where  the  con- 
tract has  also  the  words  "at  buyer's 
option  in  90  days."  Such  a  contract  is 
executory  as  to  time  of  passing  title,  and 
tender  is  necessary. 

3  Childs  V.  Smith,  55  Barb.  45  (1869). 

4  See  §  339. 


CH.  XX.]  THE  CONTRACT  TO   SELL.  [§  335. 

shares  of  stock,  may  fulfill  the  obligation  on  bis  part  by  tendering 
to  the  vendee  certificates  of  stock  duly  indorsed  by  himself,  and  con- 
taining a  power  of  attorney  authorizing  the  vendee  to  obtain  a 
registry  of  the  transfer  on  the  coi-porate  books.^  It  has  been  held, 
however,  and  evidently  with  good  reason,  that  if  the  vendee  ob- 
jects to  the  tender,  on  the  ground  that  he  wishes  a  registry  of  the 
transfer  to  be  made  on  the  corporate  books,  the  vendor  must 
cause  such  registry  to  be  made,  in  order  to  render  his  tender  com- 
plete.^ A  tender  of  certificate  indorsed  in  blank,  not  by  the 
vendor,  but  by  some  previous  owner,  is  insufiicient.  The  vendee 
is  not  obliged  to  trace  his  vendor's  title  from  the  name  appearing 
on  the  certificate.^  In  England,  where  a  transfer  of  shares  is  to 
be  made  by  a  deed,  it  is  the  duty  sometimes  of  the  vendor,^  and 
sometimes  of  the  vendee,^  to  furnish  the  necessary  deed,  accord- 
ing to  the  custom  of  the  market  in  which  the  sale  is  made.  If, 
after  the  vendee  accepts  a  tender  of  the  certificates,  the  corpora- 
tion refuses  to  allow  a  registry  and  transfer  on  the  corporate 
books,  the  vendor  is  liable  to  him,  since  the  registry  is  held  to 
have  been  guaranteed.^  The  vendee  may  decline  to  accept  the 
certificates  if  the  stock  has  been  attached.'  But  the  vendee  can- 
not decline  the  tender  on  the  ground  that  the  corporation  has 
issued  stock  at  a  discount,  nor  because  it  has  mortgaged  its  prop- 
erty.^ A  contract  whereby  stock  is  sold  to  be  paid  for  in  the  fu- 
ture, is  not  forfeited  by  mere  failure  to  pay  as  agreed  upon.^ 

§  335.  Remedy  hy  action  for  damages  for  hreacli  of  contract 
to  J)uy  or  sell  stock. — The  ordinary  and  clearest  remedy  by  one 
party  to  a  contract  for  the  sale  of  stock  against  the  other  party  to 


'  "  When  certificates  of  shares  are  giv-  dorsements  that  the  title  is  in  the  person 

en  to  a  purchaser,  they  are  analogous  to  conveying." 

the  sale  of  chattels,  and  tlie  "  assignixjent  ''  Stephens  v.  De  Medina,  4  Q.  B.  422 

and  delivering  of  the  certificate  is  a  sym-  (1843). 

bolical  delivery  of  the  shares  themselves."  ^  Shaw  i;.    Rowley,  16  M.  tfe  W.   810 

Noyes  v.  Spaulding,  27   Vt.  420  (1855);  (1847). 

Merchants  Nai.'l  Bk.  v.  Richards,  f,  Mo.  «  Wilkinson  v.  Lloyd,  7  Q.  B.  27(1845). 

App.   454  (1879);    Eastman  v.  Fiske,  9  '  Eastman  t;.  Fiske,  9  N.  H.  182  (1838). 

N.  H.   182  (1838);    Munn  t^.  Barnum,  24  »  Noyes  v.    Spaulding,    27    Vt.    420 

Barb.  283  0857);    Bruce   v.    Smith,  44  (1855). 

Ind.  1  (1873).    Cf.  Moore  v.  Hudson  River  »  Chater  v.   San  Francisco  Sugar  Re- 

R.  R.  Co.,  12  Biirb.   156.  fining  Co.,  10  ("al.  219  (18(Jl),  where  \wy- 

''■  White,    Executor    v,   Salisbury,    33  nient  wns  made  in   notes  and  \n\wi\  Jind 

Mo.  l.-iO  (1862).  the    notes    were    not    paia.     Suliso(|iicnt 

'Hare   v.    Waring,   3  M.  &.    W.  362  dividends  on  the  stock  are  to  bo  api)licd 

(1838),  per  B.  Parke:   "The  party  is  to  to  the  payment  of  such  notes,  when  the 

convey  and   deliver  certificates  showing  dividends  have  been  received  by  the  ven- 

either  on  the  face  of  tlieni  or  from  the  in-  dor. 

347 


§§  336,  337.]        THE  CONTRACT  TO  SELL.  [CH.  XX. 

that  contract  for  refusal  to  fulfill,  is  an  action  at  law  for  damages. 
This  remedy  is  available  to  either  the  party  who  contracted  to 
sell,  or  the  party  who  contracted  to  buy.  If  the  damage  done  to 
the  complaining  party  is  clearly  ascertainable  in  money,  this 
remedy  is  an  exclusive  one.  The  measure  of  damages  to  which 
the  aggrieved  party  is  entitled  has  been  the  occasion  of  great  dif- 
ference of  opinion  and  is  treated  of  elsewhere. 

§  336.  Miscellaneous  defenses  to  an  action  for  damages  for 
failure  to  conqylete  a  contract  for  the  sale  of  stock. — A  person 
who  is  under  contract  to  purchase  stock  camiot  defeat  that  con- 
tract by  the  fact  that  the  corporation  was  insolvent,  even  at  the 
time  the  contract  was  entered  into.^  An  agreement  to  deliver 
stock  free  and  clear  of  all  incumbrances,  does  not  refer  to  in- 
cumbrances against  the  corporation.^  The  legality  of  the  sale  of 
stock  is  governed  by  the  law  of  the  State  within  which  it  is 
made.^  It  is  no  defense  to  a  contract  to  buy  stock  for  the  vendee 
to  alleo-e  that  the  directors  have  committed  an  tiUra  vires  act  in 
issuino:  more  stock  at  a  discount.* 

§337.  Specific  performance  as  a  remedy  for  Ireach  of  a 
contract  to  sell  stock. — It  frequently  happens  that  the  person 
who  has  contracted  to  purchase  stock  is  particularly  anxious  to 
procure  that  stock,  and  that  under  the  circumstances  of  the  case, 
the  stock  is  worth  to  him  a  value  not  to  be  compensated  for  by 
mere  money  damages.  This  cannot  happen  in  the  case  of  a  con- 
tract to  sell  securities  issued  by  the  government,  since  they  may 
be  duplicated  and  easily  purchased  in  the  market.  Accordingly, 
it  is  well  established,  both  in  England  and  America,  that  a  con- 
tract for  the  sale  of  government  securities,  will  not  be  specifically 


'  Rudge   ".   Bowman,  L.   R.  3  Q.  B.  ■*  "  If  this  was  a  legal  act  it  was  one 

689   (1868);    Gordon  v.   Parker,    10  La.  which  thi  defendant  was  bound  to  know 

Rep.    66  (1836),  where  the  question   of  the  directors  might  do,  and  which  would 

whether   frand  was    involved  was    sub-  therefore  torm  one  of  the  conting-ences  of 

mitted  to  the  jury.     Crubb  v.  Miller,   19  his  purchase,  and  which,  whether  done 

W.  R.  519  (1871),  wliere  by  reason  of  a  before   or  after   the  actual  time   of  sale, 

winding   up   a   transfer  on  the  corporate  could  no   more  affect  the  validity  of  the 

books  is  no  longer  possible.     Kerchuir  v.  sale  than  any  other  legal  act  of  the  direc- 

Gettys,  18  S.  C.  521  (188'2),  holding  that  tors.     If  the  act  was  an  unlawful  exercise 

a  loss  by  the  corporation  of  its  property  of  authority,  the  defendant,  when   he   be- 

is  no  defense.  came  a  stockholder,  might  resist  it  in  any 

"  Williams    v.    Hanna,   40    Ind.    535  legal  wav."     Faulkner  v.  Hebard,  26  Vt. 

(1872).  452  (1854).     That  fraud  is  a  defense,  see 

3  Dow  V.  Gould  &  C.  S.  M.  Co.,   31  §§  349-357. 
Cal.  629(1807). 

348 


CK.  XX.] 


THE   CO^'TRACT  TO   SELL. 


[§  338. 


enforced  by  a  court  of  equity,  but  the  vendee  may  sue  the  vendor 
in  an  action  at  law  for  damages  for  breach  of  contract.^ 

§  338.  An  entirely  different  rule  prevails  as  regards  contracts 
for  the  sale  of  stock  of  private  corporations.  If  the  stock  con- 
tracted to  be  sold  is  easily  obtained  in  the  market,  and  there  are 
no  particular  reasons  why  the  vendee  should  have  the  particular 
stock  contracted  for,  he  is  left  to  his  action  for  damages.  But, 
where  the  value  of  the  stock  is  not  easily  ascertainable,  or  the 
stock  is  not  to  be  obtained  readily  elsewhere,  or  there  is  some 
particular  and  reasonable  cause  for  the  vendee's  requiring  the 
stock  contracted  to  be  delivered,  a  court  of  equity  will  decree 
a  specific  performance  and  compel  the  vendor  to  deliver  the 
stock.  This  rule,  as  applicable  to  contracts  for  the  sale  of  rail- 
way stock,  was  clearly  enounced  in  England,  in  1841,  in  the  case 
Duncuft  V.  Albrecht.^  Contracts  for  the  sale  of  stock  in  mining 
and  other  private  corporations,  will  also  be  specifically  enforced 
under   like  circumstances.^     Specific   pei-formance   will    not    be 


'  Ross  V.  Union  Pacific  Ry.  Co.,  1 
Woolw.  26,  32  (1863);  Cud  or  Cuclclee  v. 
Rutter,  1  P.  Wms.  Rep.  570;  5  Viner's 
Abr.  538  (1715)  ;  Dorison  v.  Westbrook, 
5  Viner's  Abr.  540  (1722)  ;  Cappur  v. 
Harris,  Bunbury's  Rep.  135  (1723);  Colt 
V.  Netterville,  2  P.  Wms.  304  (1725); 
Buxton  V.  Lister,  3  Atk.  383  (1746).  Cf. 
Daloiet  V.  Rothschild,  1  Sim.  &  S.  590 
(1824). 

''  "It  has  been  long  since  decided  that 
you  cannot  have  a  bill  lor  the  sjjecific 
performance  of  an  agreement  to  transfer 
a  certain  qnai.tity  of  stock.  But,  in  my 
opinion,  thure  is  not  any  sort  of  analogy 
between  a  quantity  of  3  per  cents,  or 
any  other  stock  of  that  description, 
(which  is  always  to  beliadby  an}"  person 
who  chooses  to  apply  for  it  in  the  mar- 
ket,) and  a  certain  number  of  railway 
shares  of  a  particular  description,  which 
railway  shares  are  limited  in  number,  and 
which,  as  has  been  observed,  are  not  al- 
ways to  be  ha  I  in  the  market.  And  as 
no  decision  has  been  produced  to  the  con- 
trary, my  opinion  is  thut  they  are  a  sub- 
ject with  respect  to  which  an  agreement 
may  be  had  which  this  court  will  en- 
force." Duncuft  V.  Albrecht,  12  Sim. 
189(1841);  I'arish  v.  Parish,  32  Beuv. 
207  (1863),  granting  also  an  accounting  of 
dividends;  Poole  v.  Middleton,  20  Jieuv. 
646  (1861);  Turner  t;.  May,  32  L.  T.  N. 
8.56(1875);   Beckitt  v.   Billsbrough,    8 


Hare,  188  (1850),  dictum.  Contra,  dieiJim 
in  Ross  V.  Union  Pacific  Ry.  Co.,  1  Woolw. 
26,  32  (1863),  per  Miller,  J.  In  Cheale  v. 
Ken  ward,  3  De  G.  <fe  J.  27  (1858),  the 
court  said:  "  There  is  no  doubt  that  a 
bill  will  lie  for  a  specific  performance  of 
an  agreement  to  transl'er  railway  shares. 
This  was  set  at  rest  by  iJuncuft  v.  Al- 
brecht." In  the  case  Leach  v.  Fobes,  77 
Mass.  506  (1858),  specific  performance  of 
a  contract  to  convey  land  and  real  estate 
was  granted,  chiefly  because  of  the  land 
part  of  the  contract.  Todd  v.  Taft,  89 
Mass.  371  (1863),  decreed  specific  per- 
foniiance  of  a  contract  to  convey  niilway 
shares  ;  also  Baldwin  v.  Commonwealth, 
11  Bu^h,  417  (1S75);  Ashe  v.  Johnson's 
Administrator,  2  Jones'  Eq.  (N.  C.)  149 
(1855). 

^  "  In  the  peculiar  condition  of  busi- 
ness and  mining  operations  in  this  State, 
where  numei'ous  mining  and  other  corpo- 
rations are  in  existence,  whose  stock  is 
often  of  fluctuatiii";  and  uncertain  value, 
and  where  certain  kinds  of  stock  have  a 
peculiar  value  to  those  acquainted  with 
their  affairs,  where  the  market  value  of 
stocks,  if  any  they  have,  is  often  diliicult 
to  substantiate  by  competent  evidence, 
and  where  the  risk  ol  personal  responsi- 
bility of  individuals  and  corporations  is 
6o  great,  courts  should  be  liberal  in  ex- 
ttMiding  the  lull,  adequate,  and  complete 
relief  afforded    by  a   decree    of  specific 

349 


§  339.]  THE   CONTRACT   TO   SELL.  [cn.  XX. 

granted,  however,  where  the  purpose  of  the  purchaser  of  stock 
is  to  obtain  control  of  a  national  bank,  when  the  change  in 
management  would  probably  be  to  the  detriment  of  the  bank.^ 
AVhere  the  vendor's  contract  is  to  deliver  stock  and  construct  a 
railway,  the  court  will  not  decree  specific  performance,  since  part 
of  the  contract  is  never  the  subject  of  such  compulsory  perform- 
ance.^ If  the  vendor  is  not  in  possession  of  the  desired  stock, 
specilic  performance  will  not  be  granted,^  except  to  the  amount  of 
stock  which  he  has.*  Although  a  court  of  equity  refuses  to  grant 
specific  performances,  yet  it  will  not  send  the  party  to  a  court  of 
law,  but  will  grant  him  damages.^  Specific  performance  some- 
times lies  at  the  instance  of  the  vendor  of  stock.  It  has  been 
held  that  where  the  enterprise  is  not  yet  completed  and  the  liabil- 
ity not  ascertainable,  equity  will  compel  the  vendee  to  accept  the 
stock. 

§  339.  Seventeenth  section  of  Statute  of  Frauds  as  affect- 
ing sales  of  stoclc. — In  England  the  rule  is  firmly  established 
that  the  seventeenth  section  of  the  Statute  of  Frauds,  relating  to 
contracts  for  the  sale  of  "goods,  wares,  and  merchandise,"  does 
not  apply  to  sales  of  stock.  No  delivery,  payment  of  earnest 
money,  or  memorandum  in  writing  is  necessary,  in  order  to  render 


performance."     Treasurer  v.  Commercial  Wilson  v.  Keating,  V  W.  R.  484;  Oriental 

Coal  Min.  Co.,  23  Cal.  390   (1863).     See  Co.  v.  Briggs,  2  J.  <fe  H.  625;  Paine  v. 

also  Fnie  v.  Houghton,  6  Col.  318  (1882).  Hutchinson,  L.  R.  3  Eq.  257;   Sliepherd 

As  applicable  to  manufacturing  corpora-  w.  Gillespie,  L.   R.  5  Eq.  293;  Rirming- 

tions,  see  Cliater  v.  San  Francisco  S.  R.  ham  v.   Sheridan,  S3  Beav.  660;   Stras- 

Co.,  19  Cal.  200  (1861).    Granted  in  Tow  burg  v.  Echternacht,   21  Penn.  St.  220; 

Boat    Association    in    White   v.    Schuy-  Fallon  v.  R.  K.  Co.,  1  Dill.   121.     In  re- 

ler,   1  Abb.  Pr.  N.    S.    300   (1865).     Re-  gard  to  a  specific  performance  of  a  trust  of 

fused  in  the  case  of  stock  in  a  land  asso-  stock,  see  Ferguson  v.  Paschall,  11  Mo. 

elation,  Jones  r.  Newhall,  115  Mass.  244  267;  Cowles  v.  Whitman,  10  Conn.  121 ; 

(1874);  anddn  a  paper  company,  Noyes  Clark  v.  Flint,  22  Pick.  231 ;  Mechanics 

V.    Marsh,   123   Mass.    286   (1877).     See  Ek.  v.  Seton,  2  Peters,  299. 
Cushman  v.  Thayer  Mfg.  Co.,  76   N.   Y.  '  Foil's  Appeal,    91    Penn.    St.    434 

365  (1879).     '■  While  the  general  rule  is  (1879),  the  court  saying:   "  I  know  of  no 

for  courts  of  equity  not  to  entertain  juris-  instance  in  this  State  in  which  a  court  of 

diction  for  a  specific  performance  on  the  equity  has  decreed  specific   performance 

sale  of  stock,  this  rule  is  limited  to  cases  of  a  sale  of  stock." 

where  a  compensation  in  damages  would  '•'  Ross  v.  Union  Pacific  Ry.   Co.,     1 

furnish    a    complete     and     satisfactory  Wool  w.  26  (1863),  per  Miller,  J. 
I'emedy."     This  case,  however,   is  not  a  ^  CQiy^^^ine  ^_  Qliichester,  2Phil.  Ch. 

case  of  specific  performance  of  a  sale  of  27  (1846). 

stock,  but  of  compelling  the  corporation  ■*  Turner  v.  May,  32  L.  T.   N.    S.    56 

to  register  a  transfer.     See  also,  in  gen-  (1875). 

eral,  Auslin  «;.  Gillaspie,  1  Jones' Eq.  261;  ^  Wonson  v.   Fenno,    129    Mass.   405 

Nutbrown    v.  Thornton,  10  Vesey,   160;  (1880);  Austin  v.  Gillespie,  1  Jones' Eq. 

Shaw  V.  Fisher,  5  De  G.,  M.  &  G.  596;  (N.  C.)  261  (1854). 
Wynne  v.  Price,  3  De  G.   <k  Sm.   310; 

350 


CH.  XX.] 


THE   CONTRACT   TO   SELL. 


[§  339. 


the  contract  of  sale  valid.  This  principle  of  law  was  doubted  in 
the  earlj  cases/  but  was  determined  by  the  case  Humble  v. 
Mitchell,  in  1839."^  In  1838  this  question  arose  in  this  country, 
apparently  for  the  first  time,  and  it  was  decided,  in  Tisdale  v. 
Harris,^  chiefly  on  the  authority  of  the  early  English  cases,  that 
a  contract  for  the  sale  of  stock  was  within  the  seventeenth  sec- 
tion of  the  Statute  of  Frauds,  This  decision  has  been  uniformly 
followed  in  America.*  A  broker,  however,  as  a  common  agent, 
may  make  the  memorandum  for  both  parties.^  A  subsequent 
part  payment  of  the  consideration  makes  the  contract  valid,''  and 
a  payment  in  property ''  or  services,^  suflices.  The  statute  does 
not  apply  as  between  partners  for  the  purpose  of  buying  stock.^ 
A  contract  for  the  sale  of  stock  in  a  corporation  not  yet  incorpo- 
rated, has  been  held  not  to  be  within  the  statute.^"    The  statute  must 


'  Mussell  V.  Cooke,  Finch  Prec.  in  Ch. 
533  (1'720),  holding- that  the  statute  ap- 
plied but  was  not  properly  pleaded; 
Pickering  v.  Appleby,  1  Comyns  Rep. 
353  (1721),  not  decided,  the  judges  being 
divided,  six  and  six.  Colt  ik  Netterville, 
2  P.  Wms.  306  (1'725),  not  decided,  the 
Lord  Chancellor  saying  it  was  too  difficult 
to  decide  on  a  demurrer.  Ci'uU  v.  Dod- 
801),  Sel.  Ca.  in  Ch.  Temp.  King  (fol.  41, 
1724),  statute  held  to  apply. 

'■'  11  A.  &  E.  205,  loUowed  in  Dun- 
cuft  «.  Albrecht,  12  Sim.  189  (1841),  the 
court  s:iying  that  the  statute  applies  only 
to  goods  capable  of  part  delivery. 
Hibblewhite  v.  McMorine,  6  M.  &  W. 
201,  214  (1840)  ;  Tempest  v.  Kilner,  3  C. 
B.  249  (184HJ;  Ueseltine  v.  diggers,  1 
Ex.  856  (1848). 

»  37  Mass.  (2f»  Pick.)  9. 

*  Baltzen  v.  Kicolay,  53  N.  Y.  467 
(1873),  rigidly  applying  the  rule ;  North 
V.  Forrot,  15  Conn.  400  (1843),  where  the 
couitsiys:  "  Such  contracts  fall  clearly 
within  the  miseliiefs  which  the  legisla- 
ture, by  the  statute,  intended  to  remedy. 
There  is  as  much  danger  of  fraud  and 
perjury,  in  the  parol  proof  of  such  con- 
tracts, as  in  any  other."  Pray  v.  Mitchell, 
60  Me.  430  (1872)  ;  Fine  v.  Hornaby,  2 
Mo.  App.  61  (1870);  Colvin  v.  Williams, 
3  liar.  <fc  Johns.  (Md.)  38  (1810);  Sher- 
wood V.  Tradesman's  Nat'l  Bank,  16  N. 
Y.  W.  l>ig.  522  (1883,  Supreme  Ct.). 
Cf.  Drownson  v.  Chapman,  6;i  N.  Y.  625. 
Contra,  dictum,  Vawter  v.  Griffin,  40  Ind. 
593,  (■,02  (1872).  See  Reed  on  Statute  of 
Frauds,  i^J  231  ;  Ilagar  v.  King,  38  Barb. 
200  (1862),  holding  tliat  the  sale  of  rail- 


road bonds  is  within  the  statute.  In 
Florida  the  statute  applies,  the  word  per- 
sonal property  being  used.  Southern 
Life  Ins.  Co.  v.  Cole,  4  Fla.  359,  378. 
See  also  Mason  v.  Decker,  72  N.  Y.  595; 
affi'g  10  J.  (fe  6.  115;  Johnson  v.  Mulry, 
4  Rob.  (N.  Y.)  401  (1867),  holding  that 
the  New  York  Stock  Jobbing  Act  (Laws 
N.  Y.  1858,  ch.  134)  did  not  affect  the 
application  of  the  Statute  of  Frauds. 
The  statute  is  not  sufficiently  pleaded  by 
alleging  that  tiie  contract  of  sale  of  stock 
"  was  void  in  law  and  not  binding  upon 
liira."  Vaupell  v.  Woodward,  2  Sand. 
Ch.  143. 

"  Calvin  v.  Williams,  3  Hare  &  J.  38 
(1810). 

•^  Thompson  t».  Alger,  53  Mass.  (12 
Mete.)  428  (1847). 

'  Ea.-teru  R.  R.  Co.  v.  Benedict,  76 
Mass.  (10  Gray),  212  (1857). 

"  White  V.  Drew,  56  How.  Pr.  53 
(1878),  holding  that  the  furnishing  of  re- 
liable infornuilion  is  sufficient. 

*  Tomlinson  v.  Miller,  7  Abb.  Pr.  N. 
S.  364  (1869).  Nor  as  between  person.s, 
one  of  whom  buys  stock  in  his  own  name 
for  tiie  joint  benefit  of  both.  Storer  v. 
Flack,  41  Barb.  102  (1862). 

'"Gadsden  v.  Lance,  1  McMull  Eq.  (S. 
C. )  87  (1841);  Green  v.  BrooUins,  23 
Mich.  48,  54  (1871),  where  a  person  was 
induced  to  subscribe  on  parol  contract 
that  a  purchaser  for  the  stock  would 
afterwards  be  found.  In  Mas.sachu.setts, 
on  similar  facts,  except  that  a  certain 
])erson  agreed  to  ijurchase,  a  contrary  de- 
cision was  rendered.  Boardman  v.  Cut- 
ter, 128  Mass.  388  (1880). 

351 


§§310,341.]  THE   CONTRACT   TO   SELL.  [CH.  XX. 

be  pleaded  in  order  to  be  effectual  as  a  defense.^  The  assignee  of 
a  contract  for  the  sale  of  stock,  void  by  the  Statute  of  Frauds, 
takes  nothing  by  the  assignment.^  An  agreement  by  the  vendor 
of  stock  to  take  it  back  at  any  time,  is  not  affected  by  the  statute, 
and  such  an  agreement  is  a  part  of  the  executed  sale.^ 

§340.  Otlier  sections  of  Statute  of  Frauds  as  affecting 
sales  of  stock. — The  provision  of  the  Statute  of  Frauds  relative 
to  answering  for  the  debts,  defaults,  or  miscarriages  of  another, 
does  not  apply  to  a  guarantee  that  there  will  be  a  certain  divi- 
dend on  stock  purchased,"*  nor  to  a  broker's  relation  t<^wards  his 
client.'  The  provision  of  the  statute  relative  to  transfers  of  land 
do  not  apply  to  stock,*^  since  shares  of  stock  are  personal  property .'' 
A  transfer  of  stock  for  tlie  purpose  of  defrauding  the  transferrer's 
creditors  is  void,  and  a  court  of  equity  will  set  it  aside,^  or  the 
stock  may  be  attached  or  sold  under  execution  the  same  as  though 
no  attempt  at  transfer  had  been  made.^ 

B.— Gambling  Sales  of  Stock. 

§  341.  What  are  ivager  stoclc  sales. — Executory  contracts  for 
the  sale  of  stock  may  be  made  with  an  intent  to  actually  deliver 
the  stock,  or  may  be  with  an  intent  not  to  deliver  it,  but  to  pay  in 
cash  the  amount  lost  or  won  by  the  rise  or  fall  of  the  market  price 
of  the  stock.  A  sale  with  the  former  intent  is,  at  common  law, 
leo-al  and  valid.^"     A  sale  with  the  latter  intent  is  a  gambling  or 


1  Porter  v.  "Wormser,  94  N.  Y.  431,  Scott  v.  Indianapolis  Wagon  Works,  48 
450  (1884)  Ind.    75   (1874);  Moore   v.   Metropolitan 

2  Mayer  i;.  Child,  47  Cal.  142   (1873).  Katl.    Bk.,    55    N.    Y.   41    (1873).     The 

3  Fitzpatricki^.  WoodrufF,  atJiS.  Y.  561  fraudulent  transferee  must  be  made  a 
(1884);  riioriidike  v.  Locke,  98  Mass.  party  defendant.  Hyatt ;».  Swivel,  5'2  N.Y. 
340(1867);  Fay  V.  Wheeler,  44  Vt.  292  Super.  Ct.  1  (1885).  See  alsoCh.  XXVIL 
(1872).     See  also  §  333.  But  the  fraudulent  transferee  is  not  liable 

•*  Moorehouse  v.  Crangle,  36  0.  St.  130  unless  he  has  accepted  the  stock.     Skow- 

(1880)  heg-an  Bank  v.  Cutler,  49  Me.  315  (1860); 

5  (ienin  v.  Isaacsen,  6  N.  Y.  Leg.  Obs.  Cartwell's  Case,  L.  K.  9   Ch.  691  (1874). 

213;  Rogers  i;.  Gould,  6  IIuu,  229(1875).  Acceptance  is  a  question  of  fact.     Pirn's 


«  Watson  V.  Spratley,  10  Ex.  222 
Powell  V.  Jessopp,  18  C.  B.  336  (1856) 
Walker  v.  Bartlett,  18  C.  B.  845  (1856) 


Case,  3  De  G.  &■  S.  11  (1849).  But  he 
cannot  plead  the  Statute  of  Frauds  him- 
self.    Smith  j».  49  &  66  Quartz  M.  Co.,  14 


Ashworth  V.  Munu,  L.  R.  14  Ch.  L>.  363,  Cal.  242  (1859). 

368  (1880)  "  Beckwith   v.  Burrough,  R.  I.,  Feby. 

■>  See  Chapter  L  9,  1884.     See  Ch.  XX VI I. 

«  Skowhegan  Bank  v.  Cutter,  49  Me.  '»  Irwin  v.  Williar,  110  U.  S.  499,  508 

315  (1860);  State  v.  Warren  F.  &.  M.  Co.,  (1883).  "  The  generally  accepted  doctrine 

32  N.  J.  L:iw  Rep.  439  (1868);  Bayard®,  in  this  country  is     .     .     .     that   a   con- 

Hoffmaii,  4  Johns.  Ch.  450  (1820)';    Had-  tract  for  the  sale  of  goods  to  be  delivered 

den  V.  Spader,  20  Johns.  Rep.  554  (1822);  at  a  future  day  is  valid,  even  though  the 

352 


CH,  XX.] 


THE   CONTRACT  TO   SELL. 


[§341. 


wager  contract,  and  is  not  enforceable.^  The  essential  difference 
between  a  uvaser  contract  and  a  contract  not  a  wao:er  is  whether 
there  is  an  intent  to  deliver  the  property  sold.^ 


seller  has  Dot  the  goods  nor  acy  other 
means  of  getting  them  than  to  go  into  the 
market  and  buy  them ;  but  such  a  con- 
tract is  only  valid  when  the  parties  really 
intend  and  agree  that  the  goods  are  to  be 
delivered  by  the  seller  and  the  price  to 
be  paid  by  the  buyer;  and  if  under  guise 
of  such  contract  the  real  intent  be  merely 
to  speculate  in  the  rise  or  fall  of  prices, 
and  the  goods  are  not  to  be  delivered, 
but  one  party  is  to  pay  to  the  other  the 
difiference  between  the  contract  price  and 
the  market  price  of  the  goods  at  the  date 
fixed  for  executing  the  contract,  then  the 
whole  transaction  constitutes  nothing 
more  than  a  wager,  and  is  null  and  void. 
And  this  is  now  the  law  in  England  by 
force  of  the  statute  of  8  <fe  9  Vict.  c.  109, 
s.  18,  altering  the  common  law  in  that 
respect." 

It  may  be  speculation,  nevertheless  it 
is  valid.  Clark  v.  Foss,  7  Biss.  540  (1878), 
where  tlie  court  says,  in  reference  to  sales 
of  propertj'  which  the  vendor  intends  to 
buy  herealter  fi)r  the  purpose  of  delivery: 
"  Such  contracts,  although  entered  into 
for  pure  purposes  of  speculation,  however 
censurable,  when  made  by  those  engaged 
in  ordinnry  mercantile  pursuits,  and  who 
have  creditors  depending  for  the  payment 
of  their  just  claims  upon  their  prudent 
management  in  business,  are,  neverthe- 
less, not  prohibited  by  law."  To  same 
effect,  Smith  v.  Bouvier,  70  Penn.  St.  325; 
Kirkpatrick  v.  Bonsall,  72  Penn.  St.  155 
(1872),  where  the  court  says:  "  We  must 
not  confound  gambling,  whether  it  be  in 
corporation  stocks  or  merchandise,  with 
whiit  is  coinmotdy  termed  speculation. 
Merchants  speculate  upon  the  future  prices 
of  that  in  which  they  deal,  and  buy  and 
sell  accordingly."  Hatch  v.  Douglas,  48 
Conn.  110  (1S80);  Fla2:g  v.  Baldwin,  38 
N.  J.  Eq.  Rep.  219 ;  Kent  v.  Miltenberger, 
13  Mo.  App.  503  (1883). 

'  "  Wiigers  at  common  law  are  valid 
and  enforceable  in  the  courts;"  and,  with 
certiiin  exceptions  growing  out  of  the 
peculiar  suViject  of  the  wager,  are  valid 
contracts.  Dewey  on  Contr,n:ts  for  Future 
Delivery,  and  Commercial  Wagers  (1880), 
10.  To  same  effect,  (Jood  v.  Elliott,  3 
Term  R.  093  (1790);  Gilbert  v.  Sykes,  10 
Kast,  150;  Atherford  v.  Beard,  2  Term 
R.  610(1788);  Morgan  v.  Pebrer,  4  Sen. 
230(1837);  Hussi-y  r.Crickitt.S  Cami>.093; 


Grant  v.  Hamilton,  3  McLean,  100(1842); 
Campbell  v.  Richardson,  10  Johns.  406 
(1813);  Bunn  v.  Riker,  4  Johns.  436  (1 809); 
Johnson  v.  Fall,  6  Cal.  359  (1856);  John- 
ston v.  Russel,  37  Cal.  670  (1869) ;  Dewees 
V.  Miller,  5  How.  347  (1848);  Porter  v. 
Sawyer,  1  How.  519  (1832);  Griffith  v. 
Pearce,  4  Houstim.  209  (1809);  Richard- 
son V.  Kelley,  85  111.  491  (1877);  Pettil- 
Ion  ir.  Hippie,  90  111.  420  (1878);  Trenton- 
Ins.  Co.  V.  Johnson,  2  Zabr.  526;  Dun- 
man  V.  Strother,  1  Texas,  89  (1846);  Mc- 
Elroy  V.  Carmichael,  6  Texas,  454  (1851); 
Wheeler  v.  Fiiend,  22  Texas,  683  (1859);, 
Monroe  v.  Smeiley,  25  Texas,  486  (I860). 
Contra — in  Pennsylvania — Edgell  »'.  Mc' 
Loughlin,  6  Whar.  176  (1841);  Phillips 
V.  Ives,  1  Rawle,  36  (1828);  Bruas'  Ap- 
peal, 55  Penn.  St.  294  (1867);  in  Ver- 
mont—Collamer  V.  Day,  2  Vt.l44  (1829);. 
Tarlton  v.  Baker,  18  Vt.  9  (1843);  New 
Hampshire— Clark  «-. Gibson,  12  N.  H.  386- 
(1841);  Winchester  v.  Metter,  52  N.  H., 
507  (1872)  ;  in  Maine — McDonough  f. 
Webster,  68  Me.  530(1878);  Gilmore  y.. 
Woodcock,  69  Me.  118  (1879);  Missouri 
— Waterman  v.  Buckland,  1  Mo.  App.  45- 
(1873);  and  Massachusetts — Ball  v.  Gil- 
bert, 12  Met.  399  (1847);  Babcock  v. 
Thompson,  3  Pick.  446  (1826) ;  Sampson 
V.  Shaw,  101  Mass  l.iO  (1869).  The  Su- 
preme Court  of  the  United  States  says,  in 
Irwin  ?).\ViUiar,  snpri :  "In  Eniiland,  it 
is  held  that  ihe  contracts,  although  wag- 
ers, were  not  void  at  common  law, 
.  .  while  generally,  in  this  country,  "B 
wagering  contracts  ai'e  held  to  be  illegal 
and  void  as  against  public  policy,"  citing 
Dickson's  ILxecutor  v.  Thomas,  97  Penn. 
St.  278  (1881);  Gregory  v.  Wendell.  40 
Mich.  432  (1879);  Lyon'i-.  Culbertson,  83 
111.  33  (1870)?  Melchert  v.  American  U. 
Tel.  Co.,  3  McCraiy,  621  (1882) ;  11  Fed. 
Rep.  193;  Barnard  y.  Bockhaus,  52  Wis. 
593  (1881);  Love  t).  Harvey,  114  Mass. 
80  (1873). 

-  Roundtree  v.  Smith,  108  U.  S.  209 
(1882);  III  re  Hunt,  26  Fed.  He|).  739 
(1886).  Dewey,  in  his  recent  work  on 
Contr.icia  for  Future  Delivery,  an  I  Com- 
mercial Wagers,  stales  the  rule  accurately 
as  follows:  "  Where  the  parlies  t )  a  con- 
tract in  the  form  of  a  .-ale  :igree  expressly 
or  by  implication  at  the  lime  it  is  ma  le 
that  the  contract  is  not  to  bo  enforced, 
that  no  delivery  is  to  be  made,  but  the 


m\ 


353 


342.] 


THE   CONTRACT   TO   SELL. 


[CH.  XX. 


§  342.  Statutes  prohihiting  ivager  contracts,  and  also  certain 
stock  contracts. — There  are  two  classes  of  statutes  affecting  stock 
sales  as  regards  their  speculative  character.  One  class  do  not 
specify  sales  of  stock,  but  declare  in  general  terms  that  all  gaming 
and  wagering  contracts  shall  be  void,  thereby  rendering  actions 
for  the  recovery  of  money  won  on  such  wagers  unsustainable. 
Such  statutes  exist  in  England^  and  New  York.^  The  second 
class  of  statutes  are  more  explicit,  and  prohibit  specified  transac- 
tions in  stock,  irrespective  of  whether  such  transactions  be  wager 
contracts  or  not.  Statutes  affecting  speculative  sales  of  stock 
exist  in  many  of  the  States  :  in  Massachusetts  short  sales  are 
prohibited;^  in  Pennsylvania,  sales  for  future  delivery;*  in 
Ohio,  sales  of  stock  for  future  delivery,  where  the  vendor  has  it 
not  on  hand,  or  the  vendee  the  means  to  pay ;  ^  in  Illinois,  all 
options  are  made  gambling  contracts,  and  are  void  ;^  in  Georgia, 
short  sales  cannot  be  enforced ; '  in  New  York,  the  statute  of 
1812,^  re-enacted  in  the  Kevised  Statutes  of  1828,^  prohibiting 


contract  is  to  be  settled  by  the  payment  of 
the  diflference  between  the  contract  price 
and  the  market  price  at  a  given  time  in 
the  future,  such  a  transaction  is  a  wager," 
citing  many  cases. 

'  8  <fe  9  "Vict ,  c.  109,  §  18;  Grizewood 
V.  Blane,  11  C.  B.  526  (1851).  Agree- 
ments between  buyers  and  sellers  of  stock 
to  pay  or  receive  the  differences  between 
their  prices  on  one  day,  and  their  jJi'ices 
on  anotlier  day,  are  gaming  and  wager- 
ino-  transactions  within  the  meaning  of 
the  statute.  Thacker  v.  Hardy,  L.  11.  4 
Q.  B.  D.  687  (1878).  The  statute  does  not 
necessarily  affect  "  corners "  in  stocks. 
Barry  v.  Croskey,  2  J.  <fe  H.  1  (1861). 
As  to  the  application  of  this  statute,  see 
also  Heinman  v.  Hardie,  12  Ct.  of  Ses. 
406  (Sc,  4th  series,  1885). 

M  R.  S.  of  N.  y.  662,  §  8  (vol.  Ill, 
p.  1962,  7th  ed.).  As  applied  to  stock 
cases,  see  Kingsbury  v.  Kirwan,  77  N,  Y. 
612  (1879);  Story  v.  Saloman,  71  N.  Y. 
420  (1877);  Harris  v.  Tumbridge,  83  N. 
Y.  92(1880);  Yerkes  v.  Saloman,  11  Hun, 
471(1877). 

3  Gen.  Stat.  Mass.  ch.  105,  §  6.  For 
cases  arising  under  this  statute,  see  Howe 
V.  Starkweather,  17  Mass.  243  (1821); 
Sargent  v.  Franklin  Ins.  Co.,  25  Mass.  98 
(1829);  Barrett  v.  Mead,  92  Mass.  337 
(1865);  Brigham  v.  Mead,  92  Mass.  245 
(1865);  Barrett  v.  Hyde,  73  Mass.  160 
(1856);  Durant   v.   Burt,    98   Mass.    161 


(1867);  Brown  v.  Phelps,  103  Mass.  313 
(1869);  Price  v.  Minot,  107  Mass.  49 
(1871);  Colt  V.  Clapp,  127  Mass.  476 
(1879);  Rock  v.  Nicholls,  85  Mass.  342 
(1862);  United  States «.  Vaughan,  3  Binn. 
394  (1811);  Wyman  v.  Fiske,  85  Mass.  238 
(1861);  Pratt  ?•.  American  Bell  Tel.  Co., 
5  Northeastern  Kep.  307  (1886),  follow- 
ing the  decisions  under  the  New  York 
statute  from  which  the  statute  in  question 
was  copied. 

••Laws  of  Penn.,  1841,  p.  398,  g  6. 
This  statute  has  been  repealed.  For  de- 
ci:^ions,  see  Krause  v.  Setley,  2  Phil.  Rep. 
32  (1856);  Chillas  v.  Snyder,  1  Id.  289 
(1850). 

5  Ohio  Laws,  May,  1885. 

«  Revised  Stat,  of  111.,  §  178.  For  de- 
cisions, see  Wolcot  v.  Heath,  78  111.  433 
(1875);  Pickering  v.  Cease,  79  111.  328 
(1875);  Pixley  v.  Boynton,  79  111.  351 
(1875);  Sanborn  v.  Benedict,  79  111.  309; 
Cole  V.  Milmine,  88  111.  349  (1878).  This 
statute  is  restricted  by  the  decisions  to 
cases  where  the  transaction  is  to  be  "  ad- 
justed only  by  differences." 

"  Georgia  Code,  §  2638. 

8  2  R.  L.  187,  §  is. 

'  1  R.  S.,  p.  710,  §  6.  For  cases  com- 
ing under  this  statute,  see  Pykers  v. 
Townsend,  24  N.  Y.  57  (1861),  disapprov- 
ing Stebbins  v.  Leowolf,  3  Cush.  143 
(1849).  See  also  Thompson  v.  Alger,  53 
Mass.  428  (1847),  on  the  New  York  stat- 


354 


CH.  XX.] 


THE   CONTRACT   TO   SELL. 


[§  343. 


short  sales,  was  repealed  by  implication  by  the  statute  of  1868, 
declarine;  the  sale  to  be  valid  tliough  there  be  no  consideration,  or 
payment  of  a  consideration,  or  no  ownership  by  the  vendor  of 
such  stock  at  the  time  of  the  sale.  In  England  the  statute  of 
1734,^  prohibiting  gambling  in  the  public  funds,  was  repealed  in 
1860.^  It  is  evident  from  the  history  of  these  statutes  against 
stock  gambling  that  it  is  a  difficult  and  delicate  task  to  frame  a 
statute  that  will  cure  an  evil,  which  is  manifest  to  all,  and  a  stat- 
ute also  that  will  not  interfere  with  the  legitimate  transactions 
which  have  for  many  years  been  producing  our  railways  and  de- 
veloping the  material  resources  of  the  country.^ 

§  343.  Test  of  legality  of  stock  transjxctions. — Although,  as 
already  stated,  stock  sales,  where  no  delivery,  but  merely  a  settle- 
ment of  gain  or  loss  is  intended,  are  wagers ;  and  although  such 
wagers  are  void  by  the  statutes  of  some  States,  and  by  the  rules 
of  public  policy  in  others,*  yet  difficulty  is  experienced  in  deter- 


ute;  Staples  v.  Gould,  9  N.  Y.  520  (1854), 
criticising  Gram  v.  Stebbins,  6  Paige,  124 
<1836);  Frost  v.  Clarkson,  7  Cowen,  24 
{182'7);  Cassard  v.  Heinmann,  14  How. 
Pr.  84  (1856);  affi'd,  1  Bosw.  207._  In 
Arkansas  a  broker  and  others  are  liable 
criminally  for  doing  business  in  futures. 
Fortenbury  v.  State,  1  S.  W.  Rep.  58 
(1886). 

'  n  Geo.  n,  c.  8,  and  10  Geo.  II,  ch.  8. 
For  cases  under  this  statute,  see  Hewett 
V.  Price,  4  Man.  &  Gr.  355  (1842);  Fisher 
V.  Price,  11  Beav.  194(1848);  Mortimer 
V.  McCullon,  6  M.  <fe  W.  69  (1840);  Ells- 
worth V.  Cole,  7  M.  cfe  W.  30;  Byle  on 
Bills,  194;  2  Kent's  Com.  468,  n.  (6). 
The  statute  did  not  apply  to  stock  in  pri- 
vate corporations,  llibblcwhite  v.  Mc- 
Morine,  5  M.  &  W.  462  (1839),  overruling 
Bryan  v.  Lewis,  R.  A  M.  386  (1826). 

■'  23  &  24  Vict.,  c.  28. 

*  Des  Passos  on  Stock  Brokers  and 
Stock  Excliangfs  (1882),  p.  405,  says: 
"The  history  of  these  stockjobbing  acts 
seems  to  prove  conclusively  that  they 
have  never  been  effi-ctive  in  preventing 
speculations  in  stocks.  In  almost  every 
instance  in  which  they  have  been  adopt- 
ed, after  lingering  for  years  on  the  books, 
scorned  and  violated  by  '  the  unbridled 
and  defiant  spirit  of  speculation.'  despite 
the  earnest  efforts  of  the  courts  to  enforce 
them,  they  have  finally  been  repealed.     It 


is,  perhaps,  better  to  allow  the  evil  to  cor- 
rect itself,  as  it  surely  does,  than  to  bring 
the  administration  of  justice  into  contempt 
by  filling  tlie  books  with  useless  laws, 
which  are  at  all  times  openly  violated  and 
laughed  at,  and  which  seem  hardly  more 
effective  to  prevent  the  practice  at  which 
they  are  aimed  than  legislation  directed 
against  the  laws  of  nature." 

•*  Particularly  in  Pennsylvania  are 
such  stock  wag(^rs  void  by  public  policy. 
Worth  V.  Phillips,  89  Penn.  St.  250  (1879); 
Farrier  v.  GMbell.  89  Pa.  St.  89  (1879)  ; 
lUichlzky  V.  De  Haven,  97  Penn.  St.  202 
(1881);  Uickson's  Executor  v.  Tii()mas,97 
Penn.  St.  278  (1881).  In  the  case,  Bruas' 
Appeal,  55  Penn.  St.  294  (1867),  the 
court  says:  "  It  is  said  the  fortn  in  which 
this  contract  appears  enters  largely  into 
the  business  of  stock  brokerage.  This  is 
a  mistake;  the  bona  fide  purchaser  of 
stocks,  no  doubt,  can  be  conducted  in  a 
legitimiite  way,  and  is  so  generally  with- 
out trenching  in  the  least  on  the  gamblcr'.s 
))rovince.  If  this  be  impossible,  however, 
the  fewer  licon-es  that  are  issued  for  such 
busine.s3  the  bettor.  Anything  which  in- 
duces men  to  risk  their  money  or  property 
without  any  other  hope  of  return  than  to 
get  for  nothing  any  given  amount  from 
another,  is  gambling,  and  demoralizing 
to  the  community,  no  matter  by  what 
name  it  may  be  called." 

'\  ^\  ^\ 


§  344.J 


THE   CONTRACT   TO   SELL. 


[CH. 


XX. 


milling  whether  the  parties  really  intended  to  deliver  the  stock  or 
to  pay  differences.  The  question  of  intent  is  always  difficult  of 
ascertainment  and  of  positive  proof.  It  is  pre-eminently  a  ques- 
tion for  the  jury.  It  accordingly  is  found  in  most  of  the  cases 
involving  the  question,  whether  the  transaction  was  stock  gam- 
bling, that  the  court  submitted  to  the  jury  whether  an  actual 
delivery  of  the  stock  was  intended  or  not.  If  not,  then,  as  a 
matter  of  law,  the  transaction  was  a  wager.  If  a  wager,  it  is,  by 
statute  in  some  States,  by  public  policy  in  others,  a  void  transac- 
tion, and  the  parties  have  only  the  rights  given  them  on  void 
contracts.'^ 

§  344.  When  intent  to  deliver  is  question  for  the  jury  and 
tvhen  not. — The  question  whether  the  parties  to  an  executory  sale 
of  stock  intended  to  actually  deliver  the  stock,  or  merely  to  pay 
and  receive  the  gain  or  loss,  is  for  the  jury.^  In  the  application 
of  this  rule,  however,  great  care  is  to  be  exercised  in  submitting 
the  question  and  charging  the  jury.  Tlius,  an  "option,"  ''put," 
"  call,"  "  straddle,"  or  other  similar  stock  exchange  contract  may 
be  made  with  an  intent  to  actually  deliver  the  stock,  and  if  so,  is 
unobjectionable  and  is  enforceable.^     The  parties  may  be  asked 


1  See  §§  345,  346.  See  also  Greeu- 
hood  on  Public  Policy,  pp.  230-237. 

^  Whitesides  v.  Hunt,  97  'ind.  191 
(1884);  Gregory  v.  Wendell,  39  Mich. 
337  (1878).  And  all  the  circumstances 
are  to  be  taken  into  consideration. 
Beveridge  v.  Hewitt,  8  Eradw,  467  (1881); 
Hawley  v.  Bibb,  14  Reporter,  172  (1881); 
Brand  v.  Henderson,  107111.  141  (1883); 
Barnard  v.  Backhaus,  52  Wis.  f.93  (1881); 
Kirkpatrick  v.  Bonsall,  72  Penn.  St.  155 
(1872). 

2  For  definitions  of  these  terms  see 
Ch.  XXV.  A  "put"  is  not  ^j^r  se  con- 
clusive evidence  of  an  inieut  not  to 
deliver.  Bigelow  v.  Benedict,  70  N.  Y. 
202  (1877).  A  "straddle"  follows  the 
same  rule.  The  parties  may  have  in- 
tended to  deliver  the  stock.  Harris  v. 
TumbridiiC,  83  N.  Y.  92  (1880);  Story  v. 
Salomon,  71  N.  Y.  420  (ls77).  Cf.  Ex 
joar^e  Young,  6  Biss.  53(1874);  Webster 
V.  Sturge.«,  7  Bradw.  56  (1880);  Tenney 
V.  Foote,  4  Bradw.  594  (1879);  Lyon  v. 
Cnlbertson,  83  111.  33  (1876);  Gilberts. 
Gouger,  8  Biss.  214  (187S).  A  short 
sale  is  not  per  se  a  wager,  nor  is  it 
presumed  to  be.  Maxton  v.  Gheen,  75 
Penn.   St.  166   (1874);  Huss  v.  Rau,    95 

356 


N.  Y.  359  (1884)  ;  Knowlton  v.  Fitch,  52 
N.  Y.  288  (1873);  White  v.  Smith,  54 
N.Y.  522  (1874);  Cameron  v.  Durkheim, 
55  N.  Y.  425  (1874);  '1  bird  Niitl.  Bk.  v. 
Harrison,  10  Fed.  Rep.  243  (1882).  These 
decisions  rest  upon  the  principle  of  law 
laid  down  in  Stanton  v.  Small,  3  Sandf, 
(JST.  Y.)  230,  that  "  a  contract  for  the  sale 
of  goods,  to  be  deliveied  at  a  future  time, 
is  not  invalidated  by  the  circumstances 
that  at  the  time  of  the  contract,  the 
vendor  neither  had  the  goods  in  his  pos- 
session, nor  hris  entered  into  any  contract 
to  buy  them,  nor  has  any  reasonable  ex- 
pectation of  becoming  posse-sed  of  them 
at  the  time  appointed  for  delivery,  other- 
wise than  by  pnrcliasing  them  after 
making  the  contract."  There  are  many 
cases  to  the  same  effect.  See  Noyes  v. 
^pauldino;,  27  Vt.  4j0(1355);  Shales  v. 
Seigmoie\  1  Ld.  Raymond,  440  (1691); 
Frost  V.  Ciarkson,  7  Cow.  25  (1827); 
Dewey  on  Contracts  for  Future  Delivery, 
97.  thacker  v.  Hardy,  L.  R.,  4  Q.  B.  t). 
685(1878),  holding  that  if  the  intent,  at 
the  time  of  buying,  was  to  deliver,  it  ia 
not  a  wager,  even  though  that  intent  be 
afterwards  changed.  As  to  the  legality  of 
a  "  corner,"  see  §  348. 


CH.  XX.] 


THE   CONTRACT   TO   SELL. 


[P44. 


directly  whether  they  intended  that  a  delivery  should  be  made.^ 
If  one  party  intended  to  have  a  delivery,  the  transaction  is  valid, 
even  though  the  other  party  intended  otherwise.^  As  between  a 
party  and  his  broker,  however,  greater  difhculty  arises,  and  in 
some  jurisdictions,  the  iutent  between  them  governs  their  relations, 
irrespective  of  the  intent  of  the  party  dealing  with  them.^  The 
fact  tliat  stock  transactions  were  carried  on  by  "margins"  is  no 
evidence  that  they  were  gambling  contracts,*  excepting  in 
Pennsylvania  and  New  Jersey.  In  these  States,  this  fact  alone 
seems  to  be  sufficient  evidence  of  a  wager.^  A  wager  contract 
is  not  proved  by  the  fact  that  the  party  selling  stock  to  be  de- 
livered at  a  future  time,  intends  to  purchase  that  amount  of  stock 
in  time  for  the  deliverv,  or  vice  versa^  "  An  executorv  contract 
for  the  sale  of  goods  for  future  delivery  is  not  infected  with  the 


'  Yerkes  v.  Saloman,  11  Hun,  471 
(1877);  Cassard  V.  Hinman,  6  Bosw.  14; 
First  Natl.  Bk.  v.  Oskaloosa,  23  N.  W.  R. 
255.  Ex  parte  Youu^,  6  Biss.  53  (1874). 
In  the  case  of  Porter  v.  Viets,  1  Biss.  177 
0837),  the  court  refused  to  admit  parol 
evidence  that  the  contract  was  gambling, 
for  the  reason  that  it  varied  a  -wrilten 
contract. 

*  Wall  V.  Schneider,  17  Reporter,  700 
(1884),  where  the  court  said,  "  We  are 
not  aware  of  anj^  adjuilicated  cases  going 
to  the  extent  of  holding  that  the  mere 
secret  intention  of  one  party  to  the  con- 
tract, not  communicated  to  the  other 
party,  is  sufficient  to  invalidate  sucli 
contract."  Irwin  ».  Williar,  110  U.  S. 
499  (1884).  ''A  transaction  which,  on  its 
face  is  legitimate,  cannot  be  held  void  as 
&  wagering  contract  by  showing  that  one 
party  only  so  understood  and  meant  it  to 
be.  The  proof  must  go  farther,  and  show 
that  this  understanding  was  mutual." 
Whitesides  ?>.  Hunt,  97  Ind.  191  (1884); 
Pixley  V.  Boyntin.  79  111.  351  (1875); 
Lehioan  v.  Strassbcrger,  2  Woods  (C. 
C),  554  ( 1873).  Conira,  Fareira  v.  Gabell, 
89  I'enn.  St.  89  (1879);  Beveridge  v. 
Hswitt,  8  Bradw.  467  (1881);  Conner  v. 
Rfjbertson,  Louisiana  Sup.  Ct.  (1886),  the 
court  saying:  "In  order  to  affect  the 
contract  the  alleged  illegal  intent  must 
be  mutual,  the  intent  of  one  party,  not 
communicated  to  or  concurred  in  by  the 
other,  will  not  avail  him." 

3  See  §§  345,  346. 

■»  Sawyer  v.  Taggart,  14  Bush,  727 
(1879);  Wall  v.  Schneider.  17  Ri-p.  700 
<1884);  B:irllett  v.  Smith, 13  Fed.Rep.263 


(1882);  Whitesides  w.  Hunt,  97  Ind.  191 
(1884);  Union  Natl.  Bk.  v.  Carr,  15  Fed. 
Hep.  238  (1883);  Hatch  v.  Douglas,  48 
Conn.  116(1 880).  Many  other  cases  do  not 
directly  pass  on  this  question,  but  assume 
that  the  depositing  of  a  margin,  as  a  se- 
curity to  the  broker,  does  not  prove  an  in- 
tent not  to  have  a  delivery  of  the  stock. 

*  Ruchizky  v.  Dellaven,  97  Penn.  St. 
202(1881);  Dickson  v.  Thomas,  97  Penn. 
St.  278(1881);  Fareira  v.  Gabell, 89  Penn. 
St.  89  (1879);  Maxton  t;.  Green,  75  Penn. 
St.  166  (1874);  North  v.  Phillips,  89  Penn. 
St.  250(1879);  Flagg  v.  Baldwin,  88  N. 
J.  Eq.  Rep.  21',);  Justh  v.  UolliJay,  11 
Wash.  L.  Rep.  418  (1883). 

"  In  the  ciise  of  Ashton  v.  Dakin,  7  W. 
R.  384(1859),  the  court  held  it  not  to  be 
a  wager  contract  to  order  a  broker  to  buy 
stock  "and  let  the  bargain  be  so  as  to 
day  of  payment,  that  you  may  have  an 
opportunity  of  reselling  it  for  me  by  such 
a  day,  when  I  expect  the  market  will 
have  risen,  and  then  you  will  pay  the 
seller  for  me  with  the  money  you  receive 
from  the  purchaser,  and  I  shall  receive 
the  gain  from  you,  if  any,  or  pay  you  the 
loss."  So  also  Smith  v.  Bouvicr,  70  I'enn. 
St.  325  (1872),  holds  thit  slocks  bought 
and  sold,  upon  speculation,  are  not  neces- 
sarily wager  contracts.  A  person  may 
sell  without  owning  the  stock,  and  at 
time  of  delivery  buy  to  deliver,  and  yet 
tlie  transaction  be  not  a  wager,  where  the 
jury  finds  that  tlicre  was  an  intent  to 
deliver  in  both  the  selling  and  buying. 
See  also  Thacker  v.  Hardy,  L.  K.,  4  Q.  B. 
Div.  eS"!  (1879);  Sawyer  v.  Taggart,  14 
Bush,  727  (1879). 

357 


§345.] 


THE   CONTRACT   TO   SELL. 


[CH.    XX. 


quality  of  a  wager  by  reason  of  tlie  fact  that  at  the  date  of  the 
contract  the  vendor  had  not  the  goods;  had  not  entered  into  any 
arrangement  to  provide  them,  and  had  no  expectation  of  purchas- 
ing them,  unless  by  a  subsequent  purchase  in  the  market.^  The 
financial  responsibility  of  the  parties,^  and  their  other  transactions 
in  the  same  line,^  are  admissible  as  evidence  as  to  whether  there 
was  an  intent  to  deliver  the  stock  or  merely  to  pay  the  gain  or 
loss.  The  burden  of  proving  that  a  stock  transaction  is  a  gam- 
bling contract  is  upon  him  who  affirms  it.* 

§  345.  Gambling  stock  contracts  as  affecting  the  relations 
hetween  tlie  2)i^inci2)al  and  Ids  hroker. — A  broker  is  but  an  agent 
of  his  principal.  As  such  he  may  hold  the  princijjal  liable  for 
commissions  and  for  losses  paid  on  stock  transaction  where  those 
stock  transactions  are  legitimate  and  legal.  Where,  however,  the 
stock  contracts  are  of  a  wager  or  gambling  nature,  a  more  difficult 
question  arises,  and  the  decisions  are  irreconcilable.  In  England,, 
in  1878,  Judge  Liudley,  in  Thacker  v.  Hardy,^  a  carefully  con- 
sidered case,  held  that  where  the  principal  has  been  carrying  on 
gambling  transactions,  he  cannot  escape  or  repudiate  his  liabilities 
to  bis  broker  in  those  transactions,  even  though  the  latter  knew 
of  the  gambling  character  of  the  business.  The  principal  is  liable 
to  his  broker  as  though  the  transactions  were  free  from  such  ob- 
jections.    This  is  the  well  established  rule  in  England.*' 


'  Conner  v.  Bobertson,  Louisiana  Sup. 
Ct.  (1886),  the  court  saying  also  that 
Larymer  v.  Smith  (1  B.  (fe  C.  1)  has  been 
repeatedly  overruled.  See  also,  supra, 
page  356.  note  3. 

-  Kirkpatrick  v.  Bonsall,  55  Penn.  St. 
155  (1872) ;  First  Natl.  Bank  v.  Oskaloosa 
P.  Co.,  23  N.  W.  Rep.  2.55  (1885).  In  re 
Green,  1  Biss.  388  (18'7'7);  Beveridge  v. 
Hewitt,  8  Bradw.  467  (1881);  Justh  v. 
Holliday,  11  Wash.  Rep.  418  (1883); 
North  V.  Phillips,  89  Penn.  St.  250  ( 1 879) ; 
Patterson's  Appeal,  16  Rep.  59  (1883); 
Flagg  V.  Baldwin,  38  N.  J.  Eq.  219; 
Colderwood  v.  McCrea,  11  Bradw.  543 
(1882). 

^  Kirkpatrick  v.  Bonsall,  72  Penn.  St. 
155  (1872);  Beveridge  v.  Hewitt,  8 
Bradw.  467  (1881);  Irwin  v.  Williar,  110 
U.  S.  499  (1884). 

■*  Dewey  on  Contracts,  <fec.,  p.  207, 
says,  "  All  the  cases,  except  Barnard  «. 
Backhaus,  52  Wis.  503;  Cobb  v.  Prell,  15 
Fed.  Rep.  774 ;  Beveridge  v.  Hewitt,  8 
Bradw.  467;  Stebbinsii.  Leowolf,  3  Cush. 

858 


137,  and  possibly  Chandler's  Case,  Exr 
parte  Young,  6  Biss.  53,  hold  that  these 
contracts  are  presumed  to  be  bona  fide, 
and  in  order  to  show  them  to  have  been 
used  as  covers  for  wagers,  an  agreement 
to  that  effect  must  appear  to  have  been 
made.  According  to  these  excepted  cases 
option  contracts  are  presumed  to  be  in- 
valid, and  proof  must  be  made  that  they 
are  bona  fide''     See  also  Dewey,  p.  46. 

5  L.  R.,  4  Q.  B.  D.  685. 

«  i?e  Hart,  W^eekly  Notes,  85  (1870); 
Cooper  V.  Neil,  13  Weeklv  Notes,  128 
(1878);  Ex  parte  Rogers, -L.  R.,  15  Ch. 
D.  2U7  (1879);  Faikney  v.  Reynons,  4 
Burr.  2069(1767);  Jessopp  v.  Lutwyche, 
10  Ex.  614  (1854);  Knight  v.  Cambers, 
15  C.  B.  562  (1855)  ;  Knight  v.  Fitch,  15 
C.  B.  566  (1855);  Lyne  v.  Siesfield,  1  H. 
<fe  N.  278  (1856);  Rosewarne  v.  Billing, 
15  C.  B.  N,  S.  816  (1863);  Pidgecn  v. 
Burslem,  3  Ex.  465  (1849).  ^Co)dra, 
Byers  v.  Beattie,  16  Weekly  Rep.  27& 
(1868,  Ex.  Irish). 


CH.  XX.] 


THE   CONTRACT   TO   SELL. 


[§  346. 


§  346.  In  this  country  an  opposite  rule  prevails  for  the  most 
part.  The  great  weight  of  authority  holds  that  where  the  broker 
has  knowledge  of  the  purpose  to  gamble  in  stocks  and  aids  in 
carrying  out  tliat  purpose,  he  cannot  recover  for  services  rendered 
or  losses'incurred  and  paid  by  himself.^  A  few  cases  hold  to  the 
same  effect  as  the  English  rule.^  Many  cases  which  seem  to  favor 
the  English  rule  do  so,  only  by  dicta,  inasmuch  as  the  trans- 
actions insolved  in  such  cases  are  held  not  to  be  wager  contracts.^ 
In  Pennsylvania  and  New  Jersey  the  American  rule  is  rigidly 
enforced.  The  broker  is  held  to  be  dealing  as  a  principal,  not  as 
an  agent  in  all  stock  gambling  transactions.^  He  cannot  recover 
commissions  nor  losses.^  If  his  principal  is  an  infant  the  broker 
is  liable  to  such  infant  for  all  sums  received  by  way  of  margins.^ 
If,  however,  the  parties  do  not  raise  the  question  of  the  legality 
of  the  transaction,  the  court  cannot.''  In  Ohio,  it  is  held,  that 
the  broker  may  be  made  to  account  for  profits,  even  though  the 
transaction  was  a  gambling  one.^  A  note  and  mortgage  given  to  the 
broker  in  settlement  of  a  gambling  transaction  wnll  not  be  inter- 
fered with.^     The  broker  is  not  liable  for  a  sale  of  the  stock,  on 


'  Irwin  V.  Williar,  110  U.  S.  4  93,  510 
(1883)  ;  McClean  v.  Stuve,  15  Mo.  App. 
317,  per  Thompson,  J.;  Ream  v.  Hamilton, 
15  Mo.  App.  377.  Cf.  Kent  v.  Milten- 
berger,  13  Mo.  App.  503,  511  (1883). 
Hee  also,  as  supporting  above  rule, 
EverinLihiim  v.  Meighan,  5  Wis.  Lg.  News, 
2.5  (1882).  In  re  Green,  7  Biss.  338 
(1877) ;  Bartlett  v.  Smith,  13  Fed.  Rep. 
263  (1882);  Tenney  v.  Foote,  4  Eradw. 
594  (1879;;  affi'd  95  111.  99  (1880),  de- 
feating a  note  given  to  the  broker ; 
Calderwood  v.  Mcllae,  11  Bradw.  543 
(1882) ;  Webster  i>.  Sturges;  7  Bradw.  56  ; 
Barnard  v.  Backhaus,  52  Wis.  533  (1881), 
defeating  notes.  Beveridge  v.  Hewitt,  H 
Bradw.  467  (1881);  Whitesides  v.  Hunt, 
97  Ind.  191.  203  (1884);  Melchert  v. 
American  U.  Tel.  Co..  11  Fed.  Rep.  193; 
First  Natl.  Bk.  of  Lyons  v.  Oskaloosa 
Tacking  Co.  (Iowa),  23  N.  W.  Rep.  256 
(1885),  holding  a  note  void.  Stewart  v. 
Garrett,  4  Atl.  Rep.  399  (Penn.  1886); 
Stewart  v.  Schall,  34  Alb.  L.  J.  98  (Md. 
1886). 

'^  Brown  v.  Speyers,  20  Gratt.  (Va.) 
296  (1871);  W^inan  v.  Fi.-ko,  85  Mass. 
238(1861),  on  the  ground  that  the  note 
sued  on  wms  a  volunlary  payment  to  the 
broker.  Warren  n.  Hewitt,  45  Ga.  501 
(1872);     Marshall    c.    Tiiurston,    3    Lea 


(Tenn.).  741  (1879),  where  also  a  note  had 
been  given.  Jackson  v.  Foote,  12  Fed. 
Rep.  37,  also  a  note  case,  the  court  saying, 
that  as  between  the  broker  and  his  prin- 
cipal the  decision  probably  would  be 
different.  Cf.  Tinsley's  Case  (U.  S.  Ct. 
Ct.),  10  Fed.  Rep.  249. 

•*  Lehmann  v.  Strassberger,  2  Woods, 
554  (C.  C.  1873);  Rumsey  ii.  Berry,  65  Me. 
570  (187ii);  Sawyer  v.  Taggart,  14  Bush, 
727  (1879);  Durant  v.  Burt,  98  Mass.  161 
(1867);  Williams  v.  Carr,  80  N.  C.  294 
(1879). 

^  Kuchizky  v.  De  Haven,  97  Penn.  St. 
202  (1881). 

'■>  North  V.  Phillips,  89  Penn.  St.  250 
(1879);  Flaug  v.  Baldwin,  38  N.  J.  Eq. 
Rep.  219;  Fareira  v.  Gabell,  89  Penn.  St. 
89  ( 1879),  holding  that  notes  given  to  the 
broker  are  void. 

^  Ruchizky  v.  De  Haven,  supra. 

">  Gheen  v.  Johnson,  90  Penn.  St.  38 
(1879);  Williams  v.  Carr,  80  N.  C.  294 
(1879). 

» Norton  v.  Blinn,  39  O.  St.  145 
(1883). 

^  (lark  V.  Foss,  10  Cliicngo  Legal 
News  (U.S.  D.  Ct.  1878).  Of.  Tanfura 
V.  West(N.  J.)  Central  Rep.,  Match  25, 
1886. 

359 


§  347.] 


THE   CONTRACT   TO   SELL. 


[cn.  XX. 


failure  of  margin,  without  notice  to  the  principal,  where  the 
business  is  gambling.^ 

§  347.  GamUing  stock  transactions  as  affecting  notes,  honds, 
mortgages,  c&c,  groiving  out  thereof.— The  penalty  of  engaging 
in  a  stock  gambling  operation  is  that,  in  case  the  transaction  is 
declared  by  a  court  of  justice  to  be  illegal  as  a  wager  contract, 
the  court  declines  to  aid  either  party .^  As  a  general  rule  all  lia- 
bility on  the  part  of  either  party  is  unenforceable.  Money  paid 
iby  the  principal  cannot  be  recovered  back.^  Neither  principal 
<can  collect  the  gains  of  the  transaction,  and  neither  is  liable  for  a 
loss.*  Notes  given  in  settlement  are  void  and  not  collectible,^ 
even  in  the  hands  of  lona  fide  purchasers.^  Bonds  and  mortgages 
given  in  payment  are  void.'^  Due  bills.*  acceptances,^  and  guar- 
anties^" of  notes  are  not  valid  or  enforceable.     If  a  part  of  the 


1  North  V.  Phillips,  89  Penn.  St.  250 
■(1879). 

'  Reese  v.  Ferraie,  13  W.  R.  6  (1864), 
■holding  that  the  court  will  not  aid  one 
who  has  been  tricked  in  gambling  in 
stocks. 

»  Gregory  v.  Wendall.  39  Mich.  337 
<1878);  Id.  40 Mich.  432(1879)  ;  Wyman 
v.  Fiske,  85  Mass.  238(1861).  Cf.  Norton 
t;.  Blinn,  30  0.  145  (1883). 

■*  Grizewood  v.  I31ane,  11  C.  B.  526 
(1851);  Webster  v.  Sturges,  7  Bradw. 
(111.)  560  (1880)  ;  Ex  parte  Young,  6  Bis-s. 
53  (1874);  Thompson  v.  Cummings,  68 
Gn.  124  (1881);  Yerkes  v.  Solomon,  11 
Hun,  471  (1877).  A  partner,  however, 
may  have  contribution  for  losse?  paid  at 
the  express  request  of  tlie  other  member 
of  the  firm.  I'etrie  i.  Hannay,  3  Term 
Rep.  418  (1789). 

*  Barnnrd  v.  Backhaus,  52  Wis.  593 
(1881);  Fareira  w.  Gabell,  89  Penn.  St.  89 
(1879);  Lowry  ?^.  Dillman,  I8N.  W.  Rep. 
(Wis.)  4  (1884);  Justh  v.  Holliday,  17 
Central  L.  J.  56  (1883);  11  Wash.  L. 
Rep.  418;  Cunningham  v.  Third,  <fec., 
Bk.  of  Au2U5ta,  71  Gn.  4('0  (1883); 
Tenney  v.  Foote,  4  Bradw.  595  (1879), 
affi'd  95  m.  99.  Cf.  "Wyman  v.  Fiske,  85 
Mass.  238. 

«  Barnard  v.  Backhaus,  52  Wis.  593 
(1881);  Steers  v.  Lashley,  6  Term  Rep. 
61  (1794);  Tetiney  i).  Foote,  4  Bradw. 
■■(111.)  594  (1879);  'Cunningham  v.  Nat'l 
Bank  of  Auzusta,  71  Ga.  400  (1883); 
Lowry  v.  Dillman,  18  N.  W.  Rep.  4(1884). 
An  accommodation  indorser  to  the  note 

360 


may  set  it  up.  Justh  v.  Holliday,  17 
Central  L.  J.  56  (1888);  11  Wash.  Law 
Rep.  418.  Note  to  hank  is  valid, 
though  the  proceeds  were  to  pay  a  stock 
gambling  debt  and  the  bank  knew  that 
fact.  Marshall  ;■.  Thurston,  3  Lea  (Tenn.), 
741  (1879).  Cf.  Cannon  v.  Bryce,  3  B.  & 
A.  179  (1819). 

''  Amory  v.  Merryweather,  2  B.  <fe  C. 
573  (1824);  Flagg  v.  Baldwin,  38  N.  J. 
Fq.  Rep.  219  (1884);  Griffiths  i'.  Sears, 
112  Penn.  St.  523  (1886);  Barnard  v. 
Backhaus,  52  Wis.  593  (1881).  A  judg- 
ment entered  by  confession  on  a  bond 
given  for  a  gambling  debt  may  be  set 
aside.  Everitt  v.  Knapp,  9  Johns.  331 
(1810);  Beveridge  v.  Hewitt,  8  Bradw. 
467  (1881).  A  court  of  equity  will  en- 
join the  transfer  of  a  note  and  will  decree 
the  cancellation  of  a  mortgage  given  by 
a  married  woman  in  paj-ment  of  her  hus- 
band's stock  gambling  debts,  Tantum  v. 
West  (N.  J.)  Central  Rep.  March  25, 
1886  (iiffi'd,  it  seems,  Nov.  1886),  but  will 
not  where  given  by  the  party  himself  to 
his  brokers.  Clark  v.  Foss,  10  Chicago 
Legal  News  (IJ.  S.  D.  Ct.  W^is.  1878). 

"  Rudolf  V.  Winters,  7  Neb.  125  (1878). 

«  Steers  v.  Lashley,  6  Term  Rep.  61 
(1794).  Rawlings  v.  Hall,  1  Carr.  &  P.  11 
(1823),  holds  that  the  broker  on  the  wit- 
ness stand  need  not  admit  that  the  con- 
sideration was  a  gambling  debt,  since  it 
would  subject  him  to  a  common  law  crimi- 
nal prosecution. 

'"  Tenney  v.  Foote,  95  111.  99  (1880). 


CH.  XX.]  THE   CONTRACT   TO   SELL.  K  ^4:8. 

consideration  is  void  the  whole  contract  and  all  securities  given 
thereunder  are  void.^ 

§  348.  Sales  as  affected  hy  the  legality  of  tlie  inirposes  for 
which  the  stoclc  is  obtained. — The  courts  will  not  aid  either  party 
in  carrying  out  an  agreement  for  advancing  the  price  of  stock  by 
means  of  fictitious  dealings  designed  to  deceive  others  concerning 
the  real  value  of  such  stock.^  Where  both  the  vendor  and  vendee 
of  stock  know  that  the  purpose  of  the  vendee  is  to  control  the 
corporation  and  illegally  issue  corporate  paper,  the  sale  is  illegal 
and  void.^  An  agreement  to  make  a  "corner"  in  stock,  by  buy- 
ing it  up  so  as  to  control  the  market  and  then  purchasing  for  fu- 
ture deliveries,  is  illegal.*  It  is  not  necessarily  unlawful  to  form 
a  "pool"  for  the  purpose  of  dealing  in  a  particular  stock.^  An 
agreement  to  hold  stock  and  sell  together  is  valid."  In  Massachu- 
setts  it  is  held  that  a  contract  by  which  a  shareholder  in  a  corpo- 
ration agrees  to  secure  to  the  purchaser  of  his  stock  a  corporate 
oflSce,  at  a  stated  salary,  and  in  case  of  his  removal  to  repurchase 
the  stock,  is  void  as  against  public  policy  and  as  a  fraud  on  other 
stockholders,  unless  it  is  proved  that  the  transaction  is  not  for  the 
private  benefit  of  the  vendor,  or  that  it  was  consented  to  by  the 
other  stockholders.^  In  New  York,  on  the  other  hand,  it  is  held 
that  a  contract  to  convey  a  majority  of  the  stock  of  a  corporation, 
and  to  procure  the  resignation  of  the  corporate  directors,  thereby 
enabling  the  vendee  to  elect  directors  satisfactory  to  himself,  is  a 
valid  and  legal  agreement.^     One  railroad  company  cannot  pur- 


'  Tenney  ?;.  Footc,  .sM/jra.    See  also  Fa-  (ISYS),    modifying   Quincey  ?'.  Young,  5 

reira  v.  Gabell,  89  Penn.  St.  89  (1879).  ,  Daly,  32  (1873). 

=  Livermore  t;.  Buslinell,  5   Hun,  285  Mlavemeyer  ?».  Havemeyer,  1  l.T.  <fe  S. 

(1875).  (N.Y.)  507  (1878);  Id.  13  Id.  464;  affi'd  8fi 

•"'Town  Council,   &c.  v.   Elliott,  5  O.  N.Y.618;  Griffith  i^.  Jewett, 15  Week.  Law 

St.  113(1855).  Bull.  419.  an    important  case.      But  an 

^Sampson  v.   Shaw,   101     Mass.     145  agreement  not  to  sell  except  by  concur- 

(1869);  Raymond  v.  hoavitt,  13  Cent.  L.  rent  consent  of  all  signers  to  tlie  agree- 

J.    110  (1881);   Morris   Run   Coal   Co.  t^.  mint,  i.s  void  as  in  restraint  of  trade  and 

Barclay  Coal  Co.,  68  Penn.  St.  173  (1871);  agiinst  public  policy.     J'isher  f.    Bush, 

Arnot  V.  Pittston,  Ac,  Coal  Co.,  68  N.  Y.  35  Hun,  641  (1885). 

558  (1877).     Cf.   Pclrio    v.    Hann-vy,    3  ">  Guernsey  v.    Cook,    120  Mass.   501 

Term  R.  418  (1789).     A  person  making  a  (1876);  Noyes   v.    Mar.sh,  123   Mass.  286 

"corner"  in  stocks  is  not   subject  to    a  (1877). 

criminal  pro.=cciilion  tlicr(!ror.     I'aymond  ^  Barnes   v.   Brown,    80     N.    Y.    527 

V.   Leavitt,  45  .Mi.h.  447(1681);  Barrv  y.  (1880).      Contra.  .lacolis  v.  Miller  (M.  Y. 

Croskey,  2  J.  A  H.  1  (1861),  liolding  that  Supr.  Ct.),  15  Alb.  L.  J.  188  (1877);  Fre- 

the  victim  of  the  "cornr-r"  may  fde  a  hill  niont    v.    Stone,    42    Barb.    169(1864). 

in  equity  to  recover  back  tin;  money  lout.  Where   the   agreement  was   to   keep  the 

-  Quincey  v.  White,  63  N.  Y.  370,  383  vendor  in  a  professorship  the    court  will 

8^,1 


§§  349,  350.]        THE  CONTRACT  TO  SELL.  [CH.  XX. 

chase  a  controlling  interest  in  another  railroad  company  for  the 
purpose  of  managing  or  absorbing  the  latter,  but  this  rule  grows 
out  of  the  fact  that  such  purchases  are  beyond  the  powers  of  the 
corporation.^  It  is  immaterial  that  the  vendee  already  controls 
one  railroad  company  and  that  tlie  stock  contracted  to  be  sold 
will  give  him  the  control  of  another.  He  is  entitled  to  the  stock. ^ 
An  agreement  to  contribute  stock  towards  a  common  undertaking, 
is  enforceable,  the  consideration  being  the  mutual  obligation.* 
But  the  common  undertaking  must  be  a  legal  one.^ 

C._Fraud  as  Affecting  a  Sale  of  Stock. 

§  349.  Extent  of  subject  treated  lierein.—ln  a  previous  chap- 
ter of  this  treatise  the  effect  of  fraud  and  fraudulent  representa- 
tions on  a  subscription  for  stock  was  fully  treated.  There  is 
little  difference  in  the  principles  of  law  governing  fraud  as  af- 
fecting sales  of  stock,  from  fraud  as  affecting  subscriptions  for 
stock.  Most  of  the  cases  assume  that  the  same  principles  apply 
to  both  kinds  of  transactions.  Consequently  the  questions  of 
what  constitutes  fraud  herein;  what  remedies  the  defrauded  per- 
son has  ;  and  the  general  principles  governing  this  branch  of  the 
law,  will  be  fully  understood  only  by  a  comparison  of  these  two 
parts  of  this  work.^ 

§  350.    What  lias  been  held  to  constitute  a  fraud  herein. — It 

is  dithcult  to  lay  down  rules  as  to  what  does  and  what  does  not 
amount  to  fraudulent  misrepresentations.  The  courts,  conse- 
quently, let  each  case  stand  upon  its  own  facts.  Certain  states  of 
fact  have,  however,  been  passed  upon  as  constituting  fraud,  and 
as  such  they  aid  in  coming  to  a  conclusion  on  facts  in  somewhat 
similar  cases.  Thus,  it  has  been  held  to  be  a  fraudulent  uiisrep- 
resentation  to  make  false  statements  as  to  the  location,  explora- 
tions, and  developed  state  of  a  mine  ;^  or  that  a  patent  owned  by 
the  company  was  of  great  value,  and  that  certain  other  persons 

not  aid  the   parties.     The  agreement  is  and  bribe  a  jud<:?e,  the  court  will  aid  no 

against  public  policy.     Jones  v.  Scudder,  one.  Tobey  «. Robinson, 99  111.  202  (1881). 

'/Cin.  Sup.  Ct.  178  (^1872).  ^  See  Chap.  IX.  In  the  important  case, 

1  See  <^  315.  Western  Bank  v.   Addie,  L.  R.   1    H.  L. 

'^Havemeyer   v.    Havemeyer,    supra;  (Sc.)   145,  part  of  the  shares  had   been 

O'Brien  v.  Breitenbach,  1  Hilt.  304.   Cf.  subscribed  for  and  part  purchased.     The 

ti  315  n,  6.  court  api:)lied  the  same  principle  to  both. 

3  Conrad   v.    La    Rue,   52    Mich.     83  «  Morgan    v.   Skiddy,    62   N.   Y.   319 

(1883).  (1875). 

''  If  the  purpose  is  to  rob  a  railroad 

362 


CH.  XX.] 


THE   CONTRACT  TO   SELL. 


[§  351. 


were  owners  of  stock ;  ^  that  the  company  was  prosperous,  when 
in  fact  large  overissues  of  stock  had  been  made  ;  ^  or  that  the 
corporate  property  was  free  from  incumbrance;^  or  that  the 
corporation  would  guarantee  certain  dividends;*  or  any  false 
statement  or  general  fraudulent  act,  or  fraudulent  concealment  of 
a  material  fact  whereby  the  purchaser  is  induced  to  complete  the 
sale  of  stock.^  It  is  not,  however,  a  fraudulent  representation  to 
state  that  the  capital  stock  is  all  paid  in  when  it  is  not,^  or  that 
the  stock  is  worth  its  par  value.'' 

§  351.  It  is  a  fraud  on  the  vendee  of  stock  to  sell  him  as  paid 
up  stock  that  which  is  not  paid  up,  although  issued  as  paid  up, 
with  the  participation  of  the  vendor.^  It  is  fraud  in  the  vendor  to 
represent  that  property  is  to  be  turned  in  by  him  to  the  corporation 
at  a  certain  price  and  then  to  refuse  to  carry  out  the  latter  contract.* 
Where  the  vendor  agrees  to  sell  at  a  value  to  be  ascertained  by  an 


'  Miller  v.  Barber,  fi6  N.  Y.  558  (1876). 

'■'  Cazeaux  v.  Mali,  25  Barb.  678  (1867). 

^  Southwestern  R.  R.  Co.  v.  Papot,  67 
Ga.  775,  692  (1881),  the  court  saying: 
"  It  is,  we  think,  sufficient  to  sliow  that 
the  misrepresentation  or  suppression  of 
fact  was  of  such  a  nature  as  to  prove  that 
the  property  purchased  was  of  no  value  to 
the  purchaser  for  the  purposes  for  which 
it  was  bought,  or  that  it  would  be  reason- 
able to  suppose  that  the  purchaser  would 
not  have  contracted  for  it  had  he  had 
knowledge  of  the  existence  of  this  de- 
fect." 

■•  Gerhard  v.  Bates,  20  Eng.  L.  &  Eq. 
129  (1853). 

''  See  further  illustrations  in  Ch.  IX. 
Declaring  a  dividend  in  good  faith  and 
Bound  discretion  is  not  fraud  by  reason  of 
its  turning  out  to  have  been  ill  advised. 
Burnes  v.  Pennell,  2  H.  of  L.  Cases,  497 
(1849).  A  representation  that  the  stock 
" is  good  property  or  investment  and  is 
about  to  make  a  dividend  "  is  a  false  repre- 
sentation when  untrue,  and  where  the  per- 
son taking  the  stick  as  executor  from  a 
preceding  executor  objected  to  receiving  it 
on  account  of  his  douijt  or  i<rnorance  as 
to  its  character.  Lawlon  v.  Kittredge, 
30  N.  H.  500  (1855).  Kepresentations 
that  a  corporate  property  is  valuable  aTid 
one  of  the  best  jjropi'rlies  in  Colorado, 
when  in  fact  the  company  was  a  bubljle 
company,  raises  a  question  of  fraud  for 
the  jury  to  pass  upon,  liradley  v.  Poole, 
98  Mass.  169  (1867  '.  The  payment  of  an 
excessive  and  speculative  price  fir  stock 
is  not  fraud  and  is  no  ground  for  setting 


the  sale  aside.  Moffat  v.  Winslow,  7 
Paige  Ch.  124(1838).  The  vendor  war- 
rants the  title  to  the  stock,  but  not  its 
quality  or  value.  Allen  v.  Pegram,  16 
Iowa,  163  (1864).  A  sale  of  stock  in  a 
company  formed  to  purchase  a  railroad 
cannot  be  set  aside  merely  because  its 
title  to  the  railroad  fails.  State  v.  North. 
La.  &  T.  R.  R.  Co.  34  La.  Ann.  947  ( 1 882). 
In  the  case,  Wright's  Appeal,  99  Penn.  St. 
425  (1882),  it  was  held  that  the  corpora- 
tion was  not  liable  for  the  conversion  of 
stock  by  its  president,  who  obtained  the 
certificates  indorsed  in  blank  from  the 
owner  on  false  representations  that  the 
corporation  wished  to  use  them.  New- 
lands  V.  National,  &c..  Association,  63 
L.  T.,  N.  S.,  242  (1885);  March  v. 
Eastern  R.  R.  Co.  43  N.  H.  515  (18C,2), 
holding  that  the  fact  that  the  earnings 
were  not  distributed  by  dividends  until 
after  a  sale  of  stock,  does  not  constiiute 
fraud.  A  confidential  asent  who  uses  his 
}>osition  to  obtain  stock  of  which  the 
principal  has  been  deprived  wrongfully, 
must  turn  it  over  to  the  principal,  llar- 
denbuigh  v.  Paeon,  33  Cal.  356  (1867). 

•>  Nelson  V.  Luling,  62  N.  Y.  645 
(1875);  affi'd,  4  J.  &  S- 544. 

'  Union  Nat'l  Bk.  v.  Hunt,  76  Mo.  439 
(1882). 

>*  Sturges  V.  Stetson,  1  Biss.  246(1858), 
holding  liiat  the  vendee  is  not  liable  on  a 
note  given  in  payment  there(  f.  Fosdick 
'('.  Sturges,  1  Biss.  255  (1858),  holding 
that  the  vendee  may  recover  back  money 
jtaid. 

"  Seaman  v.  Low,  4  Bosw.  337  (1869). 


§  352  ]  THE   CONTRACT   TO   SELL.  [CH.  XX. 

examination  of  the  corporate  books  and  affairs,  it  is  fraud  in  the 
vendee  to  cause  false  memoranda  to  be  made  by  the  employees  of 
the  corporation.^  It  is  not  frand,  however,  for  a  director  or  other 
corporate  officer  to  buy  or  sell  stock  at  a  profit  due  to  his  official 
knowledge  of  the  condition  of  the  corporation  ;  ^  nor  to  obtain  the 
stock  by  a  threat  of  a  call.^  The  fact  that  a  check  given  in  pay- 
ment for  stock  is  not  honored,  although  the  money  is  in  bank, 
is  not  fraud  where  payment  was  refused  because  of  other  frauds 
of  the  vendor;*  nor  is  it  fraud  to  issue  certificates  before  any- 
thing has  been  paid  thereon,  there  being  no  participation  by  the 
vendor.^  It  is  fraud,  however,  to  represent  the  company  as  hav- 
ing a  full  paid  capital  stock,  when  in  fact  the  stock  was  wholly 
issued  in  payment  of  a  worthless  mine.  The  person  making 
such  representation  is  liable  to  the  vendee.^ 

§  352.  Fraud  may  he  hy  corporate  reports  or  prospectus. — 

A  report  of  corporate  officers  to  the  stockholders,  setting  forth 
the  condition  of  the  affairs  of  the  corporation,  is  deemed  to  be  a 
statement  to  the  public  also,  and  it  may  be  relied  upon  by  any 
one  in  purchasing  shares.  This  principle  of  law  was  first  clearly 
enunciated  in  England  in  1860,  in  the  case  of  Davidson  v.  Tul- 
loch.'  It  was  there  held  that  there  need  be  no  privity  between 
the  officers  issuing  the  report,  and  the  person  purchasing  shares 
of  stock  from  thii'd  persons.  If  such  purchaser  made  his  pur- 
chase relying  upon  material  statements  in  corporate  reports, 
which  wei*e  false,  he  has  his  remedy  against  all  persons,  who 
knowingly  made  or  issued  the  report.^     The  leading  case  in  this 

1  Hager  v.    Thompson,    1    Black,    80  L.  398,  as  follows  :  "  The  report,  though 

(1861).  originally  made  to  the  shareholders,  was 

'^  Board  of  Com'rs  of  T.  Co.   v.  Rey-  intended  for  the  information  of  all  per- 

nokls,  ^14  Ind.  509  (1873),  and  see  §  320."  sons  who  were  disposed  to  deal  in  shares, 

^  Grant  v.    Attrill,  11    Fed.  Rep.  469  and  the  representation  must  be  regarded 

(1882).    As  to  other  cases  of  fraud  by  the  as  having  been  made  not  indirectly,  but 

vendee,   see  JohnsDU   v.   Kirby,    65  Cal.  directly  to  each  person  who  obtained  the 

482    (1884);     Hemppling    v.    Burr,    26  report  from  the  bank  where  it  was  pub- 

Northw.  Rep.  496  (Mich.  1886).  licly  announced  it  was  to  be  bought,  in 

■*  Comins  v.  Co;^  111  Mass.  45  (1874).  the  same  manner  as  if  it  had  been  per- 

5  Woodruff  V.  McDonald,  33  Aik.  97.  sonally  delivered  to  him  by  the  director." 

°  Cross  V.  iSackett,  2  Bosw.  (N.  Y.)  (-.17  Gerhard  v.  Bates,  20  Eng.  L.  &  Eq.  129 
(1858).  But  an  assertion  that  the  capital  (1853);  Cullen  ii.  Thompson,  6  L.  T.  (N. 
stock  is  a  certain  amount  is  not  an  asser-  S.)  870  (1862),  holding  that  where  direc- 
tion that  it  has  all  been  paid  in.  Colt  v.  tors  of  a  joint-stock  company  issue  false 
Woollaston,  2  P.  Wms.  154  (1723).  and  fraudulent  reports  to  the  public,  and 

'6  Jur.   (N.   S.)  543;  s.  o.   3   Macq.  the  mana2:er,  secretary,  and  otlier  officers 

(H.  of  L.)  783.  of  the  bank  supply  the  dct  died  statements 

«  Scott  V.  Dixon,  29  L.  J.  (Ex.)  62,  n.,  for  such  report,  knowing  tliem  to  be  false 

explained  in  Peek  v.  Gurney,  L.  R.,  6  H.  and  that  they  are  to  be  used  for  purposes 

361 


OH.  XX.] 


THE   CONTRACT  TO   SELL. 


[§  353. 


country,  on  the  liability  of  corporate  directors,  for  fraudulent 
representation  as  to  the  condition  of  the  company,  not  made  to 
a  purchaser  of  stock  personally,  but  to  the  public  generally,  is 
Cross  V.  Sackett,^  decided  in  1858,  where  fraudulent  dividends 
and  representations  based  thereon  were  made. 

§  353.  A  somewhat  different  rule  prevails  in  England,  as  to 
false  statements  contained  in  a  prospectus  of  a  corporation.  A 
prospectus  is  issued  for  the  purpose  of  inducing  persons  to  sub- 
scribe for  stock.  Its  object  is  not  to  promote  the  sale  of  that 
stock.  Accordingly,  it  was  decided,  in  Peek  v.  Gurney,^  in  1873, 
that  "  the  purchaser  of  shares  in  the  market,  upon  the  faith  of 
a  prospectus  which  he  has  not  received  from  those  wiio  are  an- 
swerable for  it,  cannot,  by  action  upon  it,  so  connect  himself  with 
them  as  to  render  them  liable  to  him  for  the  misrepresentation 
contained  in  it,  as  if  it  had  been  addressed  personally  to  himself." 
In  New  York,  a  directly  opposite  rule  prevails.  In  the  case 
Morgan  v.  S kiddy ,^  in  1875,  the  Court  of  Appeals  held  that: 
"  If  the  plaintiff  purchased  his  stock  relying  upon  the  truth  of 


of  deceit,  and  a  third  party,  acting  on 
such  reports,  purchases  shares  iu  the 
company  and  suffers  loss  thereby,  each 
of  the  officers  ot  the  company  who  know- 
ingly assisted  in  tlie  fraud  is  personally 
liable  to  such  third  party  for  the  loss 
caused  by  such  misrepresentation  in  the 
report,  though  the  report  was  signed  only 
by  the  directors  and  not  by  the  subordi- 
nate officers. 

>  2  Dosw.  617;  6  Abb.  Pr.  247;  16 
TIow.  Pr.  62,  the  court  saying:  "When 
an  instrument  is  maile  to  deceive  the  pub- 
lic generally,  and  is  adapted  as  well  as 
intended  to  deceive  some  purtion  of  the 
public,  and  as  well  one  person  ns  another, 
and  is  used  as  it  was  designed  it  should 
be,  and  fraudulently  induces  some  one  to 
act  to  his  prejudice, by  noting  in  the  mode 
it  was  intendt-d  to  influence  them  to  act 
who  mi^ht  be  deceived  by  it,  tiie  person 
wlio  made  the  instrument  and  caused  it 
to  be  thus  fraudulently  used,  is  liabK'  to 
the  per.son  who  has  been  defrauded  by  it. 
In  Bueh  a  case,  the  person  injured  has 
been  subjec  ted  to  damages  by  his  fraud- 
ulent acts,  and  the  tViiudulent  wrong-doer 
is  liable  for  the  consequences."  Cazeaux 
t;.  Miili,  2.-.  Barb.  578  (1857).  "  it  ia  not 
CRKcnliiil  thivt  the  reference  j-h' uld  be  ad- 
dressed dircclly  to  the  plainiifl',  if  it  were 
made  with  the   intent  of  its  influenciug 


every  one  to  whom  it  might  be  communi- 
cated, or  who  might  read  or  hear  of  it, 
the  latter  class  of  persons  would  be  in  the 
same  position  as  those  to  whom  it  was 
directly  communicated,  but  they  must 
have  come  to  a  knowledge  of  it  before 
their  purchase."  Morse  v.  Swits,  19  How. 
Pr.  275  (1859),  holding  a  bank  officer 
liable  for  false  statements  in  a  report, 
published  in  accordance  with  the  require- 
ments of  a  statute.  The  court  said: 
"  Being  published,  the  public  or  any 
individual  of  the  public,  has  a  right  to 
believe  it.  And,  if  believing  it  any  one 
of  the  public  acts  on  that  belief,  the  mak- 
ers and  {)ublisliers  of  this  falsehood  are 
to  be  held  liable  for  the  consequences  they 
have  caused"  (citing  cases).  See  also  Sal- 
mon V.  Uiehardson,  3it  Conn.  :-;t')0  (1802). 
•^  L.  K.,  6  H.  L.  377,  overruling  Sey- 
mour V.  Baiishaw,  18  C.  B.  9();i,  and  Bed- 
ford V.  Bagshaw,  4  H.  &  N.  538  ;  explain- 
in<r  Scott  V.  Dixon,  29  L.  J.  (Ex.)  62,  n.; 
and  (Jerhard  v.  ]5ates,  2  El.  &  Bl.  476 
(1853),  and  itself  exi)lained  in  Oargill  v. 
Bower,  L.  R.,  10  Ch.  D.  502  (1878).  In 
Bel  lairs  ».  Tucker,  L.  R.,  13  Q.  B.  D.  563 
(1884S  the  court  seems  to  have  assumed 
a  (lifTerent  position,  and  to  have  treated 
the  prospectus  the  same  as  any  other 
method  of  misi'epreseutution. 
3  62N.  Y.  319. 

3Go 


§§  354,  355.]  THE   CONTRACT  TO   SELL.  [CH.  XX. 

the  prospectus,  he  has  a  right  of  action  for  deceit  against  the 
persons  who,  with  knowledge  of  the  fraiid  and  with  intent  to 
deceive,  pnt  it  in  circulation.  The  representation  was  made  to 
each  person  comprehended  within  the  class  of  persons  who  were 
designed  to  be  influenced  by  the  prospectus  ;  and  when  a  pros- 
pectus of  this  cliaracter  has  been  issued,  no  other  relation  or 
privity  between  the  parties  need  be  shown,  except  that  created 
by  the  wrongful  and  fraudulent  act  of  the  defendants  in  issuing 
or  circulating  the  prospectus,  and  the  resulting  injury  to  the 
plaintiff." 

§  354.  Remedies  for  the  fraud. — There  are  two  methods  by 
which  a  person  who  has  been  fraudulently  induced  to  buy  or 
sell  stock  may  remedy  the  wrong.^  He  may  bring  an  action  at 
law  for  damages  for  the  deceit,  or  he  may  file  a  bill  in  equity  to 
have  the  transaction  set  aside.  The  first  named  remedy  is  the 
most  difiicult,  and  the  last  the  most  easy  to  maintain. 

§  355.  Action  for  deceit. — In  order  to  sustain  an  action  for 
damages  for  deceit,  whereby  plaintiff  was  induced  to  buy  or  sell 
shares  of  stock,  it  is  necessary  for  the  plaintiff  to  prove  that 
statements  were  made  or  acts  done  which  were  fraudulent,  that 
the  person  guilty  of  them  knew  that  they  were  fraudulent,  and 
that  the  plaintiff  acted  on  such  statements  or  acts  in  buying  or 
selling  the  stock.^  In  England,  a  statement  made  recklessly  or 
without  regard  as  to  whether  it  is  true  or  untrue,  may  constitute  a 
fraudulent  intent.^     In  Xew  York,  the  rule  is  more  stringent. 


'  Tn  the  case,  Smith  v.  Tracy,  36  N.Y.  cannot  recover  back  the  money  loaned. 

'75  (1867),  the  Tendee  sued  the  vendor  for  See   Lightfoot   v.    Creed,    8    Taunt.    267 

a  breach  of  warranty,  alleging  tliat  the  (1818),  holding    that  the  vendee  shpuld 

vendor's  agent  made  certain  representa-  declare  not  for  money  paid,  but  specially 

lions  as  to  the  condition  of  the  corpora-  on  the  contract. 

tioD.     The  action  failed  on  the  ground  ^  Arkwright  v.   Newbold,  L.   R.,    17 

that  the  vendor  did  not  authorize  the  Ch.   D    301  (1881);  Arthur  j;.  Griswold, 

agent  to  make  a  warranty.     In  the  case  55  N.  Y.  400,  410  (1874),  the  couit  say- 

Ayres  i'.  French,  41    Conn.   142  (1874),  ing :  "  The  rules  of  law  require  a  reason- 

the  court  held  that  fraud,  inducing  the  able  degree  of  certainty  as  to  each  requi- 

owner  of  stock  to  part  with  it,  may  be  site  necessary  to  constitute  the  cause  of 

remedied  by  the  action  of  trover  with  a  action,  viz.,  representations,  falsity,  sci- 

couiit  in  case  for  a  fraudulent  procure-  enter,  deception,  and  injury." 
ment  and  conversion  of  the   stock.     In  ''  Peek  v.  Gurney,  L.  R.,  6  H.  L.  377, 

thecase,NationalExcbangeCo.  V.Drew,  2  the  court  saying:   "It  is  said   that  the 

Macq.(H.ofL.)103(1855),itwashc'ldthat  prospectus  is  true  as  far  as  it  goes,  but 

where  a  person  is  induced  by  the  fraud-  half  a  truth  will  somttimes  amount  to  a 

ulent  reports  and  representations  of  cor-  real  falsehood."     See  also  Ch.  IX,  §  147. 

porate  officers  to  purchase  stock,  and  the  In  Bellaires  v.  Tucker,  L.  R.,  13  Q.  B.  D. 

corporation  loans  him  money  to  do  so,  it  563    (1884),    however,    the   court   says: 

366 


en.  XX.] 


THE  CONTRACT  TO   SELL. 


[§  ?55. 


The  case  of  Wakeman  v.  Dalley  ^  applies  to  this  class  of  cases 
the  rule  that  "  an  action  founded  upon  tiie  deceit  and  fraud  of 
the  defendant  cannot  be  maintained  in  the  absence  of  proof  that 
he  believed,  or  had  reason  to  believe  at  the  time  he  made  them,  that 
the  representations  made  by  him  were  false,  and  that  they  were 
for  that  reason  fraudulently  made,  or  that  he  assumed  or  intended 
to  convey  the  impression  that  he  had  actual  knowledge  of  their 
truth,  though  conscious  that  he  had  no  such  knowledge." 

This  case  held  that  a  director  is  not  liable  for  false  repre- 
sentations on  the  company's  printed  business  cards,  of  which  he 
was  ignorant,  even  though  his  name  was  attached  thereto.  In 
California,  it  is  held  that  the  purchaser  of  stock  who  has  given 
a  note  in  payment,  cannot  defeat  an  action  on  the  note  by  setting 
up  that  the  purchase  was  induced  by  fraud.  He  must  first  dis- 
affirm the  contract  and  return  the  certificate,  and  such  return 
must  be  made  before  the  triah^  But  where  the  purchaser  brings 
an  action  for  deceit,  he  need  not  return  the  consideration  nor 
rescind  the  contract.^  His  injury  is  to  be  duly  measured,  and 
credit  may  be  given  for  the  real  value  of  the  stock.^     A  director 


"  The  action  is  one  lor  deceit.  It  is  nec- 
essary not  only  to  prove  that  the  state- 
ments in  a  prospectus  or  any  other  docu- 
ment are  not  true,  but  it  must  be  proved 
that  they  are  fraudulently  put  forward 
with  intent  to  deceive." 

'  .51  N.  Y.  27  (1872);  Nelson  v.  Lul- 
ing,  4  N.  Y.  Sup.  Ct.  544  (1873);  affi'd  62 
N.  Y.  645,  the  court  below  saying,  an 
intent  to  deceive  must  oe  proved.  "  This 
intent  may  be  inferred  from  evidence 
showing  that  the  party  making  them 
knew  of  their  falsity  at  the  time, or  at  least 
professed  knowledge  of  their  truth  when 
in  point  of  fact  he  was  conscious  that  he 
had  none.  But  in  either  case,  falsehood 
uttered  with  intent  to  deceive  is  essential. 
Tlie  presumption  is  in  favor  of  innocence, 
and  on  that  account,  the  intent  or  design 
to  deceive  ihv  jjlaintiff  must  be  affirma- 
tively made  out  by  evidence."  But  in  the 
late  and  important  case  of  Schwenck  v. 
Naylor,102  N.Y.  6.38  (1886),  the  court,  per 
Rapallo,  .J.,  clearly  enunciates  the  law  as 
follows :  "  A  false  and  fraudulent  repre- 
sentation, as  to  the  property  of  a  corpo- 
ration, of  material  facts  v^hich  necessarily 
aflfect  the  value  of  shares  of  stock  therein, 
constitutes  a  cause  <>f  action  against  a 
party  inducing  anotlier,  by  means  of  such 
fraudulent    mi-irepreseulations,    to    pur- 


chase such  shares,  quite  as  suffic^ient  as 
if  the  purchase  had  been  of  the  property 
of  the  company,  with  regard  to  which  the 
representation  was  made ;  nor  is  it  ma- 
terial in  either  case,  that  the  purchase 
price  of  the  property,  or  the  money  ad- 
vanced on  the  faith  of  the  representation, 
be  paid  to  the  party  making  it,  for  his 
individual  benefit.  If  known  to  be  false, 
and  made  with  intent  to  deceive  and  de- 
fraud the  person  who  is  thereby  induced 
to  pay  out  his  money,  the  person  guilty  of 
the  fraud  is  liable  to  respond  in  damages, 
on  the  same  principle  on  which  one  per- 
son is  held  liable  in  damages  for  fraudu- 
lently giving  a  false  recommendation  by 
which  another  is  induced  to  give  credit 
to  a  third  party."  See  also  Clark  v. 
Edgar,  84  Mo.  106  (1884);  Gee  v.  Moss, 
12  Eng.  A  Am.  Corp.  Cas.  12.3  (Iowa, 
1886).  Tiie  action  for  deceit  does  not 
lie  against  the  corporation,  at  least 
where  no  fraudulent  intent  is  proved. 
Tinedo  v.  Germania,  Ac,  Co.,  N.  Y.  Daily 
lleg.,  July  29,  1885.     See  also  §  157. 

■'  Giff.rd  V.  Carhill,  29  Cal.  589  (1866). 

^  Miller  v.  liarber.  66  N.  Y.  558,  564 
n876);  Newberyj;.  (Jarland,  31  Barb.  121 
(I860). 

^  See  Ch.  XXXV.] 

3G7 


§  356.]  THE   CONTRACT   TO    SELL.  [CH.  XX. 

is  not  liable  for  the  misrepresentations  and  frauds  of  his  co-direc- 
tors, unless  he  has  expressly  authorized  or  tacitly  permitted  its 
commission.^  The  mere  fact  of  being  a  director  "is  not  per  se 
sufficient  to  hold  a  party  liable  for  the  frauds  and  misrepresenta- 
tions of  the  active  managers  of  a  corporation.  Some  knowledge 
of  and  participation  in  the  act  claimed  to  be  fraudulent  must  be 
brought  home  to  the  person  charged."^  Where,  however,  proof 
is  given,  tending  to  show  that  the  defendants  were  jointly  en- 
gaged in  a  common  scheme  to  defraud  the  plaintiff,  the  acts  and 
declarations  of  one  are  admissible  in  proof  against  all,^and  frauds 
of  a  similar  nature,  at  or  near  the  same  time  as  the  one  com- 
plained of,  may  be  shown. ^  The  fraud  practiced  need  not  have 
been  the  sole  inducement  to  the  purchase.^  A  party  may  be 
liable  herein,  although  he  was  neither  a  corporate  officer  nor  the 
vendor  of  the  stock.  If,  with  intent  to  cheat  and  defraud  the 
vendee,  he  induces  him,  by  fraudulent  means,  to  purchase  stock 
for  value,  which  he  knows  to  be  worthless,  he  is  liable  for  the 
damages  sustained,  although  the  purchase  is  actually  made  from 
another.® 

§  356.  Remedy  in  equity. — A  court  of  equity  has  concurrent 
jurisdiction  with  a  court  of  law  in  enabling  a  purchaser  of  stock 
to  recover  back  money  paid,  where  the  purchaser  was  induced 
by  fraud  chargeable  to  the  vendor.''  In  England,  this  remedy  is 
held  to  be  "  precisely  analogous  to  the  common  law  action  for 
deceit,"  in  that  damages  may  be  awarded;^  the  remedy,  how- 
ever, in  equity,  for  a  sale  or  purchase  of  stock  induced  by  fraud, 
is  by  a  bill  to  set  aside  the  whole  transaction.^     This  remedy 


'  "Weir  V.  Barnett,  L.  R.,  3  Ex.  D.  32.  'Although  courts  of  common  law  may  have 

"  Arthur  v.  Griswold,   55  N.  Y.  400,  jurisdiction  in  some  such  cases,  there  is 

406(1874);  Morgan  i).  Skidd}^  62  N.  Y.  clearly    concurrent  jurisdiction    in    this 

S19.  court,"  doubting  Ogilvie  v.  Currie,  37  L. 

3  Miller  v.  Barber,  66  N.  Y.  558,  567  J.  (Oh.)  541 ;  Campbell  v.  Fleming,  1  Ad. 
(1876).  <fe  El.  40(1834). 

4  Id.  s  Peek  V.  Gnrney,  L.  R.,  5  H.  L.  377, 
^  Morgan  v.  Skiddy,  62  N.  Y.  319,  328,  390  (1 873),  the  court  SLiying.  also :  "  There 

and  see  ("h.  IX.  can  be  no  doubt  that  equity  exercises  a 

*  Hubbell  V.  Meigs,  50  N.  Y.  480,  490  concurrent  jurisdiction   in  cr.ses    of  this 

(1S72).  description,  and  the  same  principles  ap- 

'  Hill  V.  Lnne,  L.  R.,  11  Eq  215,  where  plicable  to  tliera  must  prevail  both  at  law 

the  curt  savs:    "It  is  fo  well   settled  and  in  equity." 

that  this  court  will  entertain  jurisdiction  «  Stainbank*?'.   Fernley,  9    Sim.    556 

in  such  cases,  that  it  would  be  a  mislor-  (1839),  where  a  sale  by  a  directi  r  who 

tune  indeed  to  the  public  i.*"  there  were  has  issued  false  reports,  and  declared  il- 

any   sufficient    ground    for    considering  legal  dividends  was  set  aside.     The  cor- 

that  the  jurisdiction  is  doubtful.     .     .     .  poration  is  a  proper  party  to  such  ac- 

368 


CH.  XX.]  THE   CONTRACT  TO   SELL.  [§  357. 

follows  tlie  rules  usually  prescribed  in  such  suits.  It  is  not  nec- 
essary for  the  complainant  to  prove  a  fraudulent  intent.  Inno- 
cent acts  or  misrepresentations  suffice  for  this  purpose,  where 
they  would  be  insufficient  to  sustain  an  action  for  deceit.^ 

Where,  however,  the  fraud  is  chargeable  to  the  corporate 
officers  or  third  persons,  and  the  vendor  of  the  stock  is  inno- 
cent, the  vendee  cannot  rescind  the  sale.'*  Equity  will  some- 
times compel  the  vendor  to  make  good  his  representations.  Thus 
where  the  vendor  represented  that  the  corporate  property  was 
unincumbered,  equity  will  at  the  instance  of  the  purchaser  of 
stock  enjoin  the  vendor  from  enforcing  a  lien  which  he  has  on 
such  property,^  The  right  to  rescind  the  contract  for  fraud  is 
waived  by  taking  a  bond  of  indemnity  against  liability  on  the 
stock,  such  bond  being  taken  upon  discovery  of  the  fraud.*  The 
purchaser  repudiating  the  transaction  must  tender  back  the  stock 
received  by  him.^ 

§  357.  Fraud  in  selling  stocJc  may  amount  to  a  conspiracy, 

— A  combination  of  persons,  to  fraudulently  raise  the  price  of 
a  stock  by  misrepresentations  and  fraudulent  practices,  may 
amount  to  a  criminal  conspiracy.  In  England,  in  1858,  the 
directors  of  a  joint-stock  bank  were  found  guilty  of  a  conspiracy 
to  defraud,  where,  knowing  the  bank  to  be  insolvent,  they  issued 
a  balance  sheet  showing  a  profit,  and  declared  a  dividend,  and  is- 
sued advertisements  inviting  the  public  to  invest  on  such  repre- 
sentations.^ 


tioDS,  if  a  registry  has  been  obtained  by  *  Bridge  v.  Penniman,  51  Superior  Ct. 

the  person  who  has  obtained  the  stock  (N.  Y.)  183  (1885). 

by  fraud,  since  a  retransfer  on  the  corpo-  '  Francis  v.  New  York  &  B.  El.  R.  R. 

rate  books  is  asked  for.     See  also  Brad-  Co.,  17  Abb.  N.  C.  (N.  Y.)  1  (1886). 

ley  V.  Luce,  99  111.234(1881);  Johnson  «  Regina     v.    Brown    et  al.,    V   Cox's 

r.  Kirby,  65  Cal.  482  (1884).  Criminal  Cases,  442   (1858);    Regina    v. 

'  Arkwright  v.   Newbold,    L.   R.,    11  Esdaile,  1   F.    <fe   F.   213  (1858).     There 

Ch.  D.  301  (1881).  cannot   be   such   an  offense  against  the 

^  Moffat  V.   Winslow,    7    Paige,    124  United  States  by  the  directors  of  a  na- 

(1838).  tional  bank,  since  the  offense  is  not  recog- 

2  Jones  V.  Bolles,  9  Wall.  364  (1869).  nized  by  statute.     United  States  v.  Brit- 
ton,  108  U.  S.  199  (1883). 


[24]  369 


CHAPTEH  XXL 

SALES  OF  STOCK.— MISCELLANEOUS  RIGHTS  OF  THIRD 

PARTIES. 


A. PCECHASES  WITHOUT  A  CERTIFICATE  OF 

THB  Stock. 

§  358.  Rights  of  a  purchaser  of  certificate 
of  stock  where  the  corporation  has 
reoistered  transfer  to  another  with- 
out surrender  of  certificate. 

359.  Liability  of  the  corporation  here- 
in. 

360.  Rights  of  purchaser  of  stock  with- 
out certificates. 


B. — Suits  Affecting  Sales  of  Stock. 

5  361.  Legal  proceedings  as  affecting  a 
sale  of  an  outstanding  certificate 
of  stock. 
362.  Lis  pendens  as  affecting  a  purchase 
of  stock. 


C. FORGEET. 

§  363.  Forgery  as  affecting  a  sale  of  stock. 

364.  Rights  and  liability  of  transferees 
of  forged  certificate  of  stock,  there 
being  no  intervening  registry  on 
corporate  books. 

365-66.  Liability  of  corporation  to  real 
owner  of  stock  for  allowing  regis- 
try of  forged  transfer. 

367.  Rights  ol'  transferees  who  purchase 
after  a  registry  has  been  obtained. 

D. — Stolen  or  Lost  Certificates. 

§  368-69.  Stolen   or   lost    certificates   of 
stock,  indorsed  in  blank,  as  affect- 
ing the  sale  thereof. 
370.  Owner  of  a  lost  certificate  of  stock 
may  obtain  new  certificate. 

§  371  E. — Confiscation  of  Stock. 


A. — Purchases  without  a  Certificate  of  the  Stock. 

§  358.  Biglits  of  a  pin'cliaser  of  certificate  of  stock  ivliere  the 
cor])oration  has  registered  transfer  to  another  ivithout  surren- 
der of  certificate. — It  has  often  happened  that  an  owner  of  stock, 
after  selling  his  stock  and  delivering  to  the  vendee  the  certificate 
therefor,  indorsed  in  blank,  has  gone  to  the  corporation  before 
such  transfer  is  registered,  and  by  misrepresentation  or  other  fraud- 
ulent means  induced  the  corporation  to  issue  to  another  purchaser 
a  new  certificate  of  stock  without  a  surrender  of  the  old  one.  It 
is  the  duty  of  the  corporation  to  refuse  to  register  a  transfer  unless 
the  old  certificate  is  delivered  up.  The  outstanding  certificate  is  a 
continuing  affirmation  by  the  corporation  that  no  registry  of  a 
transfer  of  the  stock  represented  by  that  certificate  will  be  allowed 
until  the  certificate  itself  is  presented  and  surrendered.  This 
afiirmation  is  sometimes  declared  in  a  by-law,^  and  sometimes  it  is 
printed  on  the  face  of  the  certificate  itself.'^     The  obligation  of 


'  Bridgeport  Bk.  v.  New  York  <fc  N. 
H.  R.  R.Co.,  30  Conn.  231  (1861 ) ;  Strange 
■V.  Houston  <fe  T.  C.  R.  R.  Co.,  58  Tex.  162 


(1880);  New  York  &  N.  H.  R.  R.  Co.  v. 
Schuyler,  34  N.  Y.  30  (1865). 

2  Cushman  v.  Thayer  Mfg.  Co.,  76  N. 
Y,  365  (1879). 


370 


CH.  XXI.j 


RIGHTS   OF  THIRD   PARTIES. 


[§  359. 


the  corporation,  however,  to  require  a  surrender  of  the  old  certifi- 
cate upon  obtaining  a  registry,  is  the  same  whether  there  is  a  by- 
law, or  a  statement  on  the  certificate,  or  neither  of  these.  It 
exists  without  any  express  declaration  or  agreement.^ 

§  359.  Liahility  of  the  corjyoration  herein. — It  is  the  duty 
and  right  of  a  corporation  to  refuse  to  allow  a  registry  of  a  trans- 
fer of  stock  unless  the  outstanding  certificate  representing  that 
stock  be  delivered  up  and  cancelled.  And  it  is  a  duty  which  the 
corporation  is  bound  to  fulfill.  If  it  allows  a  transfer  to  be  regis- 
tered without  the  old  certificate  being  produced  and  surrendered, 
it  is  liable  to  any  person  who,  without  notice,  purchases  or  has 
purchased  the  outstanding  certificate.'     This  rule  is  well  estab- 


'  Factors  <fe  T.  Ins.  Co.  v.  Marine  D.  D. 
<fe  S.  Co.,  31  La.  Ann.  149  (1879). 

^  Id.,  where  a  pledgee  recovered  dam- 
ages against  the  corporation  for  issuing 
new  certificates  without  a  surrender  of 
the  one  which  the  plaintiff  held.  Smith 
V.  American  Coal  Co.,  '7  Lans.  317  (1873), 
where  an  unrecorded  transferee  recovered 
damages  against  corporation  for  issuing 
certificate  to  purchaser  at  execution  sale 
on  attachment  against  the  trans- ferrer. 
See  Chapter  on  Attachment  and  Execu- 
tion. Cushman  v.  Thayer  Mfg.  Co.,  76 
N.  Y.  365  (1879),  the  court  saying:  "Any 
act  suffered  by  the  corporation  that  in- 
vested a  tliird  party  with  the  ownership 
of  the  shares,  without  due  production 
and  surrender  of  the  certificate,  rendered 
it  liable  to  the  owner;  and  it  was  its  duty 
to  resist  any  transfer  on  the  books  with- 
out such  production  and  surrender." 
Bank  v.  Linier,  11  Wall.  869  (1870),  the 
court  saying:  "  It  is  equally  clear  that  the 
bank,  in  allowing  this  stock  to  be  trims- 
ferred  to  other  parties  while  the  certifi- 
cates were  outstanding  in  the  hands  of 
bonafiile  holders,  was  guilty  of  a  breach 
of  corporate  duty,"  and  is  liable.  New 
York  &  N.  II.  R.  R.  Co.  v.  Schuyler,  34 
5^.Y.  30,  81  (1805);  Holbrook  v.  New 
Jersey  Zinc  Co.,  57  N.  Y.  616  (1874),  the 
court  saying:  "  It  cannot  be  denied  that 
if  a  corporation  having  power  to  issue 
stock  certificates  docs  in  fact  issue  such  a 
certificate,  in  which  it  affirms  that  a  des- 
ignated person  is  entitled  to  a  certain 
number  of  shares  of  stock,  it  thereby  holds 
out  to  persons  who  may  deal  in  goorl  faith 
witii  the  person  named  in  the  certificate, 
that  he  is  an  owner  and  has  cafiacity  to 
transfer  the  shares.  This  proposition  docs 


notrest  onany  view  of  the  negotiability  of 
stock,  but  on  the  general  principles  apper- 
taining to  the  law  of  estoppel."  Moores  v. 
Citizens  Natl.  Bk.,  Ill  U.  S.  156  (1883), 
where  tne  court  seems  to  hold  that  the 
person  receiving  new  certificates  without 
requiring  a  surrender  of  the  old  ones,  is 
not  such  a  bona  fide  transferee  of  stock  as 
may  hold  the  corporation  liable.  Bris- 
bane V.  Delaware,  L.  &,  W.  R.  R.  Co..  94 
N.  Y.  204  (1883);  affi'g  25  Hun,  438,  and 
holding  that,  until  the  purchaser  of  the 
outstanding  certificates  presents  them, 
the  corporation  is  protected  in  paying 
dividends  to  the  transferee  without  the 
old  certificates.  If  no  certificate  has 
been  issued,  the  rule  does  not  apply. 
First  Natl.  Bk.  v.  Giflford,  47  Iowa,  575 
(1877).  The  unregistered  holder  of  the 
certificates  is  protected,  since,  if  he  were 
obliged  to  notify  the  corporation  at  the 
time  he  purchases  the  stock,  "the  value 
of  these  certificates  as  a  basis  of  credit 
would  be  greatly  impaired,  particularly 
where  the  pledge  is  made  at  a  distance 
from  the  domicile  of  the  corporation." 
Smith  V.  Crescent  City,  <fec.,  Co.,  30  La. 
Ann.  1378  (1878);  Bridgeport  Bk.  v.  New 
York  &  N.  H.  R.  R.  Co.,  30  Conn.  231 
(1861),  the  court  saying:  "  The  bona  fide 
holders  of  such  certificates  had  a  right  to 
rely  on  the  certificate,  under  the  circum- 
stances, as  securing  to  them  the  slock 
which  they  represented  against  all  other 
parties."  Strange  v.  Houston  &,  T.  C.  R. 
R.  Co.,  53  Texas,  162  (1880),  on  the 
ground  that  the  non-production  of  the  or- 
iginal certificate  "  is  notice  to  the  com- 
pany tli.it  a  superior  title  may  be  in  a 
third  party."  Lee  v.  Citizens  Natl.  Bk., 
2  Cin.  Sup.  Ct.  298  (1872),  holding  that 

371 


§359.] 


RIGHTS   OF   THIRD   PARTIES. 


[CH.  ixr. 


lished,  and  is  based  on  the  usages  and  requirements  of  trade,  and 
on  a  wise  public  policy  which  favors  the  protection  of  those  who 
invest  their  money  in  certificates  of  stock,  relying  upon  the  cor- 
poration to  protect  the  holder  of  that  certificate.-*  Thus  the  cor- 
poration has  been  held  liable  where  seventeen  years  have  elapsed 
since  a  new  certificate  was  obtained,  on  the  ground  that  the  out- 
standing certificate  has  been  lost.'^  The  corporation  need  not 
assume  any  risk,  but  may  refuse  to  permit  a  registry  on  its  books 
of  the  transfer  unless  the  old  certificate  is  produced  and  sur- 
rendered.^     "Where,  however,  the  corporation   is   compelled   to 


the  holder  of  the  old  certificates  is  entitled 
to  have  the  illegal  registry  cancelled.  In 
England  there  seems  to  be  no  decision 
directly  in  point.  A  dictum,  however,  in 
Shropshire  U.  Ry.  &  Canal  Co.  v.  Queen, 
L.  R,  7  H.  L.  496,509  (1875),  does  not 
support  the  rule  which  prevails  in  this 
country.  The  court  said,  whether  a  trans- 
fer of  shares  in  a  company  can  or  cannot 
be  made  without  the  production  of  the 
certificates  of  the  shares  is  "  entirely 
within  the  discretion  of  the  directors. 
They  were  not  bound  to  permit  a  transfer 
without  the  production  of  the  certificate, 
but  though  not  bound  to  permit  a  trans- 
fer, I  apprehend  they  would  not  be  in  any 
way  answerable  if  the  transfer  should  be 
in  any  case  made  without  the  production 
of  the  certificates  of  the  shares."  The 
case  of  Hart  v.  Frantino,  Ac,  Gold  Min. 
Co.,  L.  R.  5  Ex.  Ill  (1870),  holds,  how- 
ever, that  where  the  corporation  cancels 
the  stockholdership  of  one  who  purchased 
after  rejiistry  without  a  surrender  of  the 
old  certificates  having  been  obtained,  he 
may  hold  it  liable  in  damages.  As  between 
two  unrecorded  transfers,  one  having  the 
certificate  and  the  other,  a  subsequent 
purchaser,  not  having  it,  the  former  pre- 
vails. Societe  Gen.  v.  Tramways  Union 
Co.,  L.  R.  14  Q.  B.  D.  424  (1884). 

'  Factors  &  T.  Ins.  Co.  v.  Marine  D. 
D.  &  S.  Co.,  31  La.  Ann.  149  (1879),  the 
court  saying:  "We  think  that  by  thus 
making  stocks  transferable  by  mere  de- 
livery of  the  certificate,  the  law  has  in- 
tended to  interdict  corporations  from 
transferring  stocks  on  their  books,  except 
upon  surrender  of  the  certificate  or  upon 
proof  of  its  loss  or  destruction.  These 
certificates  of  stock  have  become  siich 
important  factors  in  trade  and  credit  that 
the  law  has  intended  to  surround  those 
who  take  them  with  the  safeguards  it  ac- 
cords to  the  holders  of  the  other  great 

372 


agencies  of  commerce — bills,  notes,  bills 
of  lading,  &c." 

•2  Cleveland  &  M.  R.  R.  Co.  v.  Robbins, 
35  0.  St.  483  (1880).  But  is  not  liable  for 
dividends  paid  in  the  meantime.  It  was 
held  further,  that  a  by-law  allowing  such 
issue  of  new  certificates  in  case  of  loss,  had 
no  effect  as  regards  the  plaintiff,  and  that 
the  Statute  of  Limitations  ran  against  the 
plaintiff  only  from  the  time  he  had  notice 
of  the  new  certificate.  By  statute,  in 
New  York,  the  person  claiming  to  have 
lost  his  certificate  may  be  compelled  to 
give  a  bond  of  indemnity  to  the  corpora- 
tion before  obtaining  new  certificates,  and 
a  holder  of  the  old  certificates  may  have 
the  benefit  of  this  bond.  N.  Y.  Session 
Laws,  1873,  ch.  151.  See  §  370.  Such 
a  subrogation  was  refused  in  Greenleaf  v. 
Ludington,  15  Wis.  558  (1862). 

^  The  corporation  may  refuse  to  issue 
stock  to  the  heirs  of  a  stockholder  unless 
they  surrender  the  old  certificates.  State 
V.  New  Orleans  &  C.  R.  R.  Co.,  30  La. 
Ann.  308  (1878);  National  Bk.  of  New 
London  v.  Lake  S.  <fe  M.  S.  R.  R.  Co.,  21 
0.  St.  221  (1871),  where  the  corporation 
refused  to  allow  registry  by  a  purchaser 
at  an  execution  sale,  although  it  was  quite 
plain  that  the  judgment  debtor's  sale  of 
the  certificates  had  been  in  fraud  of  cred- 
itors. As  between  two  unregistered 
transferees,  the  one  with  the  certificate  is 
entitled  to  the  stock,  especially  where  ha 
purchased  first.  Maybin  v.  Kirby,  4  Rich. 
Eq.  (S.  C.)  105  ;  Societe  Generale  de  Paris 
^j.Walker,  L.  R.  11  H.  of  L.  20;  affig  L. 
R.  14  Q.  B.  D.  424.  So  also  as  between 
a  bona  fide  purchaser,  to  whom  the  certif- 
icates are  transferred,  and  a  third  party, 
to  whom  the  vendor  had  given  the  stock 
previous  to  the  sale,  tlie  vendee  with  the 
certificates  is  protected.  Crawford  v. 
Dox,  5  Hun,  507  (1875). 


CH.  XXI.]  RIGHTS   OF   THIRD   PARTIES.  [§  360. 

make  the  registry  by  legal  proceedings,  as  in  case  of  execution 
sales,  it  cannot  be  held  liable  to  the  holder  of  the  outstanding 
certificate.^  The  corporation,  when  sued  by  the  holder  of  the  old 
certificate,  is  required  either  to  replace  the  stock  which  has 
wrongfully  been  taken  from  the  plaintiff,  or  it  is  obliged  to  com- 
pensate him  in  damages. 

§  360.  Bights  of  purchaser  of  stock  ivithout  certificates. — 
A  purchaser  of  stock  who  does  not  receive  the  certificates  of 
the  stock  he  has  purchased,  but  who,  nevertheless,  obtains  a 
registry  on  the  corporate  -books,  and  receives  new  certificates 
without  a  surrender  of  the  old,  and  who  sells  the  new  certifi- 
cates, is  not  liable  in  damages  to  the  holder  of  the  old  certifi- 
cates.'^ The  remedy  of  the  latter  is  against  the  corporation,  or  he 
may  sue  the  corporate  officer  who  allowed  the  transfer.^  The 
purchaser  of  the  stock  may  insist  on  the  old  certificate  being 
produced  and  surrendered  at  the  time  of  registration,  but  if  he 
waives  this  right,  and  a  registry  is  made,  he  cannot  afterwards 
refuse  to  accept  the  stock  on  that  account.*  The  coi'poration  is 
not  liable  to  the  person  who  is  registered  as  a  stockholder  without 
a  surrender  of  the  old  certificate,  at  least  not  where  the  registry 
is  by  the  secretary,  without  special  authority  from  the  board  of 
directors.''  Where,  however,  the  purchaser  of  stock  without  the 
certificates  obtained  registry  on  the  corjiorate  book,  the  corpora- 
tion cannot  afterwards  remove  his  name  in  favor  of  the  purchaser 
of  the  old  certificate.  The  former  may  compel  the  corporation 
to  replace  his  name.' 


'  Friedlander  v.  Slaughter  House  Co.,  old  certificates,  a  regular  registry  with  a 

-31  La.  Ann.  523  (1879).     See  also  Chap,  surrender    of    such    certificates    having 

XXII,  §  388.  previously  been  obtained  by  another.  Cf. 

'^   Bilker   v.   Wasson,    53   Texas,    150  Hart  v.  Frantino,  &c.,  Co.,  22  L.  T.  (N. 

(1880).     Unless  he  obtained  registry  with  S.)  30. 

knowledge  that  his  vendor  had  already  ^  Cady  v.  Potter,  55  Barb.  463  (1869). 

sold  tiie  old  certificates  to  another.   Scrip-  In   Piatt   v.    Birtningham    Axle    Co.,    41 

ture  I).  Francestown  Soapstone  Co.,50N.  Conn.   255   (1874),  the   corporation   was 

H.  57?  (1871).  protected  by  its  lien,  and  the  fact  that  it 

•*    Baker   v.   Wasson,    59   Texas,    140  bought  the  stock  without  the  ceriificates 

'(18^3).  was  not  tlie  essential   point  of  tiio  case. 

■•  Boatmen's  Ins.  &  Trust  Co.  v.  Able,  The  corporation  cannot  interplead  after 

48  Mo.  136  (1871).  it  has  allowed  the  transfer.     Cadyi;.  Pot- 

5  Hall  V.  Rose  Hill  &  E.  lioad  Co.,  70  ter,  supra;  Mt.  Holly  L.  &  M.  t.  Co.  v. 
111.  673  (1873);  Houston  &  T.  C.  Ry.  Co.  Fcrrie,  17  N.  J.  Eq.  117(1864),  but  it  may 
-0.  Van  Alstyne,  56  Tex.  439  (1882),  hold-  interplead  if  it  has  refused  to  transfer  to 
ing  that  the  corporation  is  not  bound  to  any  one.  Merchants  Natl.  Bk.  v.  Rich- 
recognize  as  a  stockholder  on(3  who  ol)-  ai'ds,  6  Mo.  App.  454  (1879). 
tains  registry  without  a  surrender  of  the 

373 


§  361.]  RIGHTS   OF  THIRD   PARTIES.  [CH.  XXI. 

B. — Suits  Affecting  Sales  of  Stock. 

§  361.  Legal  proceedings  as  affecting  sales  of  outstanding 
certificates  of  stoclc. — It  is  a  well  established  principle  of  law 
that  shares  of  stock  may,  for  certain  purposes,  have  a  situs  at  two 
separate  places  at  the  same  time.  For  the  purposes  of  suits  con- 
cerning rights  to  its  title,  for  taxation,  and  for  a  few  other  purposes, 
shares  of  stock  follow  the  domicile  of  the  stockholder.^  On  the 
other  hand,  it  lias,  at  the  same  time,  a  situs  where  the  corpoi*ation 
exists,  and  this  situs  may  be  for  the  purposes  of  suits  concerning 
the  title  to  the  stock,  for  attachment  and  execution,  and  for  vari- 
ous other  similar  purposes.  Great  difficult}^  arises  in  many  in- 
stances of  legal  proceedings  affecting  the  title  to  stock  by  reason 
of  the  fact  that  where  the  defendant  has  in  his  possession  the 
certificates  of  stock,  and  is  not  enjoined  from  transferring  them,. 
he  may  transfer  them,  eitiier  before  or  during  or  after  suit  has 
been  commenced  against  him  to  obtain  possession  of  the  stock 
represented  by  such  certificates,  or  to  subject  it  to  his  debts.  The 
question  then  arises  whether  the  ho7-ia  Jide  transferee  of  such 
stock  is  to  be  allowed  to  retain  the  stock,  or  whether  the  success- 
ful plaintiff  in  the  suit  against  the  defendant  who  has  transferred 
the  stock,  may  follow  such  stock  and  take  it  from  the  transferee. 
This  conflict  of  right  between  the  purchaser  of  outstanding  cer- 
tificates and  the  purchaser  whose  title  is  based  on  judicial  proceed- 
ings, arises  most  often  in  cases  of  attachment  or  execution  issued 
against  shares  of  stock,  at  the  domicile  of  the  corporation.  In 
such  cases  the  better  rule  seems  to  be  that  transferees  of  the  cer- 
tificate held  by  the  defendant,  are  protected  and  entitled  to  pro- 
tection at  the  hands  of  the  corporation,  if  their  purchase  is  made 
before  the  attachment  or  execution  is  levied,  but  that  transfers 
made  after  levy  are  utterly  void  so  far  as  the  corporation  and  the 
plaintiffs  to  the  suit  are  concerned,  provided  the  suit  itself  is  suc- 
cessful.^ The  same  difficulty  and  conflict  of  rights  arise  in  suits 
to  reclaim  stock,  which  has  been  taken  from  the  plaintiff  by  fraud,^ 
or  by  the  torts  of  an  agent  or  pledgee,  or  by  the  breach  of  trust 
of  an  executor,  administrator,  guardian,  or  trustee.^     The   plain- 


'  Certificates  of  stock  have  no  situs  or  '  Smith  v.  American  Coal  Co.,  Y  Lans. 

domicile.     They  cannot  be  attached  or  31T(1873);  Smith  r.  Crescent   City,  <fec. 

subjected     to    execution.       The      stock  Co.,  30  La.  Ann.  1378  (1878),  and  Chapter 

itself  does  not  follow  the  certificate  rep-  on  Attachment  and  Execution, 

resenting  it.     Winslow  v.  Fletcher,  4  Atl.  ^  Holbrook  n.  New  Jersey  Zinc    Co., 
Rep.  250  (Conn.  April,  1886). 

374 


CH.  XXI.]  RIGHTS   OF  THIRD  PARTIES.  [§§  362,  363. 

tiff  seeking  to  recover  his  stock,  certificates  for  which  are  in  the 
hands  of  the  defendant,  seems  to  have  but  two  modes  of  pro- 
cedure whereby  he  may  prevent  the  defendant  from  transferring 
the  certificates.  The  suit  should  be  brouo^ht  in  the  State  of  the 
domicile  of  the  corporation  and  attachment  against  the  stock 
issued/  or  when  the  defendant  is  sued  in  another  State,  an  injunc- 
tion restraining  the  defendant  from  transferring  the  stock  should 
be  obtained,  it  is  true  that  after  judgment  has  been  obtained 
and  the  decree  of  the  court  executed,  any  subsequent  transfer  of 
the  certificates  by  the  defendant  is  null  and  may  be  disregarded 
by  the  plaintiff  and  by  the  corporation.'^  But  while  the  suit  is 
pending  the  defendant  may  transfer  the  certificates  and  the  bona 
fide  transferee  takes  a  good  title  to  the  stock.  The  latter  is  not 
aflfected  or  bound  to  take  notice  of  a  lis  pendens  in  that  suit. 

§  362.  Lis  pendens  as    affecting  a   purchase  of  stock. — A 

purchaser  of  certificates  of  stock  is  not  chargeable  with  construc- 
tive notice  that  a  suit  is  pending,  in  which  his  vendor  is  defend- 
ant and  the  plaintiff  is  endeavoring  to  obtain  possession  and  title 
to  the  stock  which  the  purchaser  is  buying.  The  doctrine  of  lis 
pendens  has  no  application  to  sales  of  shares  of  stock.  The  pur- 
chaser is  bound  to  know  that  a  judgment  or  decree  has  been 
rendered  and  executed,  affecting  the  certificates  he  is  buying,  if 
such  a  judgment  or  decree  exists,  but  he  is  not  bound  to  know 
that  a  suit  is  pending,  in  which  judgment  has  not  yet  been  ren- 
dered. That  a  lis  pendens  in  a  suit  involving  shares  of  stock 
does  not  affect  a  purchaser  of  the  certificate  representing  those 
shares,  the  purchase  being  made  while  the  suit  is  pending,  was 
clearly  established  by  the  Court  of  Appeals  of  New  York,  in  the 
case  of  Holbrook  v.  New  Jersey  Zinc  Company.' 

C— Forgery. 

§  363.  Forgery  as  affecting  a  sale  of  stock. — An  owner  of 
shares  of  stock  cannot  be  deprived  of  his  property  by  a  forgery 


61  N.  Y.  616  (18Y4);  Leitch  j<.  Wells,  48  Appeal,   9'7   Perm.  St.  153  (1881),  where 

N.  Y.  585  (1872).  the  court  refused  to  pass  upon  this  ques- 

'  Quarl  V.  Abbett,    13    Am.     &     Eng.  tion  ;  also  J',aiik  of  Va.  v.  *  raig,  G  Leigh 

Corp.  Cases.  27  (Ind.  1886).  (Va.),  399,  436  (1885),  holding  tliat  a  lis 

'  Sprague  v.    Cacheco  Mfg.    Co.,    10  pendens  in  a  suit  by  sureties,   to  restrain 

Blatclif.  173  (1872).  guardian  froui  selling  stock,  is  not  notice 

'■'  57  N.Y.  610(187-1),  following  Leitch  to  the  corporation  to  refuse  to  allow  him 

r. Wells,  48  N.Y.  586  (1872).    See  Dovey's  to  register  a  transfer. 

375 


§  363.]  RIGHTS   OF   THIRD   PARTIES.  [CH.  XXI. 

throuo-h  which  his  certificates  of  stock  pass  into  the  hands 
of  innocent  purchasers.  He  may  be  deprived  of  his  stock,  but 
has  in  lieu  thereof  the  right  to  collect  the  value  of  that  stock, 
either  from  the  corporation  or  from  parties  who  have  held  the 
stock.  The  rights  and  remedies  of  the  stockholder,  who  has  lost 
possession  of  certificates  of  stock  by  forgery,  vary  according  to 
the  extent  to  which  his  certificate  has  been  transferred.  This 
remedy  may  be  against  the  transferees  of  the  certificate  before  a 
registry  has  been  obtained,  or  it  may  be  against  the  corporation 
for  allowing  a  registry,  or  it  may  be  against  the  person  obtaining 
the  registry.  The  forgery  itself  may  consist  of  any  writing  on  the 
certificate  of  stock,  whereby,  with  intent  to  defraud,  it  is  false- 
ly and  materially  so  made  or  altered  as  to  have  an  apparent  legal- 
ity.^ Generally  the  forgery  is  of  tlie  name  of  the  stockholder 
to  the  transfer  or  power  of  attorney  on  the  back  of  the  certifi- 
cate.'^ The  forgery  may,  however,  be  committed  by  changing  the 
number  of  shares  of  stock  which  the  transferrer  has  written  out 
in  the  certificate,^  or  by  inserting  the  numbers  of  shares  of  stock 
of  one  corporation,  in  a  blank  transfer  duly  signed  by  the  stock- 
holder, but  signed  for  the  purpose  of  transferring  shares  of  stock 
in  another  and  different  corporation.*  The  forgery  may  also  be  by 
an  officer  of  the  corporation  who  forges  the  necessary  names  of  the 
corporate  officers  to  the  certificate,  and  puts  it  in  circulation.^ 


'  See  Bouvier's  Dictionary,  vol.  I,  p.  Water  Power  Co.,  86  Mass.   277  (1862), 

679  •  2  Bishop's  Criminal  Law,  §  523.  where  the  alteration    was   treat(3d  as   a 

*'Nearly  all   of  the   cases  in  several  forgery,  so  far  as  legal  rights  were  con- 

foUowiag   sections   are   cases  of   a  forg-  cerued,  although  the  alteration  was    due 

ery  of  the  stockholder's  name  to  a  trans-  to  an    innocent    misunderstanding  of  a 

f>r    or   a   power   of   attorney.      Signing  clerk. 

a  transfer   instead  of  a  power  of   attor-  ^  Swan  v.  North  Britisli  Co.,  7  H.    <fe 

ney  is   about   the   same    thing.      "The  N.  603  (1862),  practically  overruling  £"3; 

difference  between  the  two  modes  is  theo-  par/e  Swan,  7  C.  B.  N.  S.  400. 
retical  rather  than  practical."     Boston  &  '  Shaw  v.  Port  Philip  &  C.  Gold  Min. 

Albany  R.    R.    Co.   v.   Richardson,    135  Co.,  L.  R.  13  Q.  B.  D.  103  (1885),  where 

Mass.  473  (1883).     It  is   forgery  for  one  the  corporation  was  held  liable  on  a    cer- 

trustee  to  write  in  the  names  of  the  other  tificate  signed  and  issued  by  the   secre- 

trustees    without  authority,    Cottam    v.  tary  of    the    corporation,   but   who  had 

Eastern  Counties  Ry.  Co.,  1  J.  <fe  H.  243  forged  thereto   the   names  of  the   other 

(1860);  Sloman  v.  Bk.  of  Eng.,  14    Sim.  corporate  officers  whose  signatures  were 

475(1845),  or  for  one  partner  to   write  necessary  to  the  issue  of  a  certificate    of 

in  the  name  of  the  other   partner,    with-  stock.     Cf.  Duncan  v.  Luntley,  2   McN. 

out- authority,  where  the  stock   stood  in  <fe  G.  30  (1849).     By  statute  in    many  of 

their  ioint  names.     Midland   Ry.   Co.  v.  the    States   such   forgeries    are    made  a 

Taylor   8  H    L.  Cases,  751  (1862),  affi'g  special  criminal  offeuse.     Regina  i'.  Nash, 

Taylor'?;.  Midland  Ry.  Co.,  29  L.J.  (Ch.)  2  Denison's  Crim.  C.    493    (1852);   New 

731(1860).  York  Penal  Code,  §591.      See  also   Man- 

'  Matthews    v.    Mass.    Nat.    Bk.,    1  hattan   Beach  Co.    v.     Harned,  27    Fed. 

Holmes,  396  (1874);  Sewall   v.    Boston  Rep.  484  (,1886),  where,  however,  the  ia- 

376 


CH.  XXI.]  RIGHTS   OF  THIRD   PARTIES.  [§  364. 

§  .364.  Eights  and  UaUUties  of  transferees  of  forged  cer- 
tificates of  stock,  tliere  leing  no  intervening  registry  on  cor- 
porate looks. — The  position  of  a  transferee  of  a  certificate  of 
stock  which  is  invalid  by  reason  of  forgery,  depends  largely  on 
whether  there  has  been  an  intervening  registry  of  transfer  on 
the  corporate  books,  since  the  former  owner  was  deprived  of 
his  stock  by  the  forgery.  The  forger  himself  is  of  course  liable, 
not  only  to  the  real  stockliolder,  but  also  to  any  other  person  who 
has  been  injured  by  the  forgery.  If  the  purchaser  of  stock,  from 
one  who  has  forged  a  transfer  of  the  same,  sells  the  same  after 
being  notified  by  the  real  owner,  that  the  latter  claims  the  stock 
and  has  been  deprived  of  it  by  forgery,  the  real  owner  may  re- 
cover damages  in  trover  for  the  value  of  the  stock  from  the  per- 
son who  so  sells,  although  he  purchased  in  good  faith  and  with- 
out notice  of  the  forgery.^  If  the  forgery  is  committed  by  a 
member  of  a  firm,  the  real  owner  may  sue  the  firm  for  money 
had  and  received  and  may  recover  the  value  of  the  stock  and 
dividends.^  Where  the  forger  has  sold  the  stock  to  a  purchaser 
without  notice,  and  the  latter  has  sold  to  another  purchaser  with- 
out notice,  and  the  latter  is  deprived  of  his  apparent  ownership 
on  account  of  the  forgery,  the  second  transferee  may  hold  the 
first  transferee  liable.^  This  principle  grows  out  of  the  well  es- 
tablished rule  of  law  that,  in  a  sale  of  chattels,  there  is  an  implied 
warranty  of  title,  unless  the  circumstances  are  such  as  to  give 
rise  to  a  contrary  presumption.  The  broker  or  auctioneer  of 
stock  which  passes  through  their  hands,  cannot,  it  seems,  be  held 
liable,  though  it  turns  out  that  on  account  of  a  forgery,  there  was 
no  title  to  the  stock  in  the  party  whom  they  represented.*  The 
transferee,  whose  title  to  the  stock  he  has  purchased  is  based  on  a 
forgery,  has  no  rights  as  against  the  corporation,  where  there  has 
been  no  registry  on  the  corporate  books  between  the  date  of  the 
forger's  transfer  and  the  date  of  the  transfer  first  mentioned. 
He  cannot  compel  the  corporation  to  allow  him  to  register  his 


sue  was  by  fraud,   rather   than    fori^ery.  trcmely  harsh  case,  involvinf^  a  rij:^id  ap- 

Moores  w.  Citizens' Nat.  lik.,   Ill    U.  "S.  plication  of  the  principle,   since  the  de- 

157(1883).     See  also  §  294.  fendant's  name  appeared  on  the  back  of 

'  Monk  V.  Graham,  8  Mod.  9  (1721).  the  certificate   of  stock   as  a  traiii^ferrer, 

'  Marsh    v.     Keating,    1    liin-j;.    New  when  in  fact  he  had  only  been  a  pledgee, 

Oases,  198  (1834);  Marsh  v.  Stone,  6  B.  and  on  payment  of  the   pledge   had   re- 

<fe  C.  551  (1827).  transferred  the  stock. 

»  Matthews    v.    Mass.    Nat.   Bank,     1  *  Machinists'    Nat.     Bk.    v.  Field,    126 

Hdmes    396(1874).     This   was   an    ex-  Mass.  345  (1879). 

377 


§  365.]  RIGHTS   OF   THIRD   PARTIES.  [CH.  XXI. 

transfer.  If  the  corporation  has  already  registered  him  as  trans- 
feree it  may  repudiate  its  registry,  so  far  as  he  is  concerned,  and 
refuse  to  recognize  him  as  a  stockholder  or  as  having  the  right  to 
transfer  the  stock.^  Such  a  registered  transferee  has  no  right  of 
action  against  the  corporation  by  reason  of  its  rescission  of  his 
registry,^  although  the  rule  may  be  different  if  he  purchased  by 
reason  of  the  fact  that  he  was  allowed  such  registry  on  the  cor- 
porate books.^  On  the  other  hand  it  is  the  transferee  obtaining 
registry,  who  warrants  the  validity  of  his  title  and  right  to  trans- 
fer, and  if  the  corporation  is  compelled  to  pay  damages  to  the 
real  owner,  on  account  of  allowing  such  registry,  it  may  have  re- 
course to  and  collect  the  same  damages  from  the  transferee  who 
obtained  the  registry,  however  innocent  the  latter  may  have 
been.^  The  person  who  first  obtains  a  registry  after  a  forgery 
has  deprived  the  real  owner  of  his  stock,  cannot  retain  the  new 
certificates  as  against  the  i;eal  owner  of  the  old  ones.^ 

§  365.  LiaMlity  of  corporation  to  real  owner  of  stock  for 
alloiving  registry  of  forged  transfer. — It  is  the  duty  of  a  cor- 
poration to  prevent  and  refuse  a  registry  of  transfer  of  stock, 
where  that  transfer  has  been  forged.  If  the  corporation  fails  to 
detect  the  forgery  it  is  liable  to  the  real  owner  of  the  stock  who 
has  been  deprived  of  it  by  the  forgery.®     It  has  been  held  that 


'  Simon  v.  Anelo- Am.  Tel.  Co.,  L.   R.     lost  the  first  loan,  but  had  recourse  to  the 


'& 


6  Q.  B.  D.  188    (1879);  Whitewright  v.  corporation  for  the  second  loan. 
American  Tel.  &  Cable  Co.,  N.  Y.    Daily  *  Boston     &    Albany    R.    R.    Co.    v. 

Reg.    Aug.    6th,    1886    (Superior  Ct.) ;  Richardson,  135    Mass.    423    (1883),  the 

Waterhouse  v.  London  &  S.  W.    Ry.  Co.  court  saying  also  in  a   dictum,   that  the 

41  L.  T.  N.  S.  553  (1880);   Hambleton  v.  defendant  has  a  remedy  over  against  the 

Central  0.  R.  R.  Co.,  44  Md.  551  (1876) ;  parties  that  sold  to  him. 
Brown  t).  Howard  Ins.  Co.,  42   Md.  384  '  Johnston  ».Kenton,L.R.9  Eq.Cas.l81 

(1875)  ;  Hildyard  v.  South  Sea  Co.,  2  P.  «  Pratt  v.  Taunton  Copper  Mfg.   Co., 

Wms.    76   (1722).      Cf.  Ashby  v.  Black-  123  Mass.  110(1877);  Sewall  v.   Boston 

well,  2  Eden,  299  (1765),  holding  the  cor-  Water  Power  Co.,  86  Mass.   277  (1862) ; 

poration  liable  not  only  to  the  real  owner,  Pratt  v.  Boston  &  Albany  R.  R.  Co.,  126 

but  also  to  the  transferee  obtaiuirjg  regis-  Mass.  443  (1879);  Johnson  v.  Renton,  L. 

try.     See  following  section  for  rights  of  R.,  9  Eq.  181  (1870);  Cottam  i;.  Eastern 

transferee  of  the  first  registered   holder.  Counties  Ry.  Co.,  1  J.  <fe  H.   243  (1860) ; 

-  Id.  Midland  Ry.  Co.  v.  Taylor,  8  H.  L.  Cases, 

3  Metropolitan  Sav.  Bk.  v.  Mayor,  <fec.  751  (1862) ;  affi'g  Taylor  v.  Midland  Ry. 

of  Baltimore,    63  Md.  6(1884).     In  this  Co.,  29  L.    J.  (Ch.)  731  (1860);  Davis  v. 

case  the  plaintiff  took  the  forged  certifi-  Bk.  of  Eng.,  2   Bing.  393  (1824);  Swan 

cates  in  pledge  from  the  forger.     After-  v.  Noi-th   British  Aus.    Co.,    7  H.  <fe  N. 

wards,    upon   the  forger's  applying  for  a  603  (1862),  substantially  overruling  same 

further  loan  on  the  same  pledge  of  stock,  case  in  court   of  law.     Ex,  pavte  Swan,  7 

corporation  refused  unless  the   stock  C.B.N.   S.  400   (1859);  Pollock  v.   Na- 

was  registered  in  its  name,   which   was  tional  Bank,  7  N.  Y.  274  (1852);  Day  v. 

accordingly  done.     Held  that  the  bank  American  Tel.  &  Cable  Co.,  N.  Y.  Daily 

378 


OH.  XXI.] 


RIGHTS   OF   THIRD   PARTIES. 


[§365. 


the  owner  of  the  stock  may  compel  the  corporation  to  cancel  the 
illegal  registry  and  restore  tlie  name  of  the  plaintift.^  The  better 
rule,  however,  is  that,  inasmuch  as  a  hona  fide  transferree  of  the 
illegally  registered  transferer  is  entitled  to  retain  the  stock,  the 
former  owner  of  the  stock  in  suing  the  corporation  should  demand 
relief  in  the  alternative,  that  the  stock  be  restored  to  him  or  that 
he  be  given  damages  in  lieu  thereof.'^  Or  he  may  demand  that 
the  corporation  replace  the  stock  by  going  into  the  market,  if 
necessary,  and  purchasing  similar  stock.^  If  the  stockholder  sues 
the  corporation  for  a  dividend  on  stock  which  by  a  forged  assign- 
ment has  been  registered  in  the  name  of  another  person,  the  cor- 
poration cannot  interplead.*  A  court  of  equity  has  concurrent 
jurisdiction  with  law  in  remedying  a  forged  transfer  of  stock.^ 
The  corporation,  the  co-conspirators  and  the  transferees  of  the 
forged  certificate  are  all  proper  parties  to  the  suit,'  but  the  only 
necessary  party  is  the  corporation  itself.'  Where  the  corporation 
is  sued  by  the  real  owner  of  the  stock  for  allowing  the  registry  of 
a  transfer  based  on  forgery,  it  cannot  institute  an  independent 
action  bringing  in  all  the  parties  interested  and  enjoining  the 
action  of  the  owner  of  the  stock.^     The  latter  is  entitled  to  his 


Reg.,  July   18th  (1885);  Dalton  ?».  Mid- 
land Ry.  Co.,  12  C.  B.  458(1852);  Mayor, 
(fee,  (if  Baltimore  v.  Ketchum,  57  Md.  23 
(1881);  Coates  v.  London  &  S.  W.  Ry. 
Co.,  41  L.  T.  N.  S.  553  (1880) ;  Blaisdell 
V.   Bohr,    68  Ga.  56  (18sl);    Sloman  v. 
Bk.  of  Eng.,  14    Sim.    475  (1845);   Tele- 
graph Co.    »>.  Davenport,  97   U.    S.  369 
(1878),  where  the  court  says,  "  Upon  the 
facts  stated  there  ought  to  be  no  question 
as  to  the  right  of  the  plaintiffs  to  have 
their  shares  replaced  on  the  books  of  the 
company  and  proper  cerlificiites  issued  to 
them,   and  to  recover  the  dividends  ac- 
crued on  the  shares  after  the  unautliorized 
transfer;    or   to  have   alternative    judg- 
ments for  the  value  of  the  shares  and  the 
dividends.     Forgery  can  confer  no  power 
nor  transfer  any  rights.     The  officers  of 
the    coiijpany  are  the   custodians   of  its 
stock  books  and  it   is  their   duty  to   see 
that  all  transfers   of  shares  are  properly 
made,  either  by  the  stuckholders  them- 
selves or  persons  having  authority  from 
them.     If  upon  the  presentation  of  a  cer- 
tificate for  transl'er  ihcy  arc  at  all  doubt- 
ful of  llie  ideutiiy  of  the  party  offering 
it,wit]i  its  owner,  or  if  not  satisfied  of  the 
genuineness  of  a  power  of  attorney  pro- 


duced, they  can  require  the  identity  ofth& 
party  in  the  one  case,  and  the  genuine- 
ness of  the  document  in  the  other,  to  be 
satisfactorily  established  before  allowing 
the  transfer  to  be  made.  In  either  case 
they  must  act  upon  their  own  responsi- 
bility. .  .  Neither  the  absence  of 
blame  on  the  part  of  the  officers  of  the 
company  in  allowing  an  unauthorized 
transfer  of  stock,  nor  the  good  faith  of 
the  purchaser  of  stolen  property,,  will 
avail  as  :in  answer  to  the  demand  of  the 
true  owner." 

'  Johnston  v.  Renton,  supra;  Cottam 
V.  Eastern  Counties  Ry.  Co.,  supra;  Slo- 
man V.  Bk.  of  Eng.,  infra. 

'■  This  is  the  usual  prayer  for  relief  iu 
this  country. 

3  Pratt  v.  Boston  &  Albany  R.  R.  Co., 
126  Mass.  443  (1879). 

•»  Dalton  V.  Midland  R.  H.  Co.,  12  C.  B. 
468  (1852). 

<>  Illaiadell  v.  Bohr,  68  Ga.  50  (1881). 

«  Id. 

■"  Mayor,  <fec.,  of  Baltimore  v.  Ket- 
chum, 57  Md.  23  (1881);  Pratt  v.  Boston  & 
Albany  R.  R.  Co.,  126  Mass.  443  (1879). 

8  American  Tel.  &  Cable  Co.  v.  Day, 
52  N.  Y.  Superior  Ct.  128  (1885). 

379 


§§  366,  367.]  RIGHTS   OF  THIRD   PARTIES.  [CH.  XXI. 

action  at  law  without  delay  and  without  involving  or  settling  the 
respective  rights  of  others. 

§  366.  The  right  of  the  rightful  owner  of  the  stock  to  com- 
plain of  the  forgery,  whereby  his  certificate  has  passed  into  the 
possession  of  another,  may  be  barred  by  estoppel  or  ratification. 
Formerly  it  was  held  that  the  negligence  of  the  owner  of  the 
stock  would  be  a  bar  to  his  remedy.^  Later  decisions,  however, 
have  firmly  established  the  rule,  that  ''  there  must  be  either  some- 
thing that  amounts  to  an  estoppel,  or  something  that  amounts  to 
a  ratification  in  order  to  make  the  negligence  a  good  answer.'" 
Accordingly  the  rightful  owner  of  the  stock  is  held  not  to  be 
barred  of  his  remedy  by  the  fact  that  the  stockholder,  a  cor- 
poration, allowed  its  corporate  seal  to  be  in  the  possession  of  its 
secretary,  whereby  he  sold  the  stock  owned  by  the  corporation  ;^ 
or  by  the  fact  that  the  owner  delayed  several  months,  during 
whicli  time  the  forger  escaped;*  or  that  he  transferred  on  the 
back  of  the  certificate  only  part  of  the  shares  specified  in  the  cer- 
tificate;^ or  that  he  gave  his  address  wrong,  and  thereby  a  letter 
of  inquiry  did  not  reach  him  ;^  or  that  he  allowed  his  clerk,  the 
forger,  to  have  access  to  his  papers,  and  gave  him  blank  transfers 
duly  signed  to  use  in  transferring  other  stock  ; ''  or  that  the  guard- 
ian of  the  plaintiff  was  negligent.^ 

§  367.  Eights  of  transferees  wlio  ])urcliase  after  a  registry 
lias  l)een  obtained. — It  has  already  been  shown  that  the  trans- 
ferees of  a  certificate  of  stock  which  has  been  put  in  circulation 
by  forgery,  are  not  allowed  to  retain  such  stock  where  there  has 
not  been,  at  some  time  subsequent  to  the  forgery,  a  transfer  reg- 
istered on  the  corporate  books.  It  has  also  been  shown  that  he 
who  applies  to  the  corporation  for  a  registry  of  transfer,  such 
registry  being  the  first  one  since  the  forgery  was  committed,  is 
not  allowed  to  retain  the  stock.     An  entirely  diflferent  rule  pre- 


1  Coles  V.  Bk.  of  Eng.,  10  Ad.  &  E.  437  ^  Sewall  v.  Boston  Water  Power  Co., 

(1839),  where  the  continuous  receipt  of  86  Mass.  277  (1862). 

dividends   on  a   less  quantity    of    stock  ®  Johnston  v.  Renton,  L.  R.  9  Eq.  181 

than  she  was  entitled  to,  was  held  a  bar,  (1870). 

though  the  stockholder  was  old  and  in-  "  bwan  v.  North  British   Aus.  Co.,   7 

firm.  H.  &  N.  603  (1862);    substantially  over- 

'  Bank  of  Ireland  v.  Trustees  of  Evans  ruling  £x  parte  Swan,  7  C.  B.  (N.  S.)400 

Charities,  5  H.  L.  Cases,  389  (1855).  (1859). 

3  Id.  *  Telegraph  Co.  v.  Davenport,  97  U.  S. 

*  Davis  V.  Bk.   of  Eng.,   2  Bing.  393  369  (1878). 
(1824). 

380 


CH.  XXI.]  RIGHTS  OF  THIRD  PARTIES.  [§  368. 

vails  as  regards  all  subsequent  bona  fide  holders  of  the  new  certif- 
icate obtained  by  the  first  registry.  The  person  who  obtains  the 
first  registry  has  no  rights  except  as  against  his  transferrer.  But 
all  subsequent  purchasers  without  notice  are  fully  protected. 
They  cannot  be  compelled  to  give  np  the  stock,  either  to  the  cor- 
poration or  to  the  person  who  lost  it  by  forgery.^  This  rule 
arises,  not  from  the  law  of  negligence,  but  from  the  law  of  es- 
toppel operating  against  the  corporation.  It  is  in  accord  with 
the  demands  of  trade,  and  the  constant  tendency  of  the  law  to 
protect  honafide  purchasers  of  certificates  of  stock. 

D.— Stolen  or  Lost  Certificates. 

§  368.  Stolen  or  lost  certificates  of  stock  indorsed  in  Uank 
as  affecting  tlie  sale  thereof.— One  of  the  most  important  ele- 
ments of  the  negotiability  of  promissory  notes  is  that  if  the  holder 
of  such  note  loses  it,  or  it  is  stolen  from  him  when  it  is  indorsed 
in  blank,  a  subsequent  hofia  fide  purchaser  of  such  note  is 
protected  as  against  the  person  who  lost  it.  A  different  rule 
seems  to  prevail  as  regards  certificates  of  stock,  indorsed  in 
blank,  and  then  lost  or  stolen.  In  this  respect  certificates  of 
stock  are  not  negotiable.  It  has  been  clearly  held  that  a  pur- 
chaser from  a  thief  of  certificates  of  stock  indorsed  in  blank,  is 
not  protected,  nor  is  any  subsequent  purchaser  of  that  identical 
certificate  allowed  to  claim  the  stock.  The  real  owner  of  the 
certificate  may  compel  the  corporation,  which  has  refused  to  rec- 
ognize the  thief's  transferee's  title,  to  register  the  stock  as  his, 
or  he  may  have  damages  against  a  ho7ia  fide  transferee  of  the 
thief,  where  such  transferee  sold   with  notice.'^     In  Nevada  it  is 


'  Machinists  Natl.  Bank  v.  Field,    126  acted   upon  in  the  sale  and  transfers  of 

Mass.    345    (1879).      Re    Bahia   <fe    San  shares." 

Francisco   Ry.  Co.,  L.   R.,  3   Q.  B.   584  "^  Barstow  v.  Savage  Miri.  Co.,  64  Cal. 

(1868),  where,  however,  the  corporation  388      (1883),      substantially     overruling 

having  cancelled  ail  the  registries  made  Winter  v.  Belmont  Min.  Co.,  53   Cal.  428 

subsequent  to  the  forgery,  it  was  held  (1879);   Anderson  v.  Nicholas,  28  N.  Y. 

liable  in  damages  to  a  purchaser  subse-  600  (1864),  where  the  purchaser  of  the 

quent  to  the  first   registry.     The   court  stolen  certificate  was  not  a  bonafiilepuv- 

said,    the    giving  of  a  certificate  "  is  a  chaser.     The  court  said   that  even  if  he 

declaration  by   the    company  to  all  the  had  been  a  bona  Jide  purchaser  he  would 

world  that  the  person  in  whose  name  the  not  be  protected.     Cf.  Aull  v.  Colket,  83 

ceriificateis  made  out  and  to  whom  it  is  Leg.  Intel.  44   (1876,  Penn.),   where  the 

piven,  is  a  sliareliolder  in  the  company,  question  of  negligence  was   submitted  to 

and    it    is  given    by    the  company    with  tliojury.     The  mere  fact  of  losing  it  is  no 

the  intention  that  it  shall  be  so  used  by  proof  of  negligence.     Biddle  v.   Bayard, 

the   person    to    whom    it   is   given,    and  13  Penn.  St.  150  (1850). 

381 


§§  369,  370.]  RIGHTS   OF   THIRD   PARTIES.  [CH.  XXI. 

held  that  the  purchaser  and  vendor  of  the  stolen  certificate  is 
liable  in  damages  to  its  real  owner,  although  the  former  acted  as 
a  broker  and  without  notice.^  The  honafide  purchaser  of  a  stolen 
certificate  of  stock  indorsed  in  blank,  cannot  compel  the  cor- 
poration to  register  him  as  a  stockholder.^  The  person  stealing 
certificates  of  stock  is  guilty  of  larceny  and  may  be  convicted 
for  the  same.^  The  corporation  cannot  obtain  an  injunction 
against  a  possible  action  by  the  purchaser  of  stolen  certificates, 
who  has  applied  for  registry  and  been  refused  it.* 

§  3G9.  Where,  however,  certificates  of  stock  indorsed  in  blank 
have  been  stolen,  and  the  thief  or  his  transferee  has  obtained  a 
registry  on  the  corporate  books,  and  obtained  new  certificates  of 
stock,  and  these  new  certificates  have  been  sold,  the  purchaser  is 
protected  in  his  possession  of  the  stock.^  In  Michigan  this  is 
held  to  be  the  rule,  even  though  such  purchaser  took  the  stock 
with  full  knowledge  of  all  the  facts.^  It  is  to  be  hoped  that  this 
rule  will  be  generally  sustained,  since  it  is  in  accordance  with  the 
general  rule  that  the  rights  and  equities  of  all  holders  of  stock 
back  of  the  registry  and  issue  of  the  certificates  in  existence,  are 
not  allowed  to  affect  the  stockholdership  or  rights  of  purchasers 
of  these  new  certificates. 

§  370.  Owner  of  a  lost  certificate  of  stoch  may  obtain  new 
certificate. — An  owner  of  a  certificate  of  stock  who  has  lost  it  or 
had  it  stolen  from  him  may,  by  taking  proper  proceedings  or  by 
giving  proper  security  to  the  corporation,  have  new  certificates 
issued  to  him.  In  Louisiana  it  is  held  that  upon  satisfactory 
proof  of  the  loss  of  certificates  of  stock,  a  writ  of  mandamus 
will  issue  to  compel  the  corporation  to  issue  new  certificates,  and 
that  no  bond  of  indemnity  need  be  given.''  But  the  better  rule 
seems  to  be  that,  except  in  cases  of  the  clearest  proof  of  loss,  the 
corporation  shall  not  be  required  to  issue  new  certificates,  unless 
a  bond  of  indemnity  against  its  liability  to  possible  legal  holders 
of  the  lost  certificate  shall  be  given.^     In  New  York,  by  statute, 

1  Bercich  v.  Marye,  9  Nev.  312  (1874).  «  Id. 

'  Sherwood  v.  Meadow  Valley  M.  Co.,  ''  State  v.  New  Orleans  Gas  Light  Co., 

60  Cal.  412  (1875).  25  La.  Ann.  413  (1873). 

3  People  V.  GriiBn,  38  How.  Pr.  475  »  Galveston  City    Co.    v.    Sibley,    56 

(1869).  Texas,   269    (1882),  where    one    who  be- 

*  Buffalo  Grape  Sugar  Co.  ?;.  Alberger,  came  a  stockholder  in  1841,  died  in  1865, 

22  Hun,  349  (188()).  and  his  heirs  applied  for  a  new  certificate 

^  Mandlebaumv.  North  Am.  Min.  Co.,  in  1878.     The  court  said:  "This  in>iem- 

4  Mich.  465  (1857).  nity  should  be  gorerned  by  the  circum- 

382 


CH.  XXI.]  RIGHTS   OF   THIRD   PARTIES.  [§  371. 

security  may  be  required  in  all  such  cases.^  It  would  seem  rea- 
sonable that  a  bond  of  indemnity  should  be  given  to  the  corpora- 
tion, since  in  case  the  old  certificate  has  not  been  lost,  but  has 
been  sold  by  its  owner,  the  corporation  is  liable^in  damages  or  to 
replace  the  stock  to  the  purchaser,  for  issuing^new  certificates 
without  a  surrender  of  the  old.^ 


E. — Confiscation  of  Stock. 

§  371.  During  the  late  Rebellion  acts  of  confiscation  were 
passed,  both  by  the  United  States  Government  and  by  the  Con- 
federate Government,  and  shares  of  stock  owned  by  parties  in 
one  section  of  the  country,  in  corporations  domiciled  in  the 
other  section,  were  confiscated.  The  result  of  the  war  having 
established  that  the  Confederate  Government  was  an  illegal  one, 
all  its  acts  of  confiscation  became  null  and  void,  and  all  transfers 
and  registries  of  stock  thereunder  were  held  to  be  void  utterly. 
The  whole  line  of  transactions  based  on  the  confiscation  fell 
with  the  confiscation  itself.^  The  corporation  was  held  not 
liable  to  purchasers  whose  title  was  based  on  the  confiscation, 
since  it  acted  under  compulsion  of  a  power  temporarily  greater 
than  the  law  itself.*  If  the  corporation  neglects  to  remedy 
the  confusion  and  claims,  growing  out  of  the  illegal  confis- 
cation of  stock,  any  stockholder  may  institute  an  action  in  its 
behalf  for  that  purpose.^  The  stock  is  to  be  restored  to  the 
owner  against  whom  the  confiscation  proceedings  were  had,  and 
if  the  corporation,  during  the  Rebellion,  voluntarily  paid  divi- 


stances  of  the  particular  case.      If  not  that  this  case  remain  open  on  the  docket 

only  the  loss,  but  silso  the  de-truction  of  below  until  from  lapse  of  time  or  other- 

the  instrument  and  the  ownership  of  the  wise  the  rights  of  the  parties  shall  be  so 

plaintiffs,  should  be  clearly  shown,  then,  established,  that  the  case  may  be  finally 

if  required  iit  all.  it  would,  as  a  general  dismissed    without    prejudice    to   either 

rule,  be  but  nominal.     ...     In  view  party."      Societe    Generale    de    Paris  v. 

of  the  fluctuating  value  of  this  stock ;  the  Walker.L.R.,  11  App.  Cas.  (H.  of  L.)  20; 

uncertainty  when  the  necessity  may  ari.se  affi'g  L.   R.,   14  Q.  B.  D.  424;   Butler  v. 

for  svich   bond  of  indemnity;    the  "length  Glen  Cove  Starch  Co.,  25  Hun,  47  (1879). 

of  time  it  may  run,  and  probable  change  '  N.  Y.  Session  Laws,  1873,  ch.  151. 

in  the  solvency  of  the  sureties ;  the  con-  "^  See  ij§  358-360. 

tinning  character  of  the  relief  which  may  ^  Dewing  ».   Perdicaris,  96   U.  S.    193 

be  required  from  time  to  time;  and  the  (1877). 

nuiribcT  and  non-residence  of  the  plaintiffs,  ^  id.,  also  Central  R.  R.  <fe  Banking 

— it   is   deemed    proper    in    this    case   to  Co.  «.  Ward,  37  Ga.  515  (1868). 

adiij)t  the  practice,  somewhat  novel    with  ''  Perdicaris  v.    (Charleston  Gas  Light 

U8,  but  analogous  to  the   proceedings  of  Co.,  Chase's  Dec.    435  (18G9);   afli'd,  sub 

courts  of  chancery  ehsewhere,  to  require  nom.  Dewing  v.  Perdicaris,  supra. 

383 


§  371.]  RIGHTS  OF  THIRD   PARTIES.  [CH.  XXI. 

dends  to  the  illegal  holders  of  the  stock,  it  must  pay  the  same  to 
the  plaintiff,  even  though  it  would  have  been  compelled  to  pay 
such  dividends  to  the  southern  holder,  if  it  had  not  done  so  volun- 
tarily.^ On  the  other  hand,  proceedings  for  the  confiscation  of 
stock  under  the  confiscation  acts  of  the  United  States  Govern- 
ment, passed  by  reason  of  the  late  Rebellion,  are  held  to  have 
been  effective,  if  in  accordance  with  established  rules  of  proced- 
ure. Where,  however,  no  notice  of  the  proceedings  was  given 
to  the  defendant,  and  her  name  and  the  stock  were  not  accurately 
described,  the  proceedings  were  void,  and  the  corporation,  having 
obeyed  the  illegal  judgment  of  confiscation,  was  held  liable  in 
damages  to  the  southern  owner  of  the  stock.^ 


1  Keppel's  Adm.  v.  Petersburg  R.  R.     85  N.  Y.  437  (1881),  reversing  s.    o.  12 
Co.,  Chase's  Dec.  167(1868).  J.  &  S.  340;  Avil  v.  Alexander  Water 

2  Chapman  v.  Phoenix  JSational  Bank,     Co.,  1  Hughes,  408  (1877). 


384 


CHAPTER  XXII. 

SALES   OF   STOCK.— FORMAL  METHOD   OF   TRANSFERRING  CER- 
TIFICATES, AND  REGISTRY  THEREOF, 


§  372.   Subject  treated  herein. 

373.  The  two  usual  steps  in  perfecting 

a  transfer  of  stock. 

374.  Omission  of  either  or  both  steps. 

A. — Method  of  Transferring  thb  Cer- 
tificate. 

g  375.  Usual  forms  of  assignment  and 
powers  of  attorney  whereby  the 
transferrer  assigns  the  certifi- 
cate of  stock  to  his  transferee. 

376.  Questions  which  arise  herein. 

377.  A  seal  is  not  necessary  to  a  trans- 

fer of  stock. 

378.  The  assignment  of  the  certificate 

of  stock  estops  the  transferrer 
from  claiming  any  further  title 
in  the  slock,  as  against  subse- 
quent bojia  fide  transferees,  al- 
though such  assignment  be  not 
registered. 

379.  Effect  of  charter  provision  requir 

ing  registry. 

380.  Certificate    of  stock  may   be  as- 

signed with  the  name  of  the 
transferee  left  blank. 

B. — Method  of  Registering  a  Transfer 
OF  Stock. 

§  381.  Registry  an  essential  part  of  a 
transfer  of  stock. 


§  382.  Formalities  of  making  registry. 

383.  Formalities   of    registry  may  be 

waived  by  the  corporation. 

384.  Either  the  transferrer  or  the  trans- 

feree may  apply  to  the  corpora- 
tion for  a  registry  of  transfer. 

C. — Rights  and  Duties  of  thk  Corpora- 
tion IN  Allowing  or  Refusing 
Registry. 

§  385.  Corporation  may  require  proof  of 
identity,  also  of  genuineness  of 
signature,  Ac. 

386.  Corporation  cannot  refuse  registry 

on  account  of  the  motive  of  the 
transferrer  or  transferee  in  the 
transaction. 

387.  Corporation   may   interplead  be- 

tween two  claimants  to  stock. 

388.  Corporation   must   obey  mandate 

of  court  ordering  registry  and 
issue  of  new  certificates. 

389.  Remedies  of  a  transferee  of  stock 

against  the  corporation  for  re- 
fusal to  allow  registry. 

390.  Remedy  by  mandamus. 

391.  Remedy  by  suit  in  equity. 

392.  Remedy  by  an  action  for  damages. 


§  372.  Suhject  treated  herein. — Having  considered  the  compe- 
tency of  parties  to  enter  into  a  contract  of  sale  of  stock  ;^  also  of 
the  legality,  enforceability,  and  character  of  that  contract  ;^  also  the 
rights  of  third  parties  as  effecting  the  contract  between  the  trans- 
ferrer and  transferee;''  it  is  now  necessary  to  discuss  certain  for- 
malities of  transfer  connected  with  a  sale  of  stock.  These  for- 
malities are  peculiar  to  sales  of  stock.  The  only  analogy  to  them 
is,  perhaps,  that  arising  from  the  making  of  a  deed  of  real  estate, 
and  a  registry  of  the  same  at  a  recorder's  otKce.    In  many  respects, 


'  Ch.  XIX. 


'  Ch.  XX. 

[25] 


6  Ch.  XXI. 


385 


§  375.]  FORMALITIES   OF  TRANSFER  AND    REGISTRY.     [CH.  xxn. 

however,  this  analogy  does  not  apply.  Thus  the  corporation  it- 
self has  many  rights  and  duties  herein  which  a  register  of  deeds 
has  not.  The  principles  of  law  governing  the  formalities  of 
transfer  of  stock  have  occasioned  great  difficulties  and  much  liti- 
gation. The  rules  given  herein  have  arisen  for  the  most  part  out 
of  the  necessities  and  demands  of  business  as  sanctioned  by  the 
courts.  They  have  been  gradually  formed  and  still  bear  the  im- 
prints of  the  transition  stage  of  a  newly  created  law. 

§  373.  The  two  usual  steps  in  perfecting  a  transfer  of  stock, 
— To  transfer  a  share  of  stock  there  generally  are  two  distinct  steps 
to  be  taken :  first,  the  certificate  is  assigned  by  the  transferrer 
to  the  transferee ;  and,  second,  that  assignment  and  transfer  is 
perfected  and  completed  by  delivering  the  assigned  certificate  to 
the  corporation,  obtaining  an  entry  on  the  corporate  transfer 
book  to  the  eifect  that  the  transferee  has  purchased  the  stock  of 
the  transferrer,  and  taken  from  the  corporation  new  certificates 
of  stock  certifying  that  the  newly  recorded  stockholder  owns  a 
specified  amount  of  stock. 

§  374.  Omission  of  either  or  hoth  steps.— EMher  and  probably 
both  of  these  two  steps  in  the  complete  transfer  of  stock  may  be 
omitted,  and  yet,  where  the  facts  estop  the  various  parties  from 
denying  that  a  transfer  has  been  made,  it  will  be  held  to  be  com- 
plete. That  an  owner  of  stock  may  transfer  his  stock  to  another 
without  assigning  a  certificate  to  him  has  been  frequently  held.^ 
This  happens  when  a  registry  of  transfer  is  made  without  any 
surrender  of  the  old  certificate.^  So  far  as  the  transferrer  is  con- 
cerned such  a  method  of  transfer  is  effectual.  Such  cases  also 
arise  where  the  corporation  has  never  issued  certificates  of  stock. 
The  stockholder  may  then  transfer  his  stock  without  assigning  a 
certificate.* 

A. — Method  of  Transferring  the  Certificate 

§  375.  Usual  forms  of  assignment  and  powers  of  attorney 
wherehy  the  transferrer  assigns  the  certificate  of  stock  to  his 
transferee. — A  certificate  of  stock  is  a  paper  issued  by  the  corpo- 
ration to  a  stockholder,  stating  that  the  person  specified  therein  is 

1  See  §  308;  also  Ch.  XXVI.  515  (1877);  Brigham  v.  Mead,  92  Maas. 

»  See  §§  358-360.  245(1865).     See  also  §  382. 

3  First  Nat'l  Bank  v.  Gifford,  47  Iowa, 

386 


CH.  XXir.]    FORMALITIES   OF   TRANSFER   AND   REGISTRY.  [§375. 

the  owner  of  a  certain  number  of  shares  of  its  capital  stock.^ 
The  assignment  of  this  certificate  is  made,  it  seems,  in  tliree  dif- 
ferent ways :  iirst,  it  has  been  held  that  it  may  be  made  by  a 
simple  delivery  of  the  certificate  without  any  writing.^  Again  it 
may  be  made  by  a  formal  instrument  of  transfer  duly  signed  by 
the  transferrer.  This  instrument  may  be  separate  from  the  certifi- 
cate of  stock,  but  generally  is  printed  in  blank  on  the  back  of  it.^ 
In  either  case,  in  order  to  make  the  transfer  complete  by  a  regis- 
try of  it  on  the  corporate  books,  it  is  necessary  for  the  transferrer 
to  go  to  the  office  of  the  corjDoration  and  sign  the  stub  of  its 
transfer  book,  wliereby  the  transfer  is  recorded.  The  third  and 
most  usual  method  of  assigning  a  certificate  of  stock  is  by  a  for- 
mal instrument  of  transfer,  similar  to  the  one  explained  above,^ 
united  with  a  power  of  attorney  authorizing  a  person,  whose 
name  is  generally  left  blank,  to  be  subsequently  filled  in,  to  sign 
the  corporate  registry  book,  whereby  the  transfer  is  recorded. 
This  instrument  of  transfer  and  the  power  of  attorney  are  gener- 
ally printed  in  blank  on  the  back  of  the  certificate  of  stock.^     It 


'  The  following  form  is  quite  usual : 

The  Toledo, 

Ann  Arbor,  and  North  Michigan 

Railway  Company. 

This  certifies  that is  entitled  to 

shares  of  the  capital  stock  of  the 


Toledo,  Anu  Arbor,  and  North  Michigan 
Railway  Company,  transferable  on  the 
books  of  the  company,  in  person  or  by  at- 
torney.on  tlie  surrender  of  this  certificate. 

Toledo, ,1886. 

James  M.  Asulet,  President. 

H.  "W.  Ashley,  Secretary. 
The  word  "  only"  is  often  inserted  af- 
ter "  transferable." 

'  See  §  308,  where  a  delivery  of 
a  certificate  of  stock  cauxa  mortis,  was 
held  good,  without  any  writing  assigning 
the  certificate.  In  Eraser  v.  Charleston, 
11  S.  C,  486  (187H),  the  court  said  in  a 
diclum:  ''The  cuurl  is  impressed  with 
the  force  of  the  proposition  that  the  hy- 
pothecation of  such  securities  by  the  le- 
gal owner,  or  by  another  person  with  the 
previous  corisent  (jr  subsequent  acquies- 
cence of  the  legal  owner,  without  in- 
dorsement or  power  of  attorney,  may 
constitute  by  delivery  an  equitable  as- 
signment, and  act  as  an  e.stojjpel  aj^ainst 
the  legal  owner  and  creditors  claiming 
through   him."     Cf.   Sitgreaves   v.    Far- 


mers, (fee.  Bk.,  49  Penn.  St.  359 ;  Davis 
V.  Bank  of  Eng.  2  Bing.  393 ;  Burrall  v. 
Bushwick  R.  R.  Co.,  75  N.  Y.  211 ;  Dunn 
V.  Com.  Bk.  of  Buffalo,  11  Barb.  58i).  See 
also  Ch.  XXVI. 

"  A  common  form  is: 

For   value  received  hereby  sell, 

assign,  and  transfer  unto all  right, 

title,  and    interest  in  shares   in  tlie 

capital  stock  of  the  Toledo,  Ann  Aibor, 
and  JSorth  Michigan  Railway  Company. 
New  York, ,  18—. 


In  presence  of: 


Or  if  printed  on  the  back  of  the  cer- 
tificate : 

For  value  received  hereby  sell, 

assign,  and    transfer   unto  shares 

of  the  capital  stock  represented   by  tlie 
within  certificate. 

iNew  York, ,  18—. 


In  presence  of: 

Md. 

'  A  short  form  is : 

For   value  received  hereby  sell, 

assign  and  transfer  unto shares  of 

the  capital  stock  represented  by  the  witli- 
in  certificates,  and  do  hereby  irrevocably 
constitute  and    appoint ,  attorney, 

387 


§  377.]        FORMALITIES  OF  TRANSFER  AND  REGISTRY.      [CH.  XXII. 

enables  the  transferee  to  obtain  a  registry  without  the  presence 
of  the  transferrer,  provided  the  corporate  registry  agent  is  satis- 
fied with  the  signature  and  intent  of  the  transferrer  to  assign  the 
stock.  This  power  of  attorney  is  not  revoked  by  the  death  of 
the  transferrer  before  it  is  used.^ 

§376.  Questions  which  arise  herein. — The  assignment  of  a 
certificate  of  stock  by  the  transferrer  to  the  transferee,  considered 
apart  from  the  actual  registry  of  such  assignment  on  the  corpo- 
rate books,  involves  the  questions  whether  such  an  assignment 
should  be  under  seal ;  whether,  after  the  assignment,  the  trans- 
ferrer can  claim  any  rights  of  ownership  as  against  the  transferee, 
even  though  there  be  no  registry  of  the  transfer ;  and  whether  a 
transfer  and  power  of  attorney  duly  signed  by  the  transferrer, 
but  left  in  blank  as  to  the  names  of  the  transferee  and  attorney, 
are  legal,  and  may  pass  from  hand  to  hand  until  some  holder 
cares  to  fill  up  the  blanks.  These  and  incidental  questions  are 
discussed  in  the  following  sections. 

§  377.  A  seal  is  not  necessary  to  a  transfer  of  stocTc. — In 
America,  an  assignment  or  transfer  of  a  certificate  of  stock  need 
not  be  under  seal.^  Formerly  it  was  the  custom  to  have  all  such 
transfers  made  by  deed,  duly  sealed.  As  the  nature  of  stock  and 
certificates  of  stock,  however,  come  to  be  understood  more  clearly, 


to  transfer  the  said  stock  on  the  books  of  pose   to  make  and  execute  all  necessary 

the  within    named    company,  with    full  acts  of  assignment  and  transfer,  and  one 

power  of  substitution  in  the  premises.  or  more  persons  to   substitute,  with  like 

New  York, ,18 — .  full  power;     hereby    ratifying  and   con- 

firming    all    that  said  attorney  or 

In  presence  of:  substitute,  or  substitutes,  shall  law- 

fully  do  by  virtue  hereof. 

A  lono-er  form  is :  In  witness   hereof  hereunto   set 

Know  all  men  by  these  presents,  that  hand  and  seal,  the day  of , 

for   value   received,   ha —    bar-  one  thousand  eight  hundred  and  ■ 


gained,   sold,  assigned,  and    transferred.  Sealed  and  delivered  m  the  presence 

and  by  these  presents  do —  bargain,  sell,     of: 


and  transfer  unto of 

shares  in  the  capital  stock  of  the 


assign, 

Toledo,  Ann  Arbor,  and   North  Michigan  'Eraser   v.    Charleston,   11  S.  C.  486 

Railway    Company,  standing   in   (1878);  Leavitt  ?..  Fisher,  4  Duer  (N.  Y.), 

name  on  tlie  books  of  the  said  company,  ■  1  (1854) ;  United  States  v.  Cutts,  1  Sum- 

and  transferable  only  at  its  office  in  the  ner,  133  (1832). 

city  of  Toledo.     And — do  hereby  consti-  "   Quiner   v.   Marblehead    Social   Ins. 

tute  and  appoint  true  and  lawful  Co.,   10   Mass.  476   (1813);   Atkinson   v. 

attorney  irrevocable,  for and  in Atkinson,   8  Allen,   15  (1864).     If,  how- 
name  and  stead,  to ,use,  to  sell,  as-  ever,  the  "by-laws  require  it,  the  transfer 

sign,  transfer,  and  set  over  all    or    any  must  be  under  seid.     Bishop  v.  Globe  Co., 

part'  of  the  said  stock;  and  for  that  pur-  136  Mass.  132  (1883). 

388 


CH.  XXII.]     FORMALITIES   OF  TRANSFER   AND   REGISTRY.  [§  378. 

it  became  a  rule  of  law  that  a  transfer  of  the  certificate,  like  the 
transfer  of  choses  in  action,  did  not  require  a  seal.  Not  even  the 
presence  of  the  seal  gives  the  transfer  the  character'of  a  sealed 
instrument.     The  seal  is  a  superfluity,  and  is  disregarded.^ 

In  England,  on  the  other  hand,  transfers  of  railway  stocks  are 
generally  required  by  charter  to  be  under  seal.  This  is  held  to 
give  the  instrument  the  character  of  a  deed  ;  and  hence,  in  accord- 
ance with  the  ancient  technical  rule  of  law,  that  a  deed  must  be 
filled  out  as  to  tlie  grantee  and  other  essential  particulars  before 
it  is  sealed  in  order  to  be  valid,  it  has  been  held  in  England  that 
a  transfer  of  a  certificate  of  stock,  duly  signed  and  sealed,  but 
with  the  name  of  the  transferee  in  blank,  is  void  absolute! v.^  In 
English  companies,  however,  where  the  charter  does  not  require 
transfers  to  be  sealed,  the  transfer  may  be  by  an  ordinary 
instrument  in  writing,  and  the  presence  of  a  seal  will  be  disre- 
garded,^ 

§  378.  The  assignment  of  the  certificate  of  stoch  estops  the 
transferrer  from  claiming  any  further  title  in  the  stoclc,  as 
against  subsequent  bona  fide  transferees,  although  such  assign- 
ment he  not  registered.* — There  is  no  case  which  denies  this  prin- 

'  German  Union  B.  Assn.  v.  Sendmey-  "»  Scott  v.  Pequonnock  Bk.  (0.  S.  0. 

er.  50  Penn.  St.   67  (1866)  ;  Commercial  Ct.),  15  Rep.  137  (1883);  Brown  v.  Smith, 

Bk.  V.  Kortrig-ht,  2i  Wend.  348  (1839);  122  Mass.  589  (1877);  Fitchburg  Sav.  Bk. 

McNiel  V.  Tenth  Natl.  Bk.,  46  N.  Y.  325  v.  Torrey,  134  Mass.  239  (1883);  Duke  v, 

(1871);  Bridgeport  Bk.  v.  N.  Y.  &  N.  U.  Cahawba  Nav.  Co.,  10  Ala.  82  (1846); 

R.  R.  Co.,  30  Conn.  231,  274  (1861).  Chouteau   Spring  Co.  v.  Harris,  20  Mo. 

Mlibblewhite  v.  McMoriiie,  6  M.  tfe  382(1855);  St.  Louis  P.  Ins.  Co.  v.  Good- 
W.  200  a840),  per  Parke,  B. ;  Taylor  v.  fellow,  9  Mo.  149  (1845);  Gilbert  v.  Man- 
Great  Indian  P.  Ry.  Co.,  4  De  G.  &  J.  Chester  Iron  Mfg.  Co.,  11  Wend.  627 
559  (1859);  Societe  Gen.  v.  Tramways  (1834);  Sargent  v.  Essex  Mfg.  Co.,  26 
Union  Co.,  L.  R.  14  Q.  B.  D.  424  (1884),  Mass.  202  (1829);  Nesmith  v.  Wash.  Bk., 
where  transfer  was  to  be  by  deed;  afii'd,  23  Mass.  324  (1829);  Sargent  v.  Franklin 
L.  R.  11  App.  20.  Ins.   Co.,    8   Pick.    90  (1829);  Conant  v. 

^  Jie  Tee3  Bottle  Co.,  33  Law  Times,  Reed,    1    0.   St.    298  (1853);    Baltimore 

N.  S.  834  (1876);  Walker  v.  Bartlett,  36  City  P.  Ry.  Co.   v.   Sewall,   36  Md.   238 

Eng.  L.  &  Eq.  369  (1866);  lie  I'.arued's  (1871);    Bk.  of  America  v.   McNiel,   10 

Banking  Co.,  L.  R.  3  Ch.  105  (1867);  £x  Busii,  54  (1873);   United  States  t'.Vaugh- 

parlc  Sargent,  L.  R.  17  Eq.  273  (1873);  an,  3  Binii.  (Penn.)  394  (1811);  Heckwith 

Ortigosa   v.    Brown,   47   L.  J.  (Ch.)   168  v.  Burroughs,   13  R.  1.  294   (1882);   Far- 

(1878).     The  American  cases   incline   to  mers  &  M.  Bk.  v.  Wasson,  48   Iowa,  ;;36 

the  opinion  that,  even  though  a  seal  were  (1878);   Carroll  v.  MuUanphy  Sav.  Bk.,  8 

required,  the  sealed  transfer  would  not  Mo.  App.  249  (1880);  B'way  Bk.  v.   Mc- 

be  void  because  of  the  blanks  left  in  it.  Elrath,  13  N.  J.  Eq.  24  (1860);  Smitii  v. 

Bridgeport  Bk.  v.  N.  Y.,  dec,  R.  R.  Co.,  (Jrescent  City,  Ac,  Co.,  30  La.  Ann.  1378 

supra;    Com.    ]5k.    v.    Kortright.  supra;  (1878);   Peopli-'s   Bk.    v.   Gridley,  91    111. 

Mat,thews  V.  Mass.  Natl.  Bk.,    1    Iloluies,  457    (1879).      Nor    can    the    transferrer 

396,   407   (1874);  McNiel  i>.  Tenth   Nail,  avoid  the  assignment  before  renistry  on 

Bk.,  supra.  the  ground  tliat  no  consideration  passed. 

389 


§  379.]         FORMALITIES   OF  TRANSFER   AND   REGISTRY.     [CH.  xxn. 


ciple  of  law.  On  close  examination  of  the  cases  which  seem  to 
militate  against  it,  it  will  be  found  that  the  issue  involved  was 
whether  the  unregistered  transferee  was  protected  against  third 
persons,  who  claimed  title  back  of  the  transferrer.  The  transfer- 
rer himself  is  not  allowed  to  impeach  his  unregistered  transferee's 
title.  Even  in  Connecticut,  where,  at  an  early  day,  the  court 
held  that  the  registry  was  the  originating  act  of  the  title  of  the 
transferee,  the  court  was  considering  the  rights  of  third  persons, 
and  not  the  rights  of  the  transferrer  himself.^  That  the  transfer- 
rer cannot  question  the  completeness  of  his  transfer  of  title  is  a 
rule  binding  not  only  on  himshlf,  but  also  upon  his  assigns 
in  bankruptcy  or  insolvency.^  The  transferrer  is  estopped  also 
from  attacking  the  assignment  of  the  certificate  on  the  ground  of 
informalities  in  the  transfer.'^ 

§  379.  Effect  of  charter  ])rovision  requiring  registry. — This 
rule  prevails,  even  though  the  certificate  or  by-laws,  or  charter  it- 
self, declares  that  a  transfer  shall  not  be  legal,  or  complete,  or 
effectual  until  it  is  registered  on  the  corporate  books.^     As  between 


Hall  V.  U.  S.  Ins.  Co.,  5  Gill  (Md.),  484 
(1847);  Cushman  v.  Thayer  Mfg.  Co.,  76 
N.  Y.  365  (1879).  Such  an  assignment 
satisfies  a  contract  to  sell  stock.  White 
V.  Saulsbury,  83  Mo.  150  (1862);  Mer- 
chants Natl.  Bk.  V.  Richards,  6  Mo.  App. 
454  ( 1 879).  The  fact  that  the  corporation 
subsequently  refuses  to  register  the  trans- 
fer does  not  prevent  title  passing,  as  be- 
tween transferrer  and  transferee.  Craw- 
ford V.  Provincial  Ins.  Co.,  8  Upper  Can. 
C.  P.  263  (1859). 

'  Northrop  v.  Newtown  &  B.  T.  Co.,  3 
Conn.  552  (1821);  Fisher  v.  Essex  Bk,,  5 
Gray,  373  (1855),  the  rights  of  attaching 
creditors  being  involved. 

2  Ji'x  parte  Dobson,  2  Mont.  D.  <fe  I). 
685  (1842);  Dickinson  v.  Central  Natl. 
Bk.,  129  Mass.  279  (1880);  Morris  v. 
Cannon,  8  Jur.  N.  S.  653  (1862);  Sibley 
V.  Quinsigamond  Natl.  Bk.,  133  Mass. 
615  (1882). 

^  Holyoke  Bk.  v.  Goodman  Paper  Mfg. 
Co.,  9  Cush.  576  (1852);  Maguire's  Case, 
3  De  G.  <fe  S.  31  (1849);  Sheffield  A.  & 
M.  Ry.  Co.  V.  Woodcock,  7  M.  *fc  W.  674 
(1841)  ;  Cheltenham  &  G.  W.  N.  Ry.  Co. 
V.  Daniel,  2  Q.  B.  281  (1841);  Home'Stock 
Ins.  Co.  V.  Sherwood,  72  Mo.  461  (1880). 
The  legal  sufficiency  of  the  instrument  of 
transfer    cannot    be   questioned    by   the 

390 


transferrer.     Chew  v.  Bk.  of  Baltimore, 
14  Md.  299  (1869). 

■»  Johnson  v.  Laffin,  103  U.  S.  800,  804 
(1880);  affi'g  5  Dill.  65  (1878);  Noyes  i-. 
Spaulding,  27  Vt.  420  (1855),  where  the 
court  says:  "That  provision  is  similar  to 
the  statute  in  this  State  in  relation  to  the 
transfer  of  real  estate,  under  which  it  has 
uniformly  been  held  that  the  title  passes 
to  the  grantee,  as  between  the  pai  ties  to 
the  conveyance,  though  the  deed  is  unre- 
corded. .  .  .The  object  of  having 
the  transfer  recorded  on  the  books  of  the 
corporation  is  notice,  and  that  is  the  only 
object.  For  that  reason  the  transfer, 
though  unrecorded,  is  good  against  the 
parly  and  all  those  who  have  notice  in 
fact  of  the  transfer."  United  States  v. 
Cutts,  1  Sumner,  133  (1832);  First  Natl. 
Bk.  V.  Gifford,  47  Iowa,  575  (1877).  The 
same  provision  was  involved  in  nearly 
all  the  cases  cited  in  preceding  sections. 
See  also  Johnson  v.  Underbill,  52  N.  Y. 
203  (1873);  Bk.  of  Utica  v.  Smaller,  2 
Cowen,  770  (1824);  Bald\\in  r.  Cantield, 
26  Minn.  43  (1879),  where  the  court  says 
that  charter  "provisions  of  this  kii  d  are 
intended  solely  for  the  protection  and 
benefit  of  the  corporation;  they  do  not 
incapacitate  a  shareholder  fi'om  transfer- 
ring his  stock  without  any  entry  upon 
the  corporation  books." 


CH.  XXII.]    FORMALITIES   OF   TRANSFER   AND   REGISTRY.  [§  380, 

the  transferrer  and  transferee,  the  unregistered  assignment  is 
complete  and  effectual  in  contradiction  of  such  declarations.  The 
courts  construe  these  provisions  of  the  certificate,  or  by-laws,  or 
charter,  to  be  intended,  not  to  affect  the  rights  of  the  transferee 
as  against  the  transferrer,  but  to  affect  the  rights  of  the  transferee 
as  against  attaching  creditors  of  his  transferrer  and  other  third 
parties  claiming  an  interest  in  the  stock,  and  also  to  affect  his 
right  to  claim  dividends,  the  privilege  of  voting,  and  other  rights 
of  a  stockholder.^ 


§  380.  Certificate  of  stock  may  l)e  assigned,  with  the  name  of 
the  transferee  left  Mank. — Bv  a  commercial  usage,  which  has  been 
repeatedly  recognized  as  valid  by  the  courts,  certificates  of  stock 
may  be  assigned  by  a  transfer  duly  signed  by  the  transferrer,  but 
with  the  name  of  the  transferee  left  blank.'^  Generally  the  com- 
bined instrument  of  transfer  and  power  of  attorney  on  the  back 
of  the  certificate  is  signed  by  the  stockholder  and  delivered  to 
the  purchaser,  with  the  names  of  the  transferee  and  of  the  attorney 
left  blank.  Such  a  certificate  of  stock,  transferred  in  blank,  may 
be  sold  and  passed  from  hand  to  hand,  and  each  purchaser  of  it  is 
entitled  to  the  same  rights  against  his  transferrer,  or  previous 
transferrers,  as  he  would  have  if  the  names  of  the  successive 
holders  appeared  on  the  certificate  itself.  Any  purchaser  of  the 
certificate,  duly  signed  but  transferred  in  blank,  may  fill  up  the 
blanks  and  insert  his  own  name.^     He  may  fill  in  his  own  name 


'  Continental  Natl.  Bk.  v.  Eliot  Natl. 
Bk.,  n  Fed.  Rep.  369  (1881);  Merchants, 
<fec.,  Bk.  V.  Richards,  6  Mo.  App.  654 
(1879);  and  cases  cited  supra. 

«  Walker  v.  Detroit  Transit  Ry.  Co., 
47  Mich.  338  (1882);  Pennsylvania  R.  R. 
Co.'s  Appeal,  86  Penn.  St.  80  (1878); 
Cutting  V.  Damerel,  88  N.  Y.  410  (1882); 
Oernian  Union  B.  Assn.  v.  Sendmeyer,  50 
Penn.  St.  67  (1865);  Ex  parte  Sargent, 
L.  R.  17  Eq.  273  (1873);  Ortignsa  v. 
Brown,  47  L.  J.  (Ch.)  168  (1878);  Re 
Barned's  Bauking  Co.,  L.  R.  3  Ch.  105 
(1867).  Cf.  Walker  v.  Bartlctt,  36  Eng. 
L.  &  Kq.  369  (1856).  "  Even  in  the  ab- 
sence of  such  usage,  a  blank  transfer 
on  the  back  of  the  certificate,  to  which 
the  h<)l(h'r  lias  affi-xcd  liis  name,  is  a  good 
assignment;  and  a  party  to  "wliotri  it  is 
delivered  is  authorized  to  fill  it  up  by 
wriling  a  transfer  and  power  of  attorney 
over  the  signature."     McNiel   v.   Tenth 


Natl.  Bk.,  45  N.  Y.  325,  331  (1871). 
"  There  is  no  force  in  the  suggestion  that 
the  power  of  attorney  in  the  present  case 
was  incomplete, because  there  were  blanks 
for  the  number  of  shares  and  for  the  name 
of  the  attorney.  Any  holder  might  fill  up 
the  blanks  and  constitute  himself  the  at- 
torney. These  points  are  too  well  settled 
to  need  discussion."  Holbrook  v.  New 
Jersey  Zinc  Co.,  57  N.  Y.  616,  623  (1874). 
As  to  the  English  rule,  where  the  charter 
requires  transfers  to  be  under  seal,  see 
§  377. 

=*  Broadway  Bk.  v.  McElrath,  13  N. 
J.  Eq.  24(1860);  Matthews  v.  Mass.  Natl. 
Bk.,  1  Holmes,  396  (1874);  Bridgeport 
Bk.  V.  N.  Y.  &  N.  II.  R.  R.  t^o.,  30  Conn. 
231  (1861).  In  the  case  Kortright  v. 
Buffalo  Com.  Bk.,  20  Wend.  91  (1838); 
affi'd,  22  Wend.  348  (1839),  .hulge  Nelson 
said:  "This  blank  was  afterwards  filled 
up  by  the   plaintiff  by  writing  over  the 

31)1 


§  381.]         FORMALITIES   OF   TRANSFER   AND  REGISTRY.     [CH.  XXir. 

as  transferee,  and  the  name  of  an  agent  as  the  attorney  to  make 
the  registry,  or  he  may  leave  the  latter  blank  and  allow  the  regis- 
try clerk  to  fill  in  his  own  name,  as  is  frequently  done. 


B. — Method  of  Eegistering  a  Transfer  of  Stock. 

§  381.  Begistry  an  essential  part  of  a  transfer  of  stock. — 

The  effect  of  obtaining  a  registry,  or  of  neglecting  to  obtain  a 
registry  of  the  transfer,  on  the  corporate  books,  immediately  after 
purchasing  the  same  from  the  vendor,  has  given  rise  to  much 
litigation  and  much  apparent  confusion.  A  registry  of  the  trans- 
fer is  important  in  two  respects  :  first,  as  regards  the  rights  of  the 
purchaser  in  reference  to  the  corporation;  second,  in  regard  to 
the  rights  of  the  purchaser  as  regards  third  persons,  who  are  either 
creditors  of  the  old  registered  stockholders  or  have  claims  upon 
the  stock  in  question.  So  far  as  the  corporation  is  concerned,  it 
is  bound  to  recognize  only  the  registered  stockholders.^  To  him 
is  accorded  the  right  to  vote,  draw  dividends,  and  exercise  the 
general  rights  of  stockholdership.  The  unregistered  purchaser  of 
stock  cannot  claim  such  rights.  All  the  cases  agree  in  this  result 
of  a  neglect  to  register  a  transfer.  As  regards  the  rights  of  third 
persons,  however,  the  courts  of  the  different  States  vary  widely 
in  their  opinions.  Generally  the  question  arises  by  reason  of  an 
attachment  or  execution  levied  by  a  creditor  of  the  transferrer 


signature  the  transfer  directly  to  himself,  whose  hands  the  certificate  and  power 
and  the  power  of  attorney  to  Sherwood,  may  subsequently  pass,  each  successive 
all  which  is  in  strict  conformity  with  the  holder  having  the  right  to  fill  up  the 
universal  usage  of  dealers  in  the  negotia-  blanks  and  execute  the  power,  or  cause  it 
tion  and  transfer  of  stocks,  according  to  to  be  executed,  whenever  the  protection, 
the  proof  in  the  case.  Even  without  the  of  his  own  interests,  as  a  pledgee  or  ab- 
aid  of  this  usage,  there  could  be  no  great  solute  owner,  may  require  it.  That  the 
difficulty  in  upholding  the  assignment,  power  is  not  exhausted  by  the  first  use 
.  .  ,  The  filling  up  is  but  the  execu-  to  which  it  is  applied,  nor  revoked  by 
tion  of  an  authority  clearly  conveyed  to  the  death  of  the  party  giving  it,  but,  un- 
the  holder,  is  lawful  in  itself,  and  conven-  less  surrendered  to  the  person  who  gave 
lent  to  all  parties,  as  it  avoids  the  neces-  it,  or  cancelled,  continues  in  force  until 
sity  of  needlessly  multiplying  transfers  its  execution  by  an  actual  transfer  of  the 
upon  the  books."  To  same  effect,  Otis  shares  to  which  it  relates;  and  that  the  va- 
Adnir.  v.  Gardner,  105  111.  436  (1883);  lidity,  neither  of  the  power  or  of  the  trans- 
Mount  Holly,  L.  <fe  M.  T.  Co.  v.  Fenie,  fer,  is  at  all  affected  by  the  number  of  the 
17  N.  J.  Eq.  117  (1864);  Prall  v.  Tilt,  28  persons  through  whose  hands  the  certifi- 
N.  J.  Eq.  479  (1877).  In  the  case,  Leav-  cate  and  power,  since  their  first  delivery, 
itt   V.    Fisher,  4  Duer,  1,  20   (1854),  the  may  have  passed." 

court  said  that  the  power  of  attorney  "  is  '  Registry  herein  means  not  only  an 

not  limited  to  the  person  to  whom  it  may  actual  registry,  but  also  a  request  to  the 

first  have  been  delivered,  but  enures  to  corporation  to  allow  registry,  where  im- 

tbe  benefit  of  each  bona  fide  holder  into  properly  refused  by  it.     See  §  382. 

392 


CH.  XXir.]    FORMALITIES   OF  TRANSFER   AND   REGISTRY.  [§  382. 

against  the  stock  standing  on  the  corporate  books  in  the  name  of 
the  transferrer,  who  has  ah-eady  sold  and  assigned  the  certificate 
of  stock  to  another.  As  a  general  rule,  it  may  be  said  that  a  pur- 
chaser of  a  certificate  of  stock  is  usually  protected  as  fully  with- 
out a  registry  on  the  corporation  books  as  he  would  be  by  a  registry, 
so  far  as  subsequent  attachments  and  most  other  possible  equities 
asainst  the  stock  are  concerned.  This  is  the  rule  in  New  York  and 
most  of  the  States.  In  Connecticut,  New  Hampshire,  Illinois, 
and  a  few  other  States,  a  contrary  rule  prevails.  In  Massachu- 
setts, a  late  statute  has  changed  the  old  Massachusetts  rule,  so  that 
it  now  accords  with  that  of  New  York.^ 

§  382.  Formalities  of  maldng  registry.— The  customary 
method  of  registering  a  transfer  of  stock  on  the  corporate  books 
is  simple.  The  registered  stockholder,  or  his  attorney  in  fact, 
whose  name  is  written  in  the  blank  power  of  attorney,  applies 
to  the  corporate  officer  having  charge  of  the  transfer  books,  and 
requests  a  registry  of  the  transfer  to  a  person  designated  by  the 
stockholder,  either  personally  or  by  a  name  written  in  the  blank 
transfer.  Books  of  transfer  are  kept  for  purposes  of  registering, 
and  upon  such  an  application  and  a  surrender  of  the  old  certifi- 
cate, the  old  stockholder  or  his  attorney  makes  the  registry,  and 
a  new  certificate  is  issued.^ 

Any  suitable  registry  or  stock  list,  or  formal  entry  on  the 
corporate  books  suffices.  No  special  book  need  be  kept  for  that 
purpose.^  The  demand  for  registry  should  be  made  upon  the 
principal  officer  or  clerk,  at  the  office  of  the  corporation.     When 

'  This  statute  is  given   in  full  in  the  try  book,  is  the  proper  person  to  make 

Chapter  on  Attachments  and  Executions,  the  registry,  unless  the  by-laws  prescribe 

*  Burrall  v.  Husliwick  R.  R.  Co.,  75  otherwise. 
N.  Y.  211  (1878),  the  court  sfiying:  "We  ^  "  All  that  is  necessary,  when  the 
know  h(jw,  as  a  usual  thing,  a  transfer  of  transfer  is  required  by  law  to  be  made 
stock  is  made.  It  has  been  proven  many  upon  the  books  of  the  corporation,  is  tliat 
times  in  the  courts,  and  the  process  is  the  fact  should  be  appropriately  recorded 
recited  in  the  n  ports.  An  assignment  in  some  suitable  registry  or  stock  list,  or 
of  tlie  stock  in  writing,  is  made  by  the  otherwise  formally  entered  upon  its  books, 
former  owner  of  it,  with  a  power  of  at-  For  this  j)nrpose  the  account  in  a  stock 
torney  to  traiisfar  it  on  the  books  of  tlie  ledger,  showing  the  names  of  the  stock- 
corporation.  Books  of  transfer  are  kept  holders,  the  numl)er  and  amount  ot  the 
for  that  purpose,  and  on  the  production  share-*  belonging  to  each,  and  the  sources 
of  those  papers,  the  nominated  attorney  of  their  title,  whether  by  original  sub- 
makes  the  formal  transfer,  the  old  certih-  scription  and  payment,  or  by  derivation 
cate  is  canci-led,  and  a  new  certificate  is  from  others,  is  quite  suitable,  and  fully 
issued  to  the  m-w  owner."  In  the  case  meets  tiie  re(|uircinents  of  the  law."  Na- 
Green  Mount.  <fe  S.  L.  T.  Co.  v.  Bulla,  45  tional  Bank  v.  Watsontown  Bank,  105  U 
Ind.  1  (187:ij,  tlic  court  says  that  the  cor-  S.  217  (1881). 
porate  officer,  having  charge  of  the  regis- 

393 


§  382.]  FORMALITIES  OF   TRATfSFER   AND   REGISTRY.     [CH.  XXn. 

SO  made,  it  is  sufficient.^  The  method  of  registry  may  be  regu- 
lated by  the  by-laws  of  the  corporation.  Thus,  a  by-law  that  the 
stock  shall  be  transferable  by  indorsement  in  writing,  made  in  the 
presence  of  the  cashier  or  two  other  witnesses,  has  been  sustained 
as  valid,  and  is  complied  with  only  by  the  presence  and  signa- 
ture of  the  cashier  or  of  the  witnesses.^  So  also  of  a  by-law 
requiring  registry  in  the  presence  of  the  president  and  secretary 
of  the  company.^  But  a  by-law  requiring  the  assent  of  the  presi- 
dent of  the  corporation  to  the  registry  of  a  transfer,  would  be  in 
restraint  of  trade  and  void.*  A  delivery  of  certificates  to  the 
corporation,  and  a  mere  request  to  the  corporate  officers  to  make 
the  transfer  is  not  a  registry,  until  the  entry  is  actually  made.^ 

The  fact  that  the  registry  clerk  marks  on  the  instrument  of 
transfer  the  words  "received  for  record,"  does  not  constitute  a 
registry.^  It  has  been  held  that  where  the  corporation  has  a 
branch  registry  office  in  another  State,  a  registry  in  the  branch 
office  is  not  an  eflectual  registry,  until  it  has  been  reported  and 
entered  in  the  books  of  the  main  office  of  the  corporation."  If 
the  corporation  does  not  keep  books  for  the  registry  of  transfers 
of  stock,  a  mere  notice  to  the  corporation  that  a  transfer  has  been 
made  constitutes  a  registry.®  But  if  the  statute  or  charter  re- 
quires a  transfer  to  be  made  on  the  corporate  books,  no  registry 
is  possible  until  such  books  are  obtained  and  opened.^     If  the 


'  "  It  is  sufficient  for  him  to  apply  at  P.)  254  (1863),  wliere   an   application  to 

the  bank  during  the  usual  hours  of  busi-  secretary  and  treasurer  was  sustained ; 

ness,  and  make  his  demand  upon  the  of-  Green   Mount.   <fe   S.   L.  T.  Co.  v.  Bulla, 

ficers  and  clerks  who  may  be  in  attend-  supra,  where  the  application  was  to  the 

ance  there,  and  in  case  they  are  not  au-  president. 

thorized  to  transact  that  particular  busi-  ^  Dane  v.  Young,  61  Me.  160  (1872). 

ness,  they  must  either  refer  him  to  the  ^  Planters  and  M.  M.  Ins.  Co.  v.  Selma 

proper  officer  in  the  bank,    or   procure  Sav.  Bk.,  63  Ala.  585  (1879). 
the  attendance  of  such  officer,  or  of  the  *  Sargent  v.  Franklin  Ins.  Co.,  8  Pick, 

board  of  directors,  if  necessarj^  without  90  (1829). 

any  unreasonable  delay.     ...     In  the  *  Brown  v.  Adams,  6  Biss.  181  (1870). 

absencB  of  any  proof  to  the  contrary,  it  Nor  will  a  mere  entry  of  credit  to  the 

may  be  fairly  presumed,  that  the  princi-  transferee,  on  the  treasurer's  books,  suf- 

pal  officer  or  clerk  in  attendance  at  the  fice.     Marlborough  Mfg.  Co.  v.  Smith,  2 

bank,  during  the  usual  hours  of  business,  Conn.  579  (1818). 

is  authorized  to  permit  such  a  transfer  ^  Northrop  v.   Curtis,    5    Conn.    246 

when  proper."     Com.  Bank  of  Buffalo  w.  (1824). 

Kortright,    22    Wend.   348,   351    (1839);  M^inkerton  ?.  Manchester  &  L.  R.  R. 

Case  V.  Bank,  100  U.  S.  446  (1879),  where  Co.,  42  N.  H.  424  (1861). 
application  to  the  cashier  was  held  to  be  *  Crawford  v.  Prov.  Ins  Co.,  8  U.  C. 

proper;  McMurrich  «;.  Bond  H.  H.  Co.,  (C.  P.)  263  (1859). 

9  U.  C.  (Q.  B.)  333  (1852),  where  the  ap-  »  McCurry  v.  Suydam,  10  N,  J.  Law, 

plication  was  to  the  secretary;  Me  Good-  245  (1828). 
win  V.  Ottawa  &  P.  Ry.   Co.,  13  U.  C.  (C, 

394 


CH.  XXn.]      FORMALITIES   OF   TRANSFER   AND   REGISTRY.  [§  383. 

corporation  never  issues  certificates  of  stock,  the  stockholder 
cannot  demand  them,^  If  the  corporation  cannot  allow  the 
registry,  on  account  of  an  injunction,  it  is  nevertheless  bound 
to  respect  the  rights  of  a  transferee  who  gives  notice  to  it  of  the 
transfer.^  The  issue  of  a  new  certificate  of  stock  is  not  essential 
to  the  completeness  of  a  registry  of  the  transfer.^  If  the  corpo- 
ration delays  unreasonably  in  allowing  a  registry  it  is  liable  in 
damages  to  the  applicant  for  registry.* 

The  instrument  of  transfer  must  be  in  a  proper  form.^  Unless 
the  old  stockholder,  or  his  duly  authorized  attorney,  offers  to 
make  the  registry,  the  corporation  may  refuse  to  allow  it.*'  The 
power  of  attorney  must  run  from  the  previous  registered  stock- 
holder, and  not  from  an  intermediate  unregistered  transferee  of 
the  certificate.''  Transfers  under  bankruptcy  or  insolvent  laws, 
are  to  be  registered  like  voluntary  transfers.^  In  England,  a 
written  acceptance  of  the  stock  by  the  transferee  is  required.^ 

A  mere  notice  to  the  corporation  that  an  assignment  has  been 
made,  need  not  be  considered  by  the  corporation.^"  Where,  how- 
ever, the  transferee  giving  such  notice,  does  not  obtain  registry, 
because  the  corporation  refuses,  for  any  reason,  to  make  the 
registry,  the  mere  notice  must  be  borne  in  mind  by  the  corpora- 
tion, and  the  rights  of  the  applicant  preserved  by  it,  as  regards  fu- 
ture registries.^^ 

§  383.  Formalities  of  registry  may  he  waived  hy  the  corpo- 
ration.— The  corporation  may  waive  the  formalities  connected 


'  Thorp  II.  WoodhuU,  1  Sandf.  Ch.  411  *  Mechanics   Banking  Assn.  v.  Mari- 

(1844);  see  §§  74,  192.  posa  Co.,  3  Rob.  (N.  Y.)  395  (1865). 

'  Purchase  I).  New  York  Exchange  Bk.,  'Dunn    v.    Com.    Bk.    11    Barb.    580 

3  Rob.  164  (1865).  (1852). 

3  First  Natl.   Bk.  v.  Gifford,  47  Iowa,  «  Dutton  i;.  Connecticut  Bank,  13  Conn. 

575  (1877);  Chouteau  Spring  Co.  v.  Har-  493  (1840);  State  v.  Ferris,  42  Conn.  560 

ris,  20  Mo.  382  (1855).  (1875). 

*  Sutton  V.  Bank  of  Eng.,  1   C.  &  P.  »  Ortigosa  v.  Brown,  47  L.  J.  (Ch.)  168 

193(1824),  where  the  bank  delayed  longer  (1878).     The  Joint  Stock  Company's  Act 

than  one  day,  the  customary  time,  and  of   1856,    required    such    an    acceptance, 

refused    to    give    any    reason    therefor.  The  Act  of  1862,  repealing  the  Act  of 

Catchpole  V.  Ainbergate,  N.  Ac.,  Ry.  Co.,  1856,  prescribed  tliat  transfers  should  be 

1  El.  &  B.    Ill  (1852),  where,  by  reason  made  as  was   customary,  unless  the   by- 

of  the  delay,  the  stock  was  forfeited,  no-  laws  ))rescribed  otherwise.     Hence,  in  the 

tice  of  forfeiture  going  to  the  old  stock-  absence  of  by-laws,  the  written  accept- 

holder.  ance  is  held  to  be  customary  and  neces- 

'  Queen  v.  General  Cemetery  Co.,  6  E.  sary. 

<fe  B.  415,  holding  that  the  deed  of  trans-  '"  Stockwcll  v.  St.  Louis  M.  Co.,  0  Mo. 

fcr,  where   a  deed   is   necessary,  must  l)e  App.  1H3(1880). 

properly  drawn.     See  also  Societe  Gen-  "  Supra,  note  2.    See  also  Chapter  on 

erale,  Ac.  v.  Walker,  L.  11.,  11  App.  20.  Liens. 

395 


§  384:.]         FORMALITIES   OF   TRANSFER   AND   REGISTRY.     [CH.  XXII. 


with  a  registry  of  transfer,  and  when  it  does  so,  the  transferee 
becomes  a  stockholder  as  completely  as  though  registry  had  been 
regularly   raade.^     Frequently  the  waiver  arises  by  placing  the 
transferee's  name  on  the  list  of  stockholders,  although  no  formal 
registry  has  been  had.^     Even   a  charter  requirement,  that  the 
consent  of  the  directors  to  a  registry  of  transfer  shall  be  ob- 
tained, may  be  waived  by   the  corporation.^     The  corporation, 
by  paying  dividends  to  an  unregistered  transferee  of  stock,  there- 
by waives  the  formalities  of  registry.*      When  the  corporation 
refuses  to  allow  a  registry,  for  reasons  other  than  those  connected 
with  the  mere  formalities  of  registry,  or  for  reasons  not  given  to 
the  applicant,  it  waives  its  right  to  insist  on  them,  and  cannot 
afterwards  claim  that  the  applicant  did  not  conform   to   such 
technicalities.^     A  failure,  however,  on  the  part  of  the  corpora- 
tion to  notify  the  transferee  of  a  refusal  to  allow  registry  is  no 
waiver  of  such  registry .° 

§  384.  Eitlier  the  transferrer  or  the  transferee  may  apply 
to  the  corporation  for  a  registry  of  transfer.— A  person  who 
appears  on  the  corporation  books  as  the  holder  of  stock,  but  who, 


'  Richmondville  Mfg.  Co.   v.  Prall,  9 
Conn.  487  (1833);  Clowes  v.  Brettell,  11 
M.  &   W.  461   (1843);    Sadler's  Case,  3 
De  G.   &   S.   36  (1849);  Chambersburg 
Ins.  Co.-y.  Smith,  11  Peun.  St.  120(1849); 
Walter's  Case,  3  De  G.  .fe  S.  149  (1850); 
Baine  v.  Whitehaven,  &c.,  Ry.  Co.,  3  H. 
L.  C.  1  (1850);  Wills  v.  Murray,  4  Ex.  843 
(1850);  Yelland's  Case,  5  De  G.  <fe  Sm. 
396  (1852):  Powers  v.  Harding,  1  C.  B. 
(N.   S.)  533  (1857);  Henderson  v.  Royal 
British  Bk.,  26  L.  J.  (Q.  B.)  112  (1857); 
Daniell  v.  Id.,  1  H.  &  N.  685  (1857);  East 
G.  Ry.  Co.  V.  Bartholomew,  L.  R.,  3  Ex. 
15  (1867);  Inu's  Case,  L.   R.,  7   Ch.  485 
(1872);   Weber  v.  Fickey,  52  Md.  500,  516 
(1879);    Home  Stock   Ins.    Co.    v.  Sher- 
wood, 72  Mo.  461  (1880);   Isham  v.  Buck- 
ingham, 49  N.  Y.  216  (1872),  where  the 
court  says :  "  It  has  never  been  held  that 
a  corporation   can  avail  itself  of  its  own 
negligence  as  a  basis  of  a  cause  of  action 
against  a  stockholder,  nor  that  it  is  com- 
petent to  waive  a  performance  of  its  own 
rules,  nor  that  it  may  not  be  estopped  by 
its  own  acts  and  official  declarations,  the 
same   as  natural   persons.     If  it  did  not 
provide  a  transfer  book,  or  did  not  trans- 
fer the  stor\i.  according  to  the  prescribed 
forms,  the  fault  was  its  own,  and  not  the 

396 


defendant's.  It  could  waive  the  observ- 
ance of  any  other  rules  which  it  had 
adopted." 

2  Upham  V.  Burnham,  3  Biss.  431,  520 
(1873). 

'  fe  parte  Walton,  26  L.  J.  (Ch.)  545 
(1857).  Likewise  where  the  by-laws  con- 
tain such  a  provision.  Chambersburg 
Ins.  Co.  V.  Smith,  11  Penn.  St.  120(1849), 
holding  also  that  an  oversight  whereby 
the  attorney  who  makes  the  registry  omits 
to  sign  the  registry  is  immaterial. 

•*  Cutting  V.  Damerel,  88  N.  Y.  410 
(1882). 

5  Townsendi-.  Mclver,2  S.  C.  26  (1870); 
Bond  V.  Mt.  Hope  Iron  Co.,  99  Mass.  505 
(1868),  holding  that  the  corporation  must 
put  the  refusal  on  the  ground  of  non-con- 
formity with  formalities,  at  the  time  of 
the  application,  and  cannot  afterwards 
raise  such.  Chouteau,  <fec.,  Co.  v.  Harris, 
20  Mo.  382  (1865);  Robinson  v.  Natl.  Bk. 
of  New  Berne,  95  N.  Y.  6-^  (1884),  where 
the  court  says:  "The  requirement  of  a 
registry,  existing  only  for  its  own  pro- 
tection and  convenience,  must  be  deemed 
waived  and  nonessential  when  it  wrong- 
fully refuses  to  obey  its  own  rule." 

«>  Custard's  Case,  L.  R.,  8  Eq.  438 
(1869). 


CH.  XXII.]      FORMALITIES   OF   TRANSFER   AND   REGISTRY.        [§  385. 

in  fact,  "has  sold  the  stock,  has  a  right  to  have  his  transfer  re- 
corded on  the  corporate  books,  thereby  releasing  him  from  lia- 
bility on  the  stock.^  The  vendor  may  request  the  corporation  to 
register  the  transfer,  and  the  corporation  may  make  it  at  his 
request.  If  it  refuses  so  to  do,  the  vendor  may  bring  suit  in  a 
court  of  equity  to  compel  the  corporation  to  register  the  trans- 
fer.^ It  has  been  held,  also,  that  an  intermediate  vendor,  of  the 
stock,  whose  name  has  never  appeared  on  the  corporate  books, 
may  likewise  compel  a  registry  to  be  made.^  After  an  ultimate 
vendee  has  been  registered,  the  original  vendor  cannot  have  an 
intermediate  vendee  and  vendor  registered  as  the  stockholder.* 
The  corporation  may  register  the  transfer,  even  against  the  wishes 
of  the  transferee.^  The  transferee  also  has  a  right  to  apply  for 
and  compel  a  registry  of  the  transfer  of  stock  to  himself.' 

C— Eights  and  Duties  of  the  Corporation  in  Allow- 
ing OR  Refusing  Registry. 

§  385.  Corporation  may  require  proof  of  identity,  also  of 
genuineness  of  signature,  c&c— When  a  transfer  of  stock  is  pre- 
sented to  the  corporation  for  registry,  if  the  corporation  is  in 
doubt  as  to  the  identity  of  the  person  presenting  it,  whether  he 
be  the  stockholder  already  registered  on  the  books  or  the  attorney 
of  such,  the  corporation  may  require  proof  of  such  identity.'     If 


'  "  The  purchase  was  in  itself  authority 
to  the  vendor  to  make  the  transfer.  .  .  A 
court  of  equity  will  compel  a  transferee 
of  stock  to  record  the  transfer,  and  to  pay 
all  calls  after  the  transfer.  .  .  If  so, 
it  is  clear  that  the  vendor  may  himself 
request  the  transfer  to  be  made."  Web- 
ster V.  Upton,  91  U.  S.  65,  71  (1875).  "If 
a  subsetjuent  transfer  of  the  certificate  be 
refused  by  the  bank,  it  can  be  compelled 
at  the  instance  of  either  of  them."  John- 
ston V.  Laflin,  103  U.  S.  800,  804  (1880). 

*  Wynne  v.  Price,  3  De  G.  <fe  8.  310 
(1849);  Birmingham  v.  Sheridan,  33  Beav. 
660;  Kustiice  v.  Dublin,  T.  C.  Uy.  Co.,  L. 
R.,  6  Eq.  182  (1868). 

'  Paine  v.  Hutchinson,  L.  R.,  3  Ch. 
388  (1868). 

'  Shaw  V.  Fisher,  5  De  G.,  M.  <fe  G. 
596  (1855). 

'  Upton  V.  Burnham,  3  Biss.  520,  525 
(1873). 


«  Norris  v.  Irish  Land  Co.,  8  E.  cfe  B. 
512  (1857);  Daly  v.  Thompson,  10  M.  & 
W.  309  (1842);  Johnston  v.  Laflin,  5  Dill. 
65  (1878);  103  U.  S.  800;  Hill  v.  Pine 
River  I'.ank.  45  N.  H.  300  (1864);  Pres- 
byterian Con.  V.  Carlisle  Bk.,  5  I'eim.  St. 
345  (1847);  Mechanics  Hk.  v.  Seton,  1 
Peters,  299  (1828);  Arnold  v.  Suffolk  Bk., 
27  Barb.  424  (1857);  Sargent  v.  Franklin 
Ins.  Co.,  8  Pick.  90  (1829);  Oushman  v. 
Thayer  Mfg.  Co.,  76  N.  Y.  365  (1879). 
But  the  complaint  must  be  full  and  ac- 
curate in  its  averments.  Edwards  v. 
Sonoma  Bank,  59  Cal.  136  (1881). 

■"  Telegraph  Co.  v.  Davenport,  97  U. 
S.  369  (1878),  the  court  saying:  "  Tha 
officers  of  the  company  are  tho  custodians 
of  its  stock  books,  anil  it  is  their  duty  to 
see  that  all  transfers  of  shares  are  properly 
made,  either  by  the  stockhoUlrs  tiiem- 
sclves,  or  jicrsons  having  autiiority  from 
them.     If,  upon  the  prosentution  of  a  ccr- 

397 


§  387.]         FORMALITIES   OF  TRANSFER   AND  REGISTRY.     [CH.  XXn. 

it  is  in  doubt  as  to  the  competency  of  the  transferrer  to  sell  the 
stock/  legal  proof  of  such  competency  must  be  given.^  If  the 
applicant  for  registry  applies  as  the  attorney  of  the  registered 
stockholder,  the  corporation  may  require  satisfactory  evidence 
of  the  genuineness  of  the  latter's  transfer,  or  may  require  the 
presence  of  the  stockholder  himself.^ 

§  386.  Coriwration  cannot  refuse  registry  on  account  of  the 
motive  of   the  transferrer  or  transferee  in  the  transaction. — 

The  corporation  has  nothing  to  do  with  thie  motive  or  purpose  of 
the  vendor  or  vendee  of  the  stock.*  It  can  refuse  a  registry  only 
when  there  is  doubt  as  to  the  legal  right  of  the  applicant  to  have 
such  registry.  It  cannot  refuse  on  the  ground  that  the  transfer 
would  injure  the  corporation,  nor  on  the  theory  that  the  object 
of  the  transfer  was  to  increase  the  votes  of  the  transferee.^ 

§  387.  Corporation  may  %nter])lead  hetiveen  two  claimants 
to  stoclc.  —  The  task  imposed  upon  a  corporation  in  determining 
whether  to  refuse  or  to  allow  a  registry  of  stock  is  a  difficult  and 
dangerous  one.  It  is  easy  to  avoid  the  risk  of  forgery  or  of  fail- 
ure of  the  applicant  to  identify  himself.  But  circumstances  fre- 
quently are  such  that  the  corporation  dare  not  allow  registry  to 
either  of  two  parties,  each  of  whom  claims  to  be  the  sole  and  ab- 
solute owner  of  the  stock,  and  each  of  whom  claims  the  right  of 
registry  or  notifies  the  corporation  not  to  register  the  other  claim- 
ant as  a  stockholder.  These  cases  arise  on  various  occasions,  but 
most  often  .where  the  stock  has  been  attached  or  sold  on  execution 
by  the  transferrer's  creditors,  before  the  transferee  has  obtained 
registry  ;  or  where,  by  the  fraud  of  the  old  stockholder's  agent, 
the  certificate  has  passed  into  the  hands  of  a  bona  fide  purchaser ; 
or  where,  by  a  breach  of  trust,  an  executor  or  administrator,  or 
trustee  or  guardian,  has  sold  the  trust  stock  and  appropriated  the 


tificate  for  transfer,  they  are  at  all  doubt-  reqiiire   proof  that    the    signature    to   a 

ful  of  the  identity  of  the  party  offering  it  power  of  attorney  is  the  writing  ot  the 

Tvith  its  owner,  or  if  not  satisfied  of  the  person  whose   signature   it   pu'Torts   to 

o-eDuineness  of  a  power  of  attorne.v  pro-  be."     BMyard  v.  Farmers  &  M.   Bk.,  52 

duced,  they  can  require  the  identity  of  Penn.  St.  232  (1866). 
the  party  in  the  one  case,  and  the  genuine-  ^  See  §§  318,  319. 

ness  of  the  document  in  the  other,  to  be  ^  Id.  ,    .        ,         ^Q  <?«"?  -^fiT 

satisiactorily  established  before  allowing  ^  Supra,  note  7,  and  see  fe§  363-367_ 

the  transfer  to  be  ma.le."     Davis  v.  Bank  *  Townsend  v.  Mclver,    2    b.    C.    25 

of  Eng.,  2   Bing.    393  (1824),  where  the  (1870).  i,       t    u    T  n.    n 

court  s^vs  the  corporation   "  may  take  ^  Moffatt  v.  Farquhar,  L.  R.  7  Ch.  D. 

reasonable  time  to  maUe  inquiries,  and  591  (1878). 

398 


CH. 


XXn.]     FORMALITIES   OF  TRANSFER   AND   REGISTRY. 


[§  38T. 


proceeds  ;  or  under  other  states  of  fact  wherein  there  are  two 
claimants  of  the  stock,  each  having  rights  which  can  be  clearly 
ascertained  onlj  bv  litigation.  It  is  not  incumbent  on  the  cor- 
poration to  decide  between  these  conflicting  parties  and  I'ights.^ 
Such  a  requirement  would  expose  it  to  unreasonable  risks  and 
compel  it  to  assume  the  functions  of  a  court.  Where  tliere  is  a 
reasonable  doubt  as  to  the  facts  involved  or  as  to  the  respective 
rights  of  the  claimants  of  the  stock,  and  the  corporation  is  sued 
by  one  of  the  claimants  for  refusing  to  allow'  a  registry  by  him, 
the  corporation  may  interplead  and  thus  compel  the  claimants  to 
ascertain  their  rights  through  the  medium  of  a  court  of  justice.^ 
A  similar  interpleader  may  be  made  where  the  corporation  is  sued 
for  dividends  which  are  claimed  by  two  opposing  parties.^  An 
interpleader  is  proper,  however,  only  when  suit  is  actually  com- 
menced against  the  corporation.*  There  is  some  doubt  and  con- 
siderable difficulty  in  Jaying  down  rules  as  to  when  a  corporation 
may  safely  claim  a  right  to  refuse  to  act,   and    to   compel    the 


'  The  discussion  of  these  various  diffi- 
culties and  circumstances  is  made  under 
chapters  devoted  to  them.  Suffice  it  here 
to  say  in  general  that  when  the  corpora- 
tion actually  issues  a  certificate  of  stock 
to  an  applicant  for  registiy,  it  assumes  a 
liability  thereby,  sometimes  to  claimants 
of  the  old  certificate,  sometimes  to  the 
purchaser  of  the  new,  according  to  the 
facts  of  the  case.  As  regards  the  latter 
the  case  of  Moores  v.  Citizens'  Nat.  Bk., 
Ill  U.  S.  15fi,  165  (188:S),  well  says:  "A 
certificate  of  stock  in  a  corporation,  un- 
der the  corporate  seal,  and  signed  by  the 
ofiicers  authorized  to  issue  certificates, 
estops  tlie  corporation  to  deny  its  valid- 
ity as  against  one  who  takes  it  for  value, 
and  with  no  knowledge  or  notice  of  any 
fact  tending  to  show  that  it  has  been  ir- 
regularly issued." 

"^  Mechanics'  Bk.  v.  Richards,  6  Mo. 
App.  454  (1881),  affi'd  74  Mo.  77  ;  State 
Ins.  Co.  V.  Gennett,  2  Tenn.  Ch.  100; 
Leavitt  v.  Fisher,  4  Duer  (N.  Y.),  I 
(1854).  If  the  court  decides  that  tlie  in- 
terpleader is  properly  fih'd  by  the  corpo- 
ration herein,  it  generally  on  a  motion 
dismisses  the  jiroceeding  with  co.-ts  to 
the  corporation,  and  the  court  also  de- 
cides between  the  defendants,  if  the  case 
is  ready  as  between  tliem.  If  not  ready, 
it  directs  (in  action  or  an  is.suc,  or  a  refer- 
ence to  a  master,  to   ascertain    contested 


facts,  as  may  be  best  suited  to  the  nature 
of  the  case,  "  or  the  court  may  leave  it  to 
the  defendants  to  prepare  the  case  be- 
tween them  as  they  maj^  be  advised, 
which  would  be  the  effect  of  a  general 
order  to  interplead."  State  Ins.  Co.  v. 
Gennett.  2  Tenn.  Ch.  100  (1874),  citing 
as  cases  on  above  rules  of  practice,  East. 
&  West.  <fec.  Co.  V.  Littledale,  7  Hare, 
62;  Mtirtinius  v.  Helmuth,  2  V.  &  B. 
412,  note;  Horton  v.  Baptist  Church,  34- 
Vt.  317;  Rowe  v.  Hoagland,  3  Hal.  Ch. 
139;  Crawford  v.  Fisher,  1  Hare,  441; 
Condit  V.  King,  2  Beas.  Ch.  383  ;  Hen- 
drickson  v.  Decow,  Sax.  595  ;  City  Bk. 
V.  Bano's,  2  Paige,  570;  Angell  v.  Had- 
den,  16  Ves.  212.  The  case.  State  Ins. 
Co.  V.  Gennett,  2  Tenn.  Ch.  82  (1874), 
says :  "  The  law  is  that  the  mere  pretext 
of  a  conflicting  claim  is  not  sufficient. 
The  court  must  be  able  to  see  from  the 
facts  stated  that  there  is  a  question  to  be 
tried." 

•'  Salisbury  Mills  v.  Townsend,  109 
Mass.  115(1871).  Quere  as  to  whether 
an  action  for  dividends  can  be  main- 
tained before  the  right  of  the  claimant  to 
the  stock  is  established.  Ilugl 
mont  Copper  Min.  Co.,  72  N 
(1878). 

"  Buffalo  Grapo   Sugar  Co 
ger,  22  Hun,  349(1880). 

399 


es  V.  Ver- 
Y.    207 

V.  Alber- 


§  388.]  FORMALITIES   OF  TRANSFER   AND   REGISTRY.    [CH.  XXII. 

claimants  to  litigate  between  themselves,  before  it  allows  a  regis- 
try to  cither.  The  polic}'  of  the  law  doubtless  is  to  go  very  far 
in  allowing  the  corporation  to  refuse  to  incur  responsibility  by 
taking  action.  Where,  however,  the  rights  of  one  claimant  is 
reasonably  clear,  the  corporation  should  suspend  action  for  a  rea- 
sonable time  within  which  the  contesting  party  may  apply  to  the 
courts,  and  if  no  such  action  is  brought,  it  should  allow  a  registry 
by  the  first  named  claimant.^  Anj  other  rule  would  enable  any 
person  to  practically  deprive  a  stockholder  of  the  possession  of 
his  stock  temporarily,  by  simply  notifying  the  corporation  that 
he  claims  the  stock.^  Where,  however,  the  corporation  has  al- 
lowed one  claimant  to  register  his  transfer,  the  right  of  the  cor- 
poration to  interplead  is  gone.^  It  cannot  afterwards  remove  the 
name  of  the  registered  stockholder,  especially  where  such  stock- 
holder has  acted  in  reliance  upon  such  registry.* 

§  388.  Corporation  must  obey  mandate  of  court  ordering 
registry  and  issue  of  new  certificates. — The  authorities  on  this 
proposition  of  law  are  few  in  number,  but  they  are  decisive  in 
protecting  the  corporations  from  liability  where  it  proceeds  under 
mandate  of  a  court.  Thus,  where  a  decree  is  obtained  command- 
ing the  corporation  to  register  a  transfer,  the  corporation  is  pro- 
tected in  obeying  the  decree,  even  though  it  is  reversed  on  ap- 
peal, there  having  been  no  stay  of  proceedings.^  Cases  herein 
may  arise  also,  where  the  registered  stockholder  alleges  tliat  he 
has  lost  his  certificate,  and  the  court  compels  the  corporation  to 
issue  to  him  a  new  one  ;®  also  where  an  attachment  or  execution 
has  been  levied,  the  old  certificate  of  stock  being  outstanding.'' 
There  is  a  limit,  however,  to  the  power  of  courts  in  these  matters. 
If  the  whole  capital  stock  has  been  issued  and  the  certificates 
therefore  are  outstanding,  a  court  cannot  order  the  issue  of  other 


'  Townsend  f.  Mclver,  2  S.  C.  N.    S.  there  clearly  is  a  clerical  mistake  and  the 

25  ( 1870).  issue  is  to  the   wrong   party.     Smith  v, 

•^  7?e  Tahiti  Cotton  Co.,  L.  R.  17    Eq.  North  Am.  Min.  Co.,  1  Nev.    42n    (1865). 

273  (1874);  Ux  parte   Sargent,  L.   R.    17  The  corporation  is  liable   for   such   mia- 

Eq.  273  (187:^).  takes.     Harrison  v.  Pryse,    Bernardistan 

3  Dalton  V.  Midland  Ry.  Co.,  12  C.  B.  (Fol.)  Ch.  324  (1740). 

458  (1852)  ;  Cady  v.  Potter,  55  Barb.  463  »  Chapman  v.  New  Orleans,   G.    L.  <fc 

(1869);  Mt.  Holly.  L.   &    M.    T.    Co.    v.  Bnnking  Co.,  4  La.  Ann.  I5H  (1849).   See 

Ferrie,  17  N.  J.  Eq.  117.  also  Purchase  v.    New    York    Exchange 

^  Ward  II.    Southeastern    Ry.   Co.,    6  Bank,  3  Rob.  164  (186r)) 

Jur.  N.  S.  890  (1860);  Hart  v.  Frontino,  « 8ee  §§  368-370. 

Ac.  Co.,  22  L.    T.    N.    S.    30;  Cohen   v.  '  See  Ch.  on  Attachment  and    Execu- 

Gwynn,  4  Md.  Ch.   357   (1848).     Unless  tion. 

400 


OH.  XXII.]     FORMALITIES   OF   TRA^^SFER   AND   REGISTRY.  [§  390. 

certificates,  unless  the  decree  at  the  same  time  practically  nullifies 
a  corresponding  outstanding  certificate.^ 

§  389.  Remedies  of  a  transferee  of  stock  against  the  corpora- 
tion for  refusal  to  allow  registry. — Where,  for  any  reason,  the 
corporation  refuses  to  allow  the  registry  of  a  transfer  of  stock, 
when  it  is  the  duty  and  obligation  of  the  corporation  to  allow  it, 
the  transferrer  or  the  transferee  who  applies  for  registry  may,  in 
general,  pursue  one  of  three  remedies.  He  may  apply  to  a  court 
of  law  for  a  mandamus  to  the  corporation  to  compel  it  to  open  its 
books  and  allow  the  registry  ;  or  he  may  bring  a  suit  in  equity, 
praying  that  the  corporation  be  decreed  to  allow  the  registry,  or 
to  pay  him  damages,  if  registry  is  impossible ;  or  he  may  sue  the 
corporation  at  law  for  damages,  on  the  ground  that  by  its  refusal 
it  has  been  guilty  of  a  conversion  of  his  stock. 

§  390.  Remedy  hy  mandamus. — The  authorities  are  in  irre- 
concilable conflict  on  the  question  whether  a  mandamus  lies  to 
compel  a  corporation  to  allow  a  registry  on  its  books  of  a  transfer 
of  stock.  The  weight  of  authority  holds  very  clearly  that  the 
mandamus  will  not  lie  under  such  circumstances.^     This  rule  is 


'  See  §284. 

'  The  leading  case  in  this  country  is 
Sliipley  V.  Mechanics  Bank,  10  Johns. 
484  (1813),  where  the  court  says:  "The 
applicants  have  an  adequate  remedy  bj'  a 
special  action  on  the  case,  to  recover  the 
value  of  stock  if  the  bank  have  unduly 
refused  to  transfer  it.  There  is  no  need 
of  the  extraordinary  remedy  by  manda- 
mus in  so  ordinary  a  case.  It  might  as 
well  be  required  in  every  case  where  tro- 
ver would  lie.  It  is  not  a  matter  of  pub- 
lic concern,  as  in  the  case  of  public 
records  and  documents;  and  there  cannot 
be  any  necessity,  or  even  a  desire  of  pos- 
sessing the  identical  shares  in  question." 
Ex  parte  Firemen's  Ins.  Co.,  6  Hill,  243 
(1843);  People  v.  Parker  Vein  Coal  Co., 
10  How.  Pr.  543  (1854);  State  r.  Rom- 
bauer,  46  Mo.  1.55  (1870);  State  ?^.  St. 
Louis,  (fee.  Co.,  21  .Mo.  App.  526  (1886)  ; 
King  V.  London  Assurance  Co.,  1  Dowl. 
&  U.  510(1822);  Stackpole  v.  Seymour, 
127  Mass.  104  (1879);  King  »».  Hank  of 
Eng.  2  Doug.  524  ;  State  v.  (Jncrrero,  12 
Nev.  105  (1877):  State  v.  Miller,  N.  Y. 
Daily  Reg.  April  10,  1886:  Baker  v. 
Marshall,  15  Minn.  177  (1870),  where  the 
stock  had  already  been  issued  to  another; 


Wilkinson  v.  Prov.  Bk.,  3  R.  I.  22  (1853) ; 
Kimball  v.  Union  Water  Co.,  44  Cal.  173 
(1872):  Birmingham  Fire  Ins.  Co.  v. 
Cora.,  92  Penn.  St.  72  (1879),  where  the 
court  says  that  even  if  the  courts  "  were 
inclined  to  enlarge  the  remedy  it  could 
not  be  done  in  a  case  where  the  right  is 
disputed,  where  no  public  interest  is  in- 
volved, where  no  reason  is  shown  for  a 
transfer  of  a  specific  and  favorite  thing, 
and  where  the  remedy  by  action  is  fully 
adequate."  Townes  v.  Nichols,  73  Me. 
515  (1882),  where  the  court  vigorously 
says:  "  All  the  authorities  declare  that 
the  remedy  by  mandaiims  cannot  be  re- 
sorted to  in  a  case  like  thi.s,  unless  the 
legal  right  of  the  petitioner  to  the  pos- 
ses.sion  of  the  thing  sought  for  is  clear 
and  uiiqwcsti(mable.  If  there  be  doubt  as 
to  what  his  legal  right  may  be,  involving 
the  necessity  of  litii^ation  to  settle  it, 
mandamus  must  be  withheld.  Mandamus 
is  the  right  arm  of  the  law.  Its  princi- 
pal office  is  not  to  iiujuire  and  investi- 
gate, hut  to  {'ommaiid  and  execute.  It  is 
not  designed  to  assume  a  part  in  ordinary 
law  suits  or  equitable  proceedings.  It  is 
properly  called  into  requisition  in  cases 
where  the   law   has   been   settled,  or  in 


[26] 


401 


§  390.]         FORMALITIES   OF   TRANSFER   AND   REGISTRY,     [cil.  Xxn. 

based  largely  on  the  historical  origin  of  the  writ  of  mandamus, 
and  on  the  theory  that  the  stock  of  a  private  corporation  has  no 
peculiar  value  and  may  be  readily  obtained  in  open  market  or 
fully  compensated  for  in  damages.  It  is  doubted,  however, 
whether  these  reasons  will  be  sufficient  to  restrain  the  manifest 
tendency  to  enlarge  the  scope  of  this  writ,  particularly  with  refer- 
ence to  stock  transactions.  There  is  a  strong  list  of  decisions 
which  hold  that  a  mandamus  lies  to  compel  a  corporation  to  allow 
a  registry  of  a  transfer  of  stock,  particularly  where  the  corpora- 
tion has  no  good  and  sufficient  reason  for  refusing  the  registry.^ 
Perhaps  the  strongest  argument  against  granting  a  mandamus  for 
this  purpose  lies  in  the  fact  that  by  a  bill  in  equity  not  only  can 
a  registry  be  specifically  decreed  and  ordered  by  the  court,  but 
the  rights  of  the  corporation  and  any  other  claimant  be  fully  and 
finally  heard  and  disposed  of.  It  has  been  held  that  mandamus 
will  issue  to  aid  the  sheriff  in  transferring  stock  sold  on  an  execu- 
tion sale.^  This  rule,  however,  would  work  harshly  in  States 
where  the  purchaser  of  the  outstanding  certificate  may  have  some 
rights,  and  where  such  a  possibility  exists  the  mandamus  should 
be  denied.^ 


cases  where  questions  of  law  oi*  equity 
cannot  properly  and  reasonably  arise. 
Its  very  nature  implies  that  the  law,  al- 
though plain  and  clear,  fails  to  be  en- 
forced and  needs  its  assistance."  See  also 
Rex  V.  Worcester  Nav.  Co.,  1  Mon.  <fe  R. 
529  (1828) ;  Queen  v.  Liverpool,  M.  <fec. 
Ry.  Co.,  21  L.  J.  (Q.  B.)  284  (1852); 
Murray  v.  Stevens,  110  Mass.  95(1872), 
where  the  court  says,  in  refusing  a  man- 
damus to  compel  a  registry  of  stock: 
"  Without  iindertaking  to  lay  down  an 
invariable  rule  on  the  subject,  we  think  it 
must  be  said  that  this  process  was  not  in- 
tended and  is  not  well  adapted  for  the 
trial  of  mere  questions  of  property."  State 
V.  Warren  Foundry  <fe  M.  Co  ,  32  N.  J. 
L.  439  (1868),  where  a  previous  transfer 
had  been  registered,  although  possibly  in 
fraud  of  creditors.  Freon  v.  Carriage  Co., 
42  0.  St.  30  (1884),  refusing  a  manda- 
mus, although  it  is  said"  that  this  stock 
has  no  market  value,  that  the  corpoi'ation 
is  doing  a  growing  and  profitable  busi- 
ness, that  its  good  will  enhances  the  value 
of  the  stock,  and  that  by  reason  of  these 
things  damages  will  not  be  an  adequate 
remedy.  These  facts  do  not  change  the 
rule.     They  are    elements    in    assessing 

402 


damages,  which  may  be  fully  ascertained 
in  an  action  at  law."  See  also  Pomeroy 
en  Eq.  Juris.  §  1412  ;  State  v.  People's 
Bldg.  (fee.  Association,  43  N.  J.  L.  389 
(1881). 

'  People  V.  Goss  Mfg.  Co.,  99  111.  355 
(1881);  State  v.  First  Nat'l  Bank,  89  Ind. 
302  (1883);  Green  Mount.  <fec.  Co.  v.  Bul- 
la, 45  Ind.  1  (1873);  People  v.  Crockett, 
9  Cal.  112  (1858)  ;  Townsend  v.  Mclver,  2 
S.  C.  25  (1870);  State  v.  Cheraw,  <fec.  R. 
R.  Co.,  16  S.  C.  524  (1881);  Cooper  r. 
Swamp,  (fee.  Co.,  2  Murph.  (S.  C.)  195 
(1812);  Norris  v.  Irish  Land  Co.,  8  El.  & 
Bl.  512  (1857);  Resrina  v.  Carnatic  Ry. 
Co.,  L.  R.  8  Q.  6.2^99  (1873);  Crawford 
V.  Prov.  Ins.  Co.,  8  U.  C.  (C.  P.)  263 
(1859) ;  Goodwin  «r.  Ottawa  <k  P.  Ry.  Co., 
13  U.  C.  (C.  P.)  2.54  (1863),  holding  also 
that  the  mandanms  may  run  to  the  corpo- 
ration itself,  without  specifying  any  offi- 
cers, and  that  an  evasive  answer  by  them 
is  equivalent  to  a  refusal  to  register. 

-  State  V.  First  National  Bank,  sm- 
2)ra;  Bailey  v.  Strohecker,  38  Ga.  259 
(1868). 

^  Durham  v.  Man.  (fee.  Co.,  9  Oreg.  41 
(1880). 


CH.  xxn.]    FORMALITIES   OF  TRANSFER   AND    REGISTRY.  [§392. 


§  391.  Remedij  hij  suit  in  equity. — This  is,  it  seems,  the  surest, 
most  complete,  and  most  just  remedy  for  compelling  a  corpora- 
tion to  register  a  transfer  of  stock,  and  for  adjusting  the  various 
conflicting  rights  or  claims  of  other  parties.^  It  is  a  remedy  ap- 
plicable to  almost  all  cases  arising  under  a  refusal  of  the  corpora- 
tion to  allow  a  registry  of  transfer.  The  case  will  be  decided  on 
equitable  principles,  however,  and  a  transfer  will  not  be  decreed 
if  it  involves  bad  faith.'^  The  relief  usually  demanded  is  in  the 
alternative,  being  either  for  a  registry  of  the  transfer  or  damages 
in  lieu  thereof.  If  all  the  stock  has  already  been  issued,  equity 
has  no  power  to  compel  a  further  issue. ^ 

§  392.  Remedy  hy  an  action  for  damages. — An  action  at  law 
for  damages  is  an  old  and  well  established  remedy  of  a  stock- 
holder who  has  applied  to  the  corporation  for  a  registry  of  a 
transfer  and  has  been  refused.*     The  form  of  the  action  is  not 


1  Cushman  v.  Thayer  Mfg.  Co.,  '76  N.  Y. 
365  (1879),  where  the  court  says:  "The 
right  of  the  plaintiff  to  maintain  this  ac- 
tion depends  upon  tlie  question  whetlier 
an  equitable  action  will  lie  to  compel  a 
transfer  of  stock  by  a  corporation  to  the 
owner  of  the  same,  or  the  plaintiff  must 
seek  a  remedy  by  an  action  at  law  for 
damages.  The  latter  action  is  frequently 
of  no  avail  and  does  not  always  afford 
complete  ;ind  full  redress.  It  is  easy  to 
see  that  a  party  may  have  become  the 
owner  or  purchaser  of  stock  in  a  corpora- 
tion, which  he  desires  to  hold  as  a  perma- 
nent investment,  which  may  be  at  the 
time  of  little  value,  in  fact  without  any 
market  value  whatever,  and  its  real  worth 
may  consist  in  the  prospective  rise  whicli 
the  owner  has  reason  to  anticipate  will 
follow  from  facts  within  his  knowledge. 
To  say  that  the  holder  shall  not  be  en- 
titled to  the  stock  because  the  corporation 
without  any  just  rciison  refuses  to  trans- 
fer it,  and  that  he  shall  be  left  to  pursue 
the  remedy  of  an  action  for  damages,  in 
which  he  can  recover  only  a  nominal 
amount,  would  establish  a  rule  which 
must  Wdi-k  great  injustice  in  tUMuy  cases, 
and  confer  a  power  on  corporate  bodies 
wliicli  has  no  sanction  in  the  law.  A 
court  of  equity  will  enforce  a  sp<cific  per- 
formance on  a  contract  for  the  sale  of  real 
estate,  and  compel  the  execution  of  a  deed 
by  the  vendor  to  the  vendee,  although  an 
action  at  law  may  be  brought  to  recover 


damages  for  the  breach  of  the  contract. 
Such  a  case  bears  a  striking  analogy  to 
the  one  now  presented,  and  the  same 
principle  is  manifestly  applicable  where 
the  remedy  at  law  is  inadequate  to  fur- 
nish the  proper  relief."  Walker  v.  Detroit 
Transit  Ry.  Co.  47  Mich.  338;  lasigi 
V.  Chicago,  B.  &  Q.  R.  R.  Co.  129  Mass. 
46  (1880);  Mechanics  Bk.  v.  Seton,  I 
Peters,  299(1828);  Middlebrook  «■.  Mer- 
chants Bk.,  3  Abb.  Ct.  of  App.  295  (1866); 
Buckmaster  v.  Consumers  Ice  Co.,  5  Daly, 
513  (1874).  Iron  R.  R.  Co.  v.  Fink,  41  6. 
St.  321  (1884),  the  court  saying  that  the 
power  of  equity  to  decree  a  registry  is 
well  settled.  As  regards  the  pleadings 
see  Burrall  v.  Bushwick  R.  R.  Co.,  75  N. 
Y.  211(1878). 

-  Regina  v.   Liverpool,  &c.  Ry.  21  L. 
J.  (Q.  a)  284. 

^  Smith  V.  North  Am.  Min.  Co.,  1  Nev. 
423  (1865),  and  see  i;  284. 

••  llussey  V.  Manufacturers  &  M.  IJk., 
27  Mass.  414  (1830);  Helm  v.  Swiggett, 
12  Ind.  194  (1859).  Cases  supporting  this 
rule  abound  in  all  the  States.  Tlu'v  will 
be  found  together  with  others  in  the 
Chapter  on  the  Measure  of  Damages.  If 
the  corporation  illegally  refuses  to  allow 
a  registry,  but  afterwards  does  allow  it, 
the  corporation  is  not  liable  in  damages 
for  the  decline  of  the  market  value  of  the 
stock  in  the  meantime.  Skinner  ».  City 
of  London  M.  Ins.  Co.,  L.  R.  14  Q.  B.  D. 
882(1885). 

403 


§  392.]         FORMALITIES   OF  TRANSFER   AND   REGISTRY.      [CH.  XXII. 

definitely  fixed  and  in  different  States  different  forms  seem  to 
have  been  passed  upon  without  any  question  being  raised  as  to 
their  technical  nature.^  The  measure  of  damages  is  substantially 
the  same  as  in  other  cases  of  conversion  of  stock.^  The  Statute 
of  Limitations  runs  only  from  the  time  when  a  demand  for  regis- 
try was  made.^ 

'  See  Chapter  on  Common  Law  Plead-  ^  Cleveland  R.  R.  Co.  v.  Robbins,  35 

ing3  and  Measure  of  Damages.  0.  St.  483 ;  Iron  R.  R.  Co.  v.  Fink,  41  0. 

2  Id  St.  321  (1884). 


404 


CHAPTER  XXIII. 

RULES   FOR   CORPORATIONS   IN  REGARD  TO   REFUSING  OR 
ALLOWING  REGISTRIES  OF  TRANSFERS  OF  STOCK. 


§  393.  Purpose  of  the  chapter. 

394.  Right  to  refuse  until  the  transfer- 
rer pays  the  unpaid  subscription 
price. 

"Whether  the  corporation  may  re- 
fuse to  register  a  transfer  to  an 
irresponsible  transferee. 

Corporation  may  refuse  to  regis- 
ter as  transferees  persons  who 
are  incompetent  to  contract. 

Trustees,  executors,  guardians, 
agents,  and  pledgees. 

Sales  of  stock  by  executors  or 
administrators. 

Sales  by  trustees. 

Sales  by  guardians. 


395. 


396. 


391 

398. 

399. 
400. 


401.  Forgery  of  transfer. 


402.  Corporation  must  require   a   sur- 

render bf  the   outstanding   cer- 
tificate. 

403.  Alleged  loss  of  the  old  certificate. 

404.  Attachment  or  execution. 

405.  Decree  of  a  court  that  certificates 

be  issued. 

406.  Theft  of  certificates   indorsed   in 

blank. 

407.  Interpleader  by  the  corporation. 

408.  Restrictions    by    corporation    on 

stockholder's   right    to    sell  or 
transfer. 

409.  Lien  of  the  corporation. 

410.  Formalities  of  registry  which  the 

corporation  may  insist  upon. 


§  393.  Purpose  of  tJie  chapter. — It  is  proposed  in  this  chap- 
ter, as  a  continuation  of  the  last,  and  as  a  recapitulation  of  the 
various  rights,  liabilities,  and  duties  of  the  corporation  in  refusing 
or  allowing  a  registry  of  a  transfer  of  stock,  to  state  briefly  the 
rules  which  prevail  herein.  The  standpoint  taken  is  that  of  the 
corporation.  The  minute  and  particular  application  of  the  gen- 
eral rules  governing  this  subject  are  not  stated  here  at  length,  but 
an  effort  has  been  made  to  give,  in  systematic  order,  certain  di- 
rections which  will  enable  a  corporation,  when  in  doubt  as  to 
whether  to  allow  or  refuse  a  registry,  to  decide  the  question  in- 
telh'gently  and  safely. 

§  394.  Right  to  refuse  until  the  transferrer  pays  the  un- 
paid subscription  price} — A  corporation  cannot  refuse  to  regis- 
ter a  transfer  of  stock,  merely  because  the  subscription  price  has 
not  been  fully  paid  in,  unless  the  charter  or  the  statutes  of  the 
State  expressly  give  that  right.  Nor  can  it  refuse  registry, 
even  though  a  call  for  part  of  the  subscription    price   has  been 


•  See  Chapter  XV. 


405 


§§395,396.]  RULES   REGULATING   REGISTRY.  [CH.  XXIII. 

made,  is  due,  and  remains  unpaid.  It  must  allow  a  registry 
but  may  continue  to  bold  the  transferrer  liable  for  the  call.  The 
corporation  has  no  lien  on  the  stock  for  the  subscription  price,  nor 
has  it  a  ri^ht  to  restrict  transfers  until  calls  or  parts  of  the  sub- 
scription price  not  yet  called  are  paid.  The  policy  of  the  law  is 
to  favor  the  right  of  transfer,  and  no  impediments  by  the  corpo- 
ration are  allowed  to  restrict  that  right.  As  regards  parts  of  the 
subscription  not  yet  called  in,  the  transferrer  is  released  from  lia- 
bility and  the  transferee  assumes  the  liability.  As  regards  calls 
made  before  the  application  for  registry,  but  not  yet  due,  the 
transferrer  is  liable,  but,  it  seems,  not  the  transferee.  As  regards 
calls  made  before  the  application  and  due  before  such,  the  trans- 
ferrer and  not  the  transferee  is  liable.  As  regards  calls  made 
after  the  application  the  transferee  alone  is  liable.  In  Pennsyl- 
vania, however,  a  different  rule  prevails,  and  the  transferrer,  if  he 
is  the  original  subscriber,  is  alone  liable  until  the  whole  subscrip- 
tion is  paid.  In  New  York,  by  statute,  both  railroad  and  manu- 
facturing corporations  may  refuse  to  allow  registry  of  transfers, 
until  unpaid  calls  have  been  paid. 

§  395.  WhetUer  the  corporation  may  refuse  to  register  a 
transfer  to  an  irresjwnsihle  transferee.^ — Greater  difhculty  is 
experienced  in  finding  a  working  rule  on  this  subject.  On  one 
point,  however,  all  the  authorities  agree.  If  the  corporation  is 
insolvent  or  in  such  a  state  of  decline  that  insolvency  seems  in- 
evitable, the  corporation  may  refuse  to  allow  a  registry  of  trans- 
fer from  a  responsible  to  an  irresponsible  insolvent  transferee. 
The  policy  of  the  law  is  to  protect  corporate  creditors,  even  at  the 
expense  of  restricting  the  right  of  transfer.  The  above  rule  ap- 
plies not  only  where  the  subscription  is  unpaid,  but  also  where  it 
has  been  paid  and  only  a  statutory  liability  exists.  Where,  how- 
ever, the  corporation  is  solvent  and  a  stockholder  applies  for  a 
registry  of  transfer  from  himself  to  an  irresponsible  transferee,  it 
seems  that  the  corporation  cannot  refuse  to  make  the  registry. 

§  396.  Co7poration  may  refuse  to  register  as  transferees 
persons  who  are  incompetent  to  contract.'^ — If  the  transferee 
of  a  certificate  of  stock  is  an  infant,  or  person  of  unsound  mind, 
the  coi'poration  may  refuse  to  register  such  transferee  as  a  stock- 


'  See  Chapter  XV.  ^  See  Chapter  XIV. 

406 


CH.  XXm.]  RULES   REGULATING   REGISTRY.  [§§  397,  398. 

holder.  The  reason  of  the  rule  is  that  snch  persons  would  not 
be  obliged  at  law  to  respond  to  the  obligations  of  a  stockholder, 
and  consequently  are  not  entitled  to  its  privileges.  With  married 
women  at  the  present  day,  the  law  is  different.  At  common  law 
thev  were  incompetent  to  become  a  stockholder,  the  same  as  an 
infant  is  at  the  present  time.  But  the  statutes  of  all  the  States 
have  substantially  removed  these  disabilities,  and  enabled  a  mar- 
ried woman  to  transact  business  as  2^  feme  sole,  so  far  as  her  sepa- 
rate estate  is  concerned.  She  may  become  a  stockholder  in  a  cor- 
poration, but  cannot  bind  her  husband's  estate  for  the  liabilities 
of  such  stockholdership. 

§  397.  Trustees,  executors,  guardians,  agents,  pledgees} — 
In  registering  transfer  to  a  trustee,  executor,  or  guardian,  the 
corporation  may  be  required  to  register  the  transferee  as  holder 
in  his  official  capacity.  A  trustee  who  purchases  or  receives 
stock  to  hold  in  trust  for  the  benefit  of  another,  may,  it  seems, 
require  the  corporation  to  register  the  transfer  and  issue  new  cer- 
tificates to  himself,  in  his  own  name  as  "trustee."  In  England 
the  rule  appears  to  be  different.  The  reason  of  this  rule  is  that 
the  liability  of  a  trustee  on  stock,  is  in  many  of  the  States  differ- 
ent from  that  of  a  complete  owner  of  the  stock,  and  also  because 
where  stock  is  held  by  a  trustee,  as  trustee,  it  is  the  duty  of  the 
cqrporation  to  refuse  to  allow  the  trustee  to  sell  and  register  a 
sale  of  the  stock,  unless  the  instrument  creating  the  trust  author- 
izes such  sale.  So  also  an  executor,  or  administrator,  or  guard- 
ian, may  compel  the  corporation  to  place  his  official  title,  after 
his  name,  in  the  stock  registry.  Pledgees,  however,  and  agents, 
have  not  this  right.  The  corporation  need  not  write  the 
word  "  pledgee"  after  the  transferee's  name,  either  in  the  stock 
registry  or  on  the  certificate.  Such  is  the  rule  for  the  reason 
that  the  corporation  is  not  obliged  to  protect  the  rights  of  the 
pledgor,  nor  to  recognize  the  pledgeeship  of  the  transferee.  The 
same  rule  applies  to  transferees  who  take  as  agents  of  the 
transferrer. 

§  398.  Sales  of  stock  hj  executors  or    administrators? — A 

corporation  may  with  safety,  and  in  fact  is  obliged   to   allow  an 
executor  or  administrator  to  register  a  transfer  of  the  sale  of  stock 


See  Chapter  XIV.  ^  See  Chapter  XIX. 

407 


§§  399,  400.]  RULES   REGULATING   REGISTRY.  [CH.  XXIII. 

belonging  to  the  estate,  upon  presentation  bj  the  executor   or  ad- 
ministrator of  the  letters  testamentary  or  letters  of  administra- 
tion.    The  executor  or  administrator  may  then  register  a  trans- 
fer of  the  stock  to  himself,  or  directly  from  the  name  of  the  de- 
ceased to  a  purchaser  from  the  executor  ;  or  from   the    deceased 
to  the  executor,  and  then  from  the  executor  to   the    purchaser. 
One  executor  may  sell  and  register  a  transfer  of  the   stock.     The 
corporation  is  not  bound  to  inquire  whether  it  is  necessary  that 
the  sale  be  made  in  order  to  pay  the  debts  of  the  estate,  nor  to 
see  to  it  that  the  executor  actually  applies  the  proceeds   of  the 
sale  to  that  purpose.     Where,  however,  the  corporation  has  actual 
knowledge,  through  its  officers  that  a  breach  of  trust   is   contem- 
plated by  the  executor,  it  is  bound  to  refuse  registry  and  will  be 
liable  to  the  estate  for  neglecting  so  to  do.     So  also  where  such 
a  long  time  has  elapsed  between  the  taking  out  of  the  letters  and 
the  sale  by  the  executor,  that  the  latter  has  become   practically  a 
trustee,  the  corporation  must  use  the  same  precaution  as  in  sales 
by  a  trustee.     In  the  case  of  specific  legacies  of  stock,  the  corpo- 
ration need  take  no  notice  of  them,  but  must  allow  the  executor 
to  transfer  the  stock  into  his  own  name,  since  he  may  need   it  to 
pay  debts,  and  the  corporation  is  not  bound  to  investigate    such 
questions. 

§  399.  Sales  lij  trustees.^ — A  trustee  who  holds  stock  belong- 
ing  to  the  trust  estate  has  no  right  to  sell  and  transfer  such  stock 
unless  he  is  expressly  authorized  so  to  do  by  the  instrument  cre- 
ating the  trust.  Consequently  the  law  imposes  upon  the  corpora- 
tion the  duty  of  refusing  to  allow  a  trustee  to  transfer  the  stock 
unless  he  clearly  has  a  right  so  to  do.  If  the  corporation  neglects 
this  duty  it  is  liable  to  the  trust  estate,  and  in  case  of  a  breach  of 
trust  by  the  trustee,  may  be  compelled  to  replace  the  stock  or  pay 
damages.  If  the  trustee  has  an  express  power  given  to  him  to 
sell,  the  corporation  may  allow  him  to  make  the  transfer.  If  no 
such  power  is  given,  the  corporation  must  refuse.  The  trustee 
is  bound  to  reasonably  satisfy  the  corporation  of  his  right,  but  the 
corporation  cannot  permanently  retain  the  papers  submitted  to  it 
for  that  purpose. 

§  400.    Sales  hy  guardians} — A  guardian   has   a  right  to 
hano-e  the  investment  of  the  funds  in  his  charge,  and  consequent- 

'  See  Chapter  XIX. 
408 


CH.  XXIII.]  RULES   REGULATING   REGISTRY.  [§§  401,  4.02. 

Ij  has  a  right  to  sell  stock  held  by  him  in  his  official  capacity. 
Accordingly,  the  corporation  may  allow  him  to  register  a  transfer 
of  stock  held  by  him  as  guardian,  and  cannot  require  the  guard- 
ian to  obtain  an  order  or  decree  from  a  court  authorizing:  such 
transfer.  An  order  or  decree  is  often  obtained  by  the  guardian, 
however,  for  his  own  protection,  and  is  to  be  commended.  In 
New  York,  the  rights  and  duties  of  guardians  are  regulated  by 
statute,  and  other  States  have  similar  statutes. 

§  401.  Forgery  of  transfer. — A  corporation  is  bound  and  re- 
quired to  detect  a  forgery,  whereby  the  name  of  the  owner  of  a 
certificate  of  stock  is  signed  to  it,  and  a  transfer  made  which  the 
corporation  is  requested  to  register.  The  stockholder  in  whose 
name  the  old  certificate  was  made  out,  and  whose  name  was 
forged  to  the  transfer,  may  hold  the  corporation  liable  if  it  fails 
to  detect  the  forgery  and  allows  a  registry  of  the  forged  transfer. 
He  may  compel  it  to  replace  the  stock  or  pay  damages.  This 
rule  is  due  to  the  fact  that  the  corporation  is  a  custodian  of  the 
books  whereby  a  stockholder  obtains  his  rights  of  stockholdership, 
and  it  cannot  deprive  him  of  these  rights  by  allowing  others  to 
take  them  from  him  by  the  aid  of  the  corporation  and  without 
his  consent.  It  is  in  the  power  of  the  corporation  to  require  the 
presence  of  the  transferrer  at  the  time  of  registry,  or  at  least 
clear  proof  that  the  signature  is  genuine.  The  corporation,  how- 
ever, has  recourse  over  against  the  person  who  applied  for  regis- 
try on  the  forged  transfer,  however  innocent  the  latter  may  be. 
He  is  held  to  have  impliedly  represented  that  the  transfer  was 
genuine. 

§  402.  Corporation  must  require  a  surrender  of  the  out- 
standing certificate} — If  a  corporation  permits  a  registry  of  a 
transfer  of  stock,  and  issues  new  certificates  to  the  transferrer 
without  requiring  a  surrender  of  the  old  certificate,  it  assumes  a 
dangerous  position,  and  one  which  it  is  not  obliged  to  assume. 
If  the  certificate  which  is  not  delivered  up  is  in  the  hands  of  a 
bona  fide  purchaser  for  value,  and  witliout  notice,  he  may  hold 
the  corporation  liable  for  allowing  a  registry  of  transfer  to  another 
without  requiring  a  delivery  of  the  certificates.  It  is  negligence 
and  a  breach  of  duty  on  the  part  of  the  corporation  to  allow  a 


See  Chapter  XXL 

409 


§§  403,  404.]  RULES   REGULATING  REGISTRY.  [CH.  XXm. 

registry  without  a  surrender  of  the  old  certificate.  It  generally 
refuses  to  do  so,  as  is  its  duty,  and  is  sustained  by  the  law  in  its 
refusal.  There  are  occasions,  however,  where  the  law  compels 
the  corporation  to  register  the  transfer  without  a  surrender  of 
the  old  certificate.  When  so  compelled  to  do,  the  corporation 
cannot  be  held  liable  by  the  purchaser  of  the  outstanding  certifi- 
cate, but  he  must  seek  his  remedy  against  others.  Such  compul- 
sory registry,  excusing  the  corporation,  may  exist  in  cases  of 
alleged  loss  of  the  old  certificate  ;  a  decree  of  a  court  compelling 
the  registry  ;  and,  under  the  latter,  an  attachment  or  execution 
against  the  stocl^. 

§  403.  Alleged  loss  of  the  old  certificate} — A  corporation  is 
not,  according  to  the  rule  of  nearly  all  the  States,  obliged  to  issue 
a  new  certificate  of  stock  to  the  owner  of  an  old  one,  which  he 
alleges  that  he  has  lost,  unless  such  person  gives  to  the  corporation 
a  sufiicient  bond  of  indemnity  to  protect  it  against  liability  in 
case  it  turns  out  that  the  old  certificate  was  not  lost,  but  was  sold 
and  passed  into  honafide  hands.  In  New  York  this  rule  is  fixed 
by  statute.  The  corporation  is  liable  to  the  holder  of  the  out- 
standing certificate,  if  it  is  outstanding,  and,  consequently,  should 
be  protected  against  that  liability  by  a  bond  from  the  applicant 
for  registry.  In  Louisiana  a  statutory  advertisement  is  made,  and 
a  bond  of  indemnity  dispensed  with.  But  in  the  other  States  the 
court  compels  the  loser  to  give  a  bond,  varying  in  amount  accord- 
ing to  the  amount  of  the  stock  and  the  clearness  of  the  proof  of 
loss. 

§  404.  Attach7nent  or  execution.^ — JSTearly  all  the  States  have 
laws  whereby  shares  of  stock  are  rendered  subject  to  levy  of  at- 
tachment, and  to  sale  on  levy  of  execution.  Such  attachment  or 
execution  can  be  levied  only  at  the  domicile  of  the  corporation, 
since  the  certificates  are  mere  evidence  of  title,  and  the  res  itself 
of  the  stock  exists  only  where  the  corporation  is  created.  When, 
therefore,  an  execution  sale,  or  an  attachment  followed  by  an  ex- 
ecution sale,  takes  place  where  the  corporation  exists,  the  pur- 
chaser at  such  sale  generally  has  not  the  outstanding  certificate, 
but,  nevertheless  demands  registry  of  himself  as  stockholder  in  ac- 
cordance with  the  law  authorizing  the  attachment  and  execution. 


1  See  Chapter  XXI.  *  See  Chapter  XXVII. 

410 


CH.  xxm.]  RULES   REGULATING   REGISTRY.  [§  405. 

Ill  tlie  meantime  the  judgment  debtor,  wliose  stock  is  thus  attached 
or  sold  under  an  execution,  generally  has  sold  or  will  sell  his  cer- 
tificate of  stock  to  a  ho ?ia  fide -purclmser  for  value.  If  it  happens 
that  both  parties  claim  the  stock,  the  duty  and  privilege  of  the 
corporation  is  plain.  It  may  refuse  to  decide  between  them,  and 
when  sued  by  either  may  interplead  and  compel  the  claimants  to 
settle  the  right  between  them  in  the  courts.  But  frequently  it 
happens  that  the  corporation  does  not  know  whether  the  judg- 
ment debtor  has  sold  the  outstanding  certificate  or  not.  By  the 
law  of  most  of  the  States,  if  such  certificate  was  sold  before  the 
attachment  or  execution  was  levied,  the  purchaser  would  be  pro- 
tected, and  the  corporation  would  be  liable  to  him  for  registering 
as  a  stockholder  the  purchaser  at  the  execution  sale.  According- 
ly, in  that  case  it  is  the  duty  of  the  corporation  to  refuse  to  regis- 
ter the  purchaser  at  the  execution  sale.  It  cannot  afford  to  take 
the  risk,  and  is  not  obliged  to  take  it.  If  the  court  then  compels 
it  to  make  the  registry  of  transfer  to  the  execution  purchaser,  the 
court  will  also,  probably,  compel  such  purchaser  to  give  a  bond  of 
indemnity  to  protect  the  corporation.  If  such  a  bond  is  not  re- 
quired by  the  court,  the  corporation  must  nevertheless  obey  the 
decree.  What  rights  the  purchaser  of  the  outstanding  certificate 
would  then  have  has  not  as  yet  been  passed  upon  by  tlie  courts. 

§  405.  Decree  of  a  court  that  certificates  l)e  issued} — A  cor- 
poration must,  of  course,  obey  tlie  decree  of  a  court  that  it  issue 
a  certificate  of  stock  to  a  specified  person.  But  a  court  will  rarely 
resort  to  such  an  extreme  remedy  where  it  is  probable  or  possible 
that  there  may  be  an  outstanding  certificate  in  the  hands  of  an 
innocent  holder  representing  the  same  shares.  As  a  principle  of 
law,  the  court  has  no  power  to  decree  such  an  issue  ordinaril}^ 
since  the  whole  capital  stock  has  been  issued,  and  its  decree 
amounts  practically  to  an  order  to  make  an  overissue  of  stock. 
Generally  the  court  decrees  damages  to  be  paid,  or  directs  the 
corporation  to  purchase  stock  for  the  purpose  of  reissuing  it  to 
the  specified  party.  This  occurs  frequently  where  the  corpora- 
tion has  unjustly  deprived  a  person  of  his  stock.  A  different 
class  of  cases  arise  where  the  corporation  has  refused  to  allow  a 
registry  because  the  outstanding  c6rtificate  is  not  surrendered. 
Such  cases  include  those  of  alleged  loss  of  certificate,  an  execu- 


See  Chapter  XXII. 

411 


§§  406, 40Y.]  RULES   REGULATING   REGISTRY.  [CH.  XXIII. 

tion  sale  of  the  stock,  and,  possibly,  a  suit  in  equity  at  the  domi- 
cile of  the  corporation  to  recover  from  another  stock  which  the 
complainant  claims.      A  decree  in  such  a  suit  in  most  States 
would  be  ineffectual  to  deprive  of  his  rights  one  who  purchased 
from  the  defendant  his  certificate  of  stock  before  the  decree  was 
rendered.     It  would,  accordingly,  be  a  harsh  decree  that  com- 
pelled the  corporation  to  register  the  successful  complainant  as  a 
stockholder.     The  corporation  should  not  be  compelled  to  assume 
the  risk  of  being  sued  by  the  purchaser  of  the  outstanding  certif- 
icate.    The  complainant  should  be  compelled  to  give  a  bond  of 
indemnity,  or  else  be  contented  with  a  personal  judgment  against 
the  defendant.     The  demands  of  trade  and  of  an  investing  public 
require  that  the  safety  of  a  purchaser  of  a  certificate  of  stock 
should  be  assured,  except  against  attachments,  execution  sales,  or 
decrees  duly  obtained  and  notified  to  the  corporation  before  the 
honafide  purchaser  received  the  certificate  of  stock. 

§  40G.  Theft  of  certificates  indorsed  in  Nank}— The  corpora- 
tion has  a  duty  to  perform  as  regards  certificates  of  stock  which 
have  been  stolen  from  the  owner,  who  held  them  indorsed  in 
blank. 

If  the  owner  notified  the  corporation  of  the  theft  it  must  re- 
fuse to  register  a  transfer  to  a  purchaser  of  such  stolen  certificate. 
Since  the  owner's  negligence  may  have  estopped  him  from  re- 
claiming the  stock,  the  corporation  may  refuse  to  recognize  either 
party  as  a  stockholder,  where  there  is  a  reasonable  question  of 
negligence,  and  when  sued  by  either  may  interplead.  If  the  cor- 
poration allowed  a  registry  before  it  was  notified  of  the  theft,  it 
is  difiicult  to  see  on  what  principle  it  is  to  be  held  liable  to  the 
owner.  Such  a  case  seems  not  yet  to  have  arisen.  If  notified  of 
the  theft  before  anything  is  learned  concerning  the  whereabouts 
of  the  certificate,  the  case  is  to  be  treated  the  same  as  when  the 
certificate  is  alleged  to  have  been  lost. 

§  407.  Interpleader  hy  the  corporation.^— Wheneyer  there 
are  two  or  more  conflicting  claims  made  to  stock  and  demands 
are  made  on  the  corporation  to  allow  registry,  it  is  the  privilege 
of  the  corporation,  if  there  is  a  reasonable  legal  doubt  as  to 
the  rights  of  the  parties,  to  refuse  to  register  either  party,  and 

1  See  Chapter  XXI.  '  See  Chapter  XX Q. 

412 


CH.  XXIII.]  '    RULES   REGULATING   REGISTRY.  [§§  408,  409. 

when  sued  by  one  to  interplead  and  compel  the  parties  to  contest 
the  matter  between  themselves  in  the  courts.  The  law  does  not 
oblig'e  the  corporation  to  turn  itself  into  a  court  of  justice  and 
decide  the  rights  of  the  parties.  The  corporation,  however,  cannot 
interplead,  if  it  has  already  committed  itself  by  registering  one  of 
tlie  claimants  as  the  stockholder,  l^or  can  the  corporation  resort 
to  an  interpleader  where  one  of  the  claimants  is  clearly  wrong. 
The  right  of  interpleader  and  the  power  of  the  corporation  to 
refuse  to  register  a  transfer,  until  compelled  to  do  so  by  the 
courts,  where  an  outstanding  certificate  is  not  surrendered,  con- 
stitutes the  two  most  effective  safeguards  of  the  corporation  in 
allowing  or  refusing  registry. 

§  408.  Restrictions  iy  corporation  on  stockholder's  right  to 
sell  or  transfer.^ — The  law  has  uniformly  and  decisively  dis- 
countenanced and  overruled  all  attempts  of  a  corporation  to  pre- 
vent the  sale  and  transfer  of  its  stock  by  the  stockholder.  Such 
attempted  restrictions  are  generally  made  by  means  of  by-laws. 
Thus  a  by-law  requiring  the  consent  of  the  directors  or  other 
corporate  officers  to  a  transfer,  or  a  by-law  requiring  the  stock- 
holder, when  he  sells,  to  sell  his  stock  to  specified  persons,  is 
null  and  void.  Restrictions  may  be  created  by  a  contract  mutually 
agreed  to  by  the  stockholders,  but  cannot  be  imposed  upon  them 
by  the  majority  of  the  stockholders  nor  by  the  board  of  direc- 
tors. When,  however,  such  restrictions  are  created  by  the  char- 
ter, they  are  valid,  since  they  arise  with  the  corporation  and 
stock  itself.  Thus,  in  England,  the  charter  frequently  authorizes 
the  directors  to  refuse  a  registry  unless  the  transferee  is  satisfac- 
tory to  them.  Even  here,  however,  the  directors  must  be  reason- 
able in  the  use  of  their  discretion.  In  this  country  the  most 
frequent  restrictions  created  by  charter  is  that  of  a  lien  for  debts 
due  to  the  corporation  from  the  transferer. 

§  409.  Lien  of  the  corporation.^ — The  charters  of  many  cor- 
porations contain  an  express  provision  that  the  corj)oration  may 
refuse  to  allow  a  stockholder  to  register  a  transfer  of  his  stock, 
until  he  has  paid  any  and  all  debts  which  he  may,  at  tliat  time, 
owe  to  the  corporation.  Such  a  lien  need  not  be  stated  in  the 
certificate  of  stock.     While  it  may  not  be  created  generally  by  a 


'  See  Chapter  XX.  '  See  Chapter  XXXL 

413 


§  410.]  RULES   REGULA.TING   REGISTRY.  [CH.  xxni. 

by-law,  yet  certain  phrases  in  cliarters  have  been  held  to  uphold  a 
lien  that  is  declared  and  made  effectual  by  a  by-law.  Where  the 
line  exists  the  corporation  may  refuse  to  allow  a  registry  of  trans- 
fer of  any  stock  owned  by  the  debtor  until  all  debts  due  from  him 
to  the  corporation  are  paid,  whether  due  or  not  due,  including,  it 
seems,  unpaid  subscriptions.  It  does  not  apply,  however,  to  debts 
due  from  a  transferee  of  the  certificate  who  never  obtained  registry 
or  appeared  as  a  stockholder  on  the  corporate  books.  Nor  does 
it  apply  to  debts  due  frojn  the  registered  stockholder,  but  in- 
curred after  the  corporation  was  given  notice  that  he  had  sold  his 
stock  to  another.  Tlie  corporation  may  waive  its  lien,  and  allow 
reo-istrv  without  the  debts  of  the  old  stockholder  being  paid.  A 
registry,  without  requirmg  payment,  is  a  waiver  in  itseli. 

§  410.  Formalities  of  registry  u'Mcli  the  corporation  may 

insist  upon} — Where,  as  is  ordhiarily  the  case,  the  owner  of  stock 

has  sold  it  by  signing  the  transfer  and  power  of  attorney  on  the 

back  of  the  certificate,  leaving  the  names  of  the  transferee  and  of 

the  attorney  blank,  the  corporation  may  require  the  names  of  the 

transferee  and  of  the  attorney  to  be  filled  in  before  it  allows  a 

registry.     If  it  is  in  doubt  as  to  the  genuineness  of  the  signature 

of  the  former  owner  of  the  certificate,  it  may  require  his  presence 

or  reasonable  proof  that   he  actually    made   the   signature.     It 

cannot  compel  the  transferrer  to  be  present,  but  may  require  the 

presence  of  the  attorney  authorized  to  make  the  registry.     The 

registry  itself  is  generally  made  by  the  corporate  officer,  but  he 

may  require  the  attorney  to  make  it.     A  surrender  of  the  old 

certificate  is  required,  and  new  certificates  in   the   name   of  the 

transferee  are  issued.     The  by-laws  may  prescribe  that  the  registry 

shall  be  in  the  presence  of  certain  corporate  oflicers.     A  mere 

request  to  register  is  not  registry,  although  the  old  certificate  is 

left  with  the  clerk,  together  with  the  transfer,  and  he  marks 

*' received  for  record  "  on  the  same.     The  applicant  may  inquire 

of  the  corporate  ofiicer  in  charge  for  the  registry  clerk,  and  is  not 

bound  to  ascertain  the  individual  himself.     Registry  at  a  branch 

office  is  not  a  legal  registry,  until  entered  at  the  main  office. 

The  corporate  registry  may  be  on  its  ledger,  without  any  issue  of 

certificate.     If  it  keeps  no  registry  at  all,  mere  notice  to  it  of  a 

transfer  constitutes  a  legal  registry.      The  corporation   has   no 

1  See  Chapter  XXII. 

414 


CH.  XXIII.]  RULES    REGULATING   REGISTRY.  [§  410. 

right  to  delay  registry  unreasonably  for  the  purpose  of  obtaining 
advice  or  for  any  other  reasons.  It  may  require  that  the  power 
of  attorney  run  directly  from  the  former  registered  stockholder, 
and  not  from  an  intermediate  one.  A  written  acceptance  of  the 
stock  by  the  transferee  cannot  be  insisted  on  by  the  corporation . 
The  formalities  of  registry  may  be  waived  by  the  corporation, 
and  any  act  which  indicates  that  it  considers  a  transferee  to  be  a 
stockholder  is  eflectual  to  make  him  such  so  far  as  the  corporation 
is  concerned,  though  no  registry  was  had. 

Either  the  transferrer  or  the  transferee,  or  an  intermediate 
unregistered  transferee,  may  apply  to  the  corporation  for  the  pur- 
pose of  obtaining  a  registry.  The  corporation  cannot  refuse  it, 
merely  because  of^tlie  motion  of  the  transferrer  or  of  the  transferee 
in  making  the  sale  and  transfer.  Whenever  the  corporation  re- 
fuses to  allow  a  registry,  the  applicant  may  sue  it  for  damages,  or 
he  may  go  into  a  court  of  equity  and  ask  that  the  corporation  ■ 
be  decreed  to  allow  registry  or  to  pay  damages  in  lieu  thereof. 
A  few  cases  hold  tliat  he  may  compel  registry  by  a  mandamus 
against  the  corporation,  but  the  weight  of  authority  holds  other- 
wise. 


415 


CHAPTER  XXIV. 


NON-NEGOTIABILITY   OF   STOCK  AND  DANGERS  INCURRED 
IN  THE  PURCHASE   OF   CERTIFICATES   OF   STOCK. 


A. — Non-negotiability. 

§411.  Nature  and   kinds  of  negotiable 
instruments. 

412.  Certificates  of  stock  are  not  nego- 

tiable instruments. 

413.  The  term  "  quasi-negotiability,"  as 

applied  to  certiticates  of  stock, 
throws  little  light  upon  the  sub- 
ject. 

414.  The  distinction  between  the  "  le- 

gal" and  the  "equitable"  title 
in  the  transfer  of  certificates  of 
stock  is  unsatisfactory. 

415.  The  only  method  of  treatment  of 

the  subject  seems  to  be  by  in- 
quiring under  what  facts  the 
holder  or  purchaser  is  protected. 

416.  The  particular  rules  protecting  a 

bona  fide  purchaser  of  certificates 
of  stock  are  based  on  estoppel. 

B. — Dangers    Incurred    in    Purchasing 
Stock. 

417.  Liabilities,    risks,    and  rights   of 

one  who  owns  or  purchases  a 
certificate  of  stock. 

418.  Liability   on    unpaid   par   value, 

that  is  the  unpaid  subscription 
price  of  the  stock. 

419.  Forfeiture    for    non-payment   of 

calls. 

420.  Statutory  liability. 

421.  Liability  where  tJtie  purchaser  has 

the  transfer  made  to  a  nominal 
holder. 

422.  No  liability  for  assessments  after 

the  par  value  of  stock  has  been 
paid  in. 

423.  Liability  when   stock  was  issued 

for  property. 


§  424.  Liability  as  partners  by  reason  of 
defective  incorporation,  or  for 
other  reasons. 

425.  Danger  of  corporate  lien. 

426.  Overissued  stock. 

427.  Danger  that  transferrer   or   pre- 

vious holder  is  an  infant,  mar- 
ried woman,  or  lunatic. 

428.  Purchase  of  stock  by  or  from  a 

corporation. 

429.  Purchase  from  joint  owners,  part- 

ners, and  agents. 

430.  Purchase  of  stock  at  sheriffs  exe- 

cution sale,  or  from  assignee  in 
bankruptcy,  or  for  benefit  ot 
creditors. 

431.  Purchase  from  a  pledgee. 

432.  Pledgee  is  protected  in  the  same 
way  as  purcliaser  of  stock. 

433.  Dani^vr  of  purchasing  from  an  exec- 
utor, administrator,  or  guardian. 

434.  Purchase  from  a  trustee. 

435.  Sale  by  vendor  to  another  pur- 
chaser without  delivery  of  cer- 
tificates of  stock. 

436.  Danger  of  forgery. 

437.  Loss  or  theft  of  certificates  in- 
dorsed in  blank. 

438.  Danger  that  a  previous  holder  has 
been  deprived  of  that  same  stock 
by  fraud. 

439.  Statute  of  frauds. 

440.  Gambling  sales  of  stock. 

441.  Method  of  assigning  a  certificate 
of  stock. 

442.  Registry  of  transfer. 

443.  Purchaser  not  affected  by  rights 
of  holders  of  that  stock  back  of 
the  last  registry. 

444.  Summary. 


A.  — NON-NEGOTIABILITY. 

§  411.  Nature  and  lands  of  negotiable  instruments.— Neg;o- 
tiable  instruments  at  the  present  day  are  promissory  notes ;  bills 
of  exchange  ;  checks  ;  bank-notes ;  bonds  of  the  United  States, 
States,  foreign  governments,  municipalities,  cities  and  counties ; 

416 


en.  SXIY.]  RISKS   IN  PURCHASING   STOCK.  [§  412. 

railroad  bonds  ;  certificates  of  deposit ;  and  interest  coupons.^ 
Bills  of  lading  have  only  a  quasi-negotiability.'^  These  different 
instruments,  however,  are  not  necessarily  negotiable,  but  are  so 
only  when  in  writing  ;  when  containing  an  unconditional  promise 
or  order  to  pay  ;  when  the  payment  is  to  be  in  money  only ; 
when  the  amount  is  certain  ;  when  it  is  payable  to  a  specific  per- 
son, and  not  in  the  alternative;  when  it  is  payable  at  a  certain 
time ;  when  it  contains  words  such  as  "  to  A.  or  order,"  or  "  to 
bearer."  or  their  equivalent ;  and  when  delivery  has  been  duly 
made.'  If  the  instrument  is  lacking  in  any  one  of  these  qualities 
it  falls  back  into  the  category  of  non-negotiable,  that  is  merely 
assignable,  instruments.  Again,  a  holder  of  one  of  the  above- 
named  negotiable  instruments,  can  have  the  benefit  of  its  nego- 
tiability only  when  he  has  purchased  it  in  good  faith,  for  value, 
and  without  notice  of  the  equitable  riglits  of  previous  holders  or 
makers;  that  is,  he  must  he  a  bona Jide  holder.  When  all  these 
elements  of  negotiability  and  ownership  co-exist,  the  advantage 
of  negotiability  over  non-negotiability  is  this,  tliat  the  holder  of 
the  instrument  is  entitled  to  the  face  value  thereof,  and  his  right 
cannot  be  affected,  decreased,  or  defeated  by  any  facts  or  equities 
between  previous  holders,  which  would  defeat  the  security  as 
between  them,  unless  it  be  void  for  usury  or  other  similar  cause. 

§  412.  Certificates  of  stock  are  not  negotiable  instruments. — 

It  is  very  clear,  and  it  is  well  established,  that  certificates  of  stock 
are  not  negotiable  instruments.'*     A  certificate  of  stock  is  not  a 


'  1  Daniel  on  Negotiable  Instruments,  Natl.  Bk.,  57  Ind.   198,  208  (187*7).  saya: 

3ded.;  Das  Passos  on  Stock  Brokers,  Ch.  "The  difference   between  a   promissory 

IX.  note  and  a  certificate  of  bank  stock,  is  so 

"  Id.  wide  and  marked,  that  a  rule  of  law  gov- 

3  Id.  erning  tlie  transfer  of  the  former,  is  by  no 

*  "  Certificates  of  stock  are  not  securi-  means  applicable  to  the  latter."     Sewall 

ties  for  money  in  any  sense,  much  less  are  v.  Boston  Water  Power  Co.,  86  Mass.  277 

they  nei^otiable  securities."      Mechanics  (1802),  says:  "The  authorities  cited,  show 

Bk.  V.  New  York  <fe   N.  II.   R.  R.  Co.,  lo  that  a  certificate  of  stock  is  not  a  negoti- 

N.  Y.  599,  027  (185(1);   Barstow  v.  Savage  able  instrument,  and  without  any  author- 

M.  Co.,    64  Cal.    391   (1883);    Weaver  v.  ities,  it  is  apparent  that  it  has  not  a  nego- 

Barden,  49  N.  Y.   286,  288  (1872),  says  tiable  character."     To  same  effect  Mun- 

that  a  certificate  of  stock  has  none  of  the  dlcbaum  v.  North  Am.  Min.  Co.,  4  Mich, 

qualities    of   commercial    or    negotiable  465,473  (1857),   lu.lding,   howeviu',   that 

paper.    Leitch  t;.  Wells,  48  N.  Y.  585,  613  by  statute   in   that   State,   ccrlificatos   of 

(1872),  says:   "Since  the  decision  of  tlio  stock  ai'c  practically   negotiable.     Shaw 

case  of  McNeil  v.  Tenth   Niitionul   Bank,  v.  Spencer,  MO   Mass.  382  {1S6H),  says: 

.     .     .     certificates  of  stock,  with  blank  "  It   is  clear  that  a  certificate  of  stock, 

assignments,  and  j)owers  of  attorney  at-  transferred  in  blank,  is  not  a  negotiable 

tachcfi,  must  be  nearly  as  negotiable  as  in^trumi'nt.     .     .     No  connnercial  usage 

commercial    paper."       Weyer   v.    Second  can  give  to  such  an  instrument  the  altri- 

[27]  417 


§§  413,  414.]  RISKS   IN  PURCHASING   STOCK.  [cn.  XXIV. 

promise  or  order  to  pay  money,  nor  lias  it  any  of  the  essentials 
of  a  negotiable  instrument,  except  that  delivery  must  be  made 
in  order  to  render  it  valid.  Moreover,  it  has  been  repeatedly 
decided  by  the  courts,  that  a  certificate  of  stock  is  not  negoti- 
able, and  no  custom  of  trade  or  of  brokers  can  give  to  it  that 
character. 

§  413.  The  term  ^^  quasi-negotiaMlity^^  as  ajyiMed  to  certifi- 
cates of  stock,  throws  little  light  upon  the  subject} — It  is  little  sat- 
isfaction to  the  court,  the  practitioner,  the  student,  or  the  owner  of 
stocks  to  be  told  that  certificates  of  stock  have  a  quasi-negotiability. 
The  term  itself  has  been  coined  to  describe  the  character  of  cer- 
tain things  which  can  be  understood  only  by  a  study  and  knowl- 
edge of  the  characteristics  of  the  thing  described.  Especially  is 
this  true  of  certificates  of  stock.  The  information  sought  for  is 
not  w^hether  the  certificate  is  quasi-negotiable,  but  whether  tiie 
holder  of  it  is  protected  under  different  states  of  fact  and  circum- 
stances. He  who  intends  to  purchase  such  certificates,  wishes  to 
know  what  dangers  or  risks  he  incurs  by  the  purchase.  The 
practitioner  is  interested,  not  in  the  general  character  of  the  in- 
strument, but  in  the  law  as  applicable  to  his  particular  case. 
Many  of  the  cases  concede  to  certificates  of  stock  a  quasi-negoti- 
ability, but  it  is  extremely  doubtful  whether  such  discussions  do 
not  confuse  the  understanding  of  the  character  of  such  an  instru- 
ment, more  than  they  explain  it. 

§414.  The  distinction  lyeticeen  the  '^legaV^  and  the  '^equi- 
table "  title  in  the  transfer  of  certificates  of  stock  is  unsatis- 
factory.— Many  of  the  cases  involving  the  rights  of  a  transferee  of 
stock,  discuss  and  treat  the  subject  from  the  point  of  view   that 


butes   of    negotiability."      Sherwood    v.  '  Daniel  on  Negotiable  Instruments, 

Meadow  Valley  M.  Co.,  50  Cal.  412  (1875);  §  1*708,  says :  "  The  phrase  '  quasi-nego- 

Bridgeport  Bk.  v.  New  York  <fe  N.  H.  R.  tiability,'  "has  been  termed  an  unhappy 

R.  Co.,   30  Conn.  2-81,  2V5  (1871),  says:  one,  and  certainly  it  is  far  from  satisfac- 

"  The  certificate  accompanied  by  the  as-  tory,  as  it  conveys  no  accurate,  well  de- 

signment  and  power  of  attorney  thus  ex-  fined    meaning.      But   still   it    describes 

ecuted  in  blank,  has,  perhaps,  a  species  of  better  than  any  other  shorthand  expres- 

negotiability,     although    of     a    peculiar  sion,    the   nature   of    those    instruments 

character,  but  one  necessary  to  the  pub-  which,  while  not  negotiable  in  the  sense 

lie  convenience."     In  Bank  v.  Lanier,  11  of  the  law  merchant,  are  so  framed  and  so 

Wall.  369,  377,  the  court  says,  that  al-  dealt    with  as  frequently  to  convey  as 

though  certificates  of  stock  "neither  in  good  a  title  to  the  transferee   as  if  they 

form  or  character  are  negotiable  paper,  were  negotiable." 
they  approximate  to  it  as  nearly  as  prac- 
ticable." 

418 


CH.  XXIV.] 


RISKS   IN  PURCHASING   STOCK. 


[§415. 


the  transferee  is  protected  in  his  ownership  when  the  legal  title 
passes  to  him,  but  is  not  so  protected  M'hen  only  the  equitable 
title  passes.  Unfortunately,  it  liappens  that  under  the  same  state 
of  facts,  one  court  will  hold  that  only  the  equitable  title  ])asses ; 
another  that  the  legal  title  passes ;  and  a  third  court  will  hold 
that  both  the  legal  and  equitable  passes.  The  result  is  confusion, 
doubt  and  difficulty  with  little  light  as  to  the  real  status  of  cer- 
titicates  of  stock.^ 


§  415.  Tlie  only  metlwd  of  treatment  of  the  siibject  seems 
to  le  hy  inquiring  under  ivhat  facts  the  holder  or  purchaser 
is  'protected. — The  court,  the  practitioner,  the  purchaser,  and  the 


'  Such  also  seems  to  be  the  view  taken 
in  Lowell  on  Transfer  of  Stock  (1884),  p. 
105,  where  the  learned  authors  say:  "It 
is  often  supposed,  for  example,  that  the 
right  of  a  creditor  to  seize  stock  which 
has  been  sold  before  it  is  transferred  up- 
on the  books,  depends  upon  the  passing 
of  the  legal  title,  but  we  shall  attempt  to 
prove  that  the  legal  title  has  in  reality 
no  effect  upon  the  matter."  The  same 
authority  shows  tlie  confusion  resulting 
from  this  distinction  of  the  legal  from 
the  equitable  title,  in  the  following  note 
to  page  103 :  "  That  the  legal  title  pass- 
es belore  the  transfer  on  the  books.  In 
the  foUowinsr  cases  this  is  made  part  of 
the  ratio  decidendi:  Ross  v.  Southwestern 
R.  Co.,  53  Ga.  514,  532;  Merchants' Nat. 
Bank  v.  Richards,  6  Mo.  App.  454,  453; 
8.  c.  74  Mo.  77;  Carroll  i;.  Miilianphy 
Savings  Bank,  8  Mo.  App.  249.  252. 
McNeil  V.  Tenth  Nat.  Bank,  46  N.  Y.  325; 
Leiich  V.  Wells,  48  N.  Y.  585  ;  Smith  v. 
American  Coal  Co.,  7  Lans.  317;  Noyes 
V.  Spaulding,  27  Vt.  420  ;  Cherry,  v. 
Frost,  7  Lea,  1.  In  the  following  cases 
the  same  principle  was  laid  down  obiter  : 
State  V.  Leete,  16  Nev.  242,  250;  Easlman 
V.  Fiske,  9  N.  il.  182  ;  New  York,  &c.  R. 
V.  Schuyler,  3  I  N.  Y.  30,  80 ;  Grymes  v. 
Home,  49  N.  Y.  17;  .Johnson  v.  Under- 
bill, 52  N.  Y.  203  ;  Holbrook  v.  New  Jer- 
sey Zinc  T^o.,  57  N.  Y.  616;  Cushman  v. 
Thayer  Mfg.  Co.,  76  N.  Y.  365,  and  sco 
Purchase  11.  l^xchange  Bk.,  3  Rob.  164. 
•  Thai  the  legal  title  does  not  pass 
until  traiisfc^r  on  the;  books.  In  the  fol- 
lowing cases  this  principle  is  made  of  the 
ratio  decidendi :  Union  Hank  v.  Laird,  2 
Wheat.  3'JO;  Lowry  v.  Commercial  Bank, 
Taney,  310;  Brown  v.  Adains,  5  Bins.  181; 
Williams  v.  Mechanics'   Bank,   5   Blatch. 


59  ;  Becher  v.  Wells  Flouring  Mill  Co.,  1 
Fed.  Rep.  276 ;  Marlborough  Mfg,  Co.  v. 
Smith,  2  Conn.  579  ;  Northrop  v.  New- 
town &  Bridgeport  Turnpike  Co.,  3  Conn. 
544;  Oxford  Turnpike  Co.  v.  Bunnell,  6 
Conn.  552  ;  Button  v.  Connecticut  Bk.  13 
Conn.  493 ;  Vansands  v.  Middlesex  Co. 
Bk.,  26  Conn.  144  ;  Coleman  v.  Spencer, 
5  Blackf.  197;  Helm  v.  Swiggctt,  12  Ind. 
194  {semble) ;  Weyer  «;.  Second  Nat.  Bk. 
of  Franklin,  57  Ind.  198  ;  Fisher w.  Essex 
Bk.,  5  Gray,  373;  Boyd  v.  Rockport 
Steam  Cotton  Mills,  7  Gray,  406;  Blanch- 
ard  V.  Dedham  Gas  Co.,  12  Gray,  213; 
McCourry  v.  Suydam,  5  Halst.  245;  .  .  . 
Stebbins  v.  Plioeuix  Ins.  Co.,  3  Paige,  350; 
Mechanics'  Bk.  v.  New  York,  &c.  11.  Co., 
13  N.  Y.  599;  New  York,  &c.  R.  Co.  v. 
Schuyler,  38  Barb.  534 ;  Lockwood  v. 
Mechanics' Nat,  Bk.,  9  R.  L,  308,  331, 
335. 

"  In  the  following  cases  the  same  doc- 
trine is  hiid  down  obiter:  Black  v.  Zach- 
arie,  3  How.  4  83;  United  States  w.  Cutts, 
1  Sunnier,  133  (this  was,  however,  a  case 
of  government  debt,  not  of  corporate 
stock);  Planters'  &  Merchants'  Ins.  Co. 
V.  Selma  Saviii<is  Bk.,  63  Ala.  585  ;  Otis 
V.  Gardner,  105  III.  436  {.leinblc),  and  see 
Kellogg  (».  Stockwi'll,  75  ill.  68;  People's 
Bk.  V.  Gridley,  91  HI.  457;  Bruce  v. 
Smitii,  44  Ind.  1 ;  State  v.  First  Nat.  lik. 
of  Jefferson ville,  89  Ind.  302;  Shaw  v. 
Spencer,  10(1  Mass.  382;  Sibley  v.  (iniii- 
sigamoiid  Nat.  Bk.  133  Mass.  515;  White 
V.  Salisbury,  ;53  Mo.  150;  Boatmen's  Ins. 
Co.  r;.  Able,  48  Mo.  136;  .  .  .  Conant  ?'. 
Seneca  Co.  Bk.,  1  O.St.  298;  United 
States  V.  Vaughan,  3  Binn.  394  (semble); 
Hk.  of  Commerce's  Appeal, 
I'raser  v.  Charleston,  1 1 
{semble)." 

419 


73  Pa.  St.  59; 
S.    C.    486 


§  416.]  RISKS   IN  PURCHASING   STOCK.  [CH.  XXIV. 

holder  of  certificates  of  stock  wishes  to  know  what  liability,  and 
what  dangers,  are  incurred  by  the  purchase  and  ownership  of  a 
certificate  of  stock.  It  becomes  important  for  him  to  ascertain 
whether  forgery  ;  or  theft ;  or  improper  registry  by  the  corpora- 
tion ;  or  breach  of  trust  by  a  trustee,  executor,  or  agent,  formerly 
holding  that  particular  stock  ;  or  fraud  whereby  a  former  owner  was 
deprived  of  that  same  stock ;  or  legal  proceedings,  such  as  attach- 
ment, execution,  mandamus,  and  decrees  of  the  court ;  or  any 
other  fact  or  equitable  right  between  former  owners  of  the  stock 
which  he  purchases  can  affect  him,  a  hona  fide  purchaser  for 
value  and  without  notice  of  those  rights.  These  questions  can- 
not be  solved  or  answered  by  any  general  rules  or  theories,  since 
certificates  of  stock  have  a  law,  an  origin,  and  a  nature  different 
from  other  kinds  of  securities.  The  fact  that  a  registry  of  trans- 
fer is  required  to  be  made  on  the  corporate  books  adds  further 
complication  to  the  rights  of  a  holder.  General  rules  formed 
from  and  applicable  to  other  instruments  or  securities  cannot  with 
any  certainty,  clearness,  or  satisfactory  results,  be  applied  to  cer- 
tificates of  stock.  They  should  be  treated  of  by  themselves.  It 
is  also  to  be  observed  that  the  future  character  and  stahis  of  cer- 
tificates of  stock  will  be  much  clearer,  better,  and  more  satisfac- 
tory to  the  investing  public,  if  the  law  governing  them  be  formed 
on  its  own  basis. 

§  416.  Tlie  2)articuJar  rules  protecting  a  hona  fide  pur- 
chaser of  certificates  of  stock  are  based  on  estoj9^e?.— Nearly 
all,  if  not  all  of  the  rules  whereby  a  purchaser  of  stock  is  pro- 
tected against  the  equitable  rights  of  previous  holders,  grow  out 
of  the  fact  that  such  previous  holder  or  holders  have  enabled 
persons  to  sell  the  stock  and  consequently  are  estopped  from 
claiming  that  they  did  not  intend  so  to  do.^     This  law   of  estop- 

'  In  Wood's  Appeal,  92  Ponn.  St.  S79,  owner.     As  a  general  rule,  the  vendor  or 

890  (1880),  the  court  says:  "  The   rights  pledgee  can  convey  no  greater  right   or 

of  a  bona  fide  holder  as  against  the  true  title  than  he  has.     Simply  intrusting  the 

owner  of  the  stock,  to  whom  the  apparent  possession  of  a   chattel  to  another  as  a 

owner  has  either  sold  or  pledged,  do  not  depositary,  pledgee,  or  other  bailee,  is  in- 

depend  on  a  negotiable  character  in  the  sufficient  to  prevent  the  real  owner  re- 

ceriificates,  but  rest  on  another  principle,  claiming  his  property  in  case  of  an  un- 

naniely,  that  one  who  has  confeired  up-  authorized  disposition  of  it  by  the  per- 

on  another  by  a  written  transfer  all  the  son  so  intrusted.     Tlie  mere   possession 

indicia    of    ownership    of    property,    is  of  chattels,  without  evidence  of  property 

estopped  to  assert  title  to  it  as  against  a  or  authority  to  sell  from  the  owner,  will 

third  person,  who  has  in  good  faith  pur-  not  enable  "the   possessor   to  give   good 

chased  it  for  value   from    the    apparent  title.     But  if  the  owner  intrusts  to  an otb- 

420 


CH.  XXIY.] 


RISKS   IN   PURCHASING   STOCK. 


[§  il6. 


pel  protects  the  purchaser  against  not  only  the  rights  of  previous 
holders,  but  against  the  claims  of  the  corporation  itself.  Indeed, 
to  such  an  extent  has  the  law  of  estoppel  been  applied  to  protect 
a  honafide  purchaser  of  stock,  that  he  is  protected  now  in  almost 
every  instance  where  he  would  be  protected  if  he  were  purchas- 
ing a  promissory  note  or  other  negotiable  instrument.  The  courts 
are  steadily  extending  the  application  of  the  law  of  estoppel 
herein,  and  in  the  course  of  time,  it  is  possible  that  certificates  of 
stock  may  become  more  negotiable  than  negotiable  instruments 
themselves. 


er  the  possession  of  property,  and  also 
written  evidence  of  title  and  power  of 
disposition  over  it,  as  respects  innocent 
third  persons,  he  is  deemed  as  intending 
it  shall  be  disposed  of  at  the  pleasure  of 
the  depositary."  McNeil  v.  Tenth  Nat. 
Bank,  46  N.  Y.  325,  329  (1871),  says  that 
"where  the  true  owner  holds  out  another, 
or  allows  him  to  appear  as  the  owner  of, 
or  as  having  full  power  of  disposition  over 
the  property,  and  innocent  third  parties 
are  thus  led  into  dealings  with  such  ap- 
parent owner,  they  will  be  protected. 
Their  rights  in  such  cases  do  not  depend 
upon  the  actual  title  or  authority  of  the 
party  with  whom  tliey  deal  directly,  but 
are  derived  from  the  act  of  the  real  own- 
er, which  precludes  him  from  disputing 
as  against  them,  the  existence  of  the 
title  or  power  wliich,  through  negligence 
or  mistaken  confidence,  he  caused  or  al- 
lowed to  be  vested  in  the  party  making 
the  conveyance."  In  Weaver  v.  Barden, 
49  N.  Y.  286,  287  (1872),  the  court  said: 
"As  a  rule  the  purchaser  or  assignee  of 
shares  of  the  capital  stock  in  a  corpora- 
tion acquires  no  other  or  better  title  than 
the  seller  or  assignor  has,  and  takes  it 
subject  to  the  legal  and  equitable  rights 
of  third  persons.  The  rightful  owner 
may  be  estopped  by  his  own  acts  from 
asserting  his  title,  as  he  may  be  in  respect 
to  other  property  of  a  liki-  character.  If 
he  lias  invested  another  with  the  usual 
evidence  of  title,  or  an  apparent  author- 
ity tf)  dispose  of  it,  he  will  not  be  allowed 
to  make  claim  against  an  innocent  i)ur- 
chfiser  dealing  upon  the  faith  of  such  ap- 
parent ownershi[),  and  //^v  d/npoiicri'li." 
To  same  effect  Moore  ».  Metropolitan  Nat. 
Rk.,  65  N.  Y.  41,  47  (1873);  Mount  Hol- 
ly, Ac.  Co.  V.  Ferric,  17  N.  J.  Eq.  117 
(1804).  The  restdt  of  the  law  of  estop- 
pel herein  is  well  .stated  in  Walker  t;.  De- 


troit Transit  Ry.  Co.,  47  Mich.  338,  347 
(1882).  "These  propositions  are  admit- 
ted :  first  that  possession  of  certificates 
of  corporate  stock  which  bear  the  proper 
indorsements  is  prima  facie  evidence  of 
ownership,  and  that  the  holder  for  value 
without  notice  of  prior  equities  obtains  a 
perfect  title  as  against  such  equities ; 
second,  that  if  the  rightful  owner  has  in- 
vested another  with  the  usual  evidence  of 
title,  or  an  apparent  authority  to  disj)ose 
of  the  stock,  he  will  be  estopped  from 
making  any  claim  against  an  innocent 
purchaser  dealing  on  the  faith  of  such 
apparent  ownership  or  right  of  disposal." 
See  also  Fatinan  v.  Lobach,  1  Duer,  354 
(1852);  Hoodie  v.  Seventh  Nat.  Hk.,  3 
W.  N.  C.  118  (1881)  ;  Matthews  v.  Mass. 
Nat.  Bk.,  1  flolmes,  396  (1874).  In  Eng- 
land, certificates  of  stock  indorsed  in 
blank  convey'  title  by  estoppel  to  a  bo7ia 
fide  purchaser  when  the  transfer  need  not 
be  by  deed  under  seal.  Kumball  v.  Met- 
ropolitan Bk.,  L.  R.,  2  Q.  B.  D.  194 
(1877).  fi'a;  joar/e  Sargent,  L.  R.  17  Eq. 
273  (1873).  But  this  is  generally  not  the 
case.  Ortigosa  v.  Urowu,  47  L.  J.  (Ch.) 
168  (1877);  Donaldson  v.  Gillott,  L.  R. 
3  Eq.  274  (1866),  and  the  late  case  of 
Fnince  v.  Clark,  L.  R.  22  Ch.  1).  830 
(1H83),  gives  no  protection  to  the  bona 
fide  purchaser  until  he  is  registered.  See 
also  Shropshire,  (fee.  Co.  v.  Queen,  L.  R., 
7  II.  L.  496  (1876).  In  Briggs  v.  Mas- 
sey,  42  L.  T.  49  (1880),  the  following 
rule  from  Ijindley's  work  on  Partnership 
is  approved  :  "  Wher<'  the  legal  owner- 
ship in  shan-s,  or  even  only  the  legal 
right  to  be  registered,  is  acquired  by  n 
bona  fide  purchaser  for  value  without 
notice  of  a  ])rior  equitable  interest,  the 
title  of  8uch  purchaser  caimol  be  im- 
peached in  equity  any  more  than  at  law." 

421 


§§  417-4:19.J  RISKS    IN   PURCHASING    STOCK.  [CH.  XXIT. 

B.— Dangers  Incurred  in  Purchasing  Stock, 

§  417.  Liabilities,  7'isks,  and  rights  ofoneivho  owns  or  pur- 
chases a  certificate  of  stocli. — It  is  proposed  to  state  separately 
and  in  detail  the  liabilities  on  the  subscription  price  and  by  statute 
incurred  by  one  who  owns  or  purchases  a  certificate  of  stock  ;  also 
the  risks  or  dangers  incurred  by  a  purchase  of  stock,  as  aftected 
by  the  rights  of  previous  holders  of  that  stock ;  also  a  few  of  the 
rights  of  an  owner  or  purchaser  of  a  certificate  of  stock  as  regards 
the  general  incidents  appertaining  to  stockholdership.  These 
subjects  are  discussed  in  full  in  other  parts  of  this  work,  and 
consequently  the  authority  for  rules  laid  down  herein  must  be 
sought  for  in  those  parts.  The  purpose  here  is  to  state  succinctly 
and  in  language  free  from  technical  phraseology  the  position  occu- 
pied by  a  bona  fide  purchaser  of  a  certificate  of  stock. 

§  418.  LiaMlity  on  unjyaid  par  value,  that  is  the  unpaid 
suhscription  price  of  the  stock} — In  genei'al  the  purchaser  of  a 
certificate  of  stock  is  immediately  liable  on  the  subscription  price 
of  the  stock,  so  far  as  it  has  not  been  paid  by  previous  holders  of 
the  stock  purchased,  and  has  not  been  called  by  the  corporation. 
The  transferrer  is  bound  to  pay  all  calls  made  before  the  trans- 
feree purchases.  If  the  transferee  does  not  immediately  register 
his  transfer  on  the  corporate  books  he  is  liable  to  pay  to  the 
transferrer  such  calls  as  are  made  after  the  transfer  and  which  the 
corporation  compels  the  latter  to  pay.  The  transferee,  it  seems, 
is  liable  for  uncalled  and  unpaid  parts  of  the  subscription,  even 
though  the  certificate  is  silent  as  to  whether  the  par  value  of  the 
stock  has  been  paid  in  or  not.  Where,  however,  the  certificate 
states  that  the  stock  is  paid  up  stock,  or  the  transferee  before  pur- 
chasing inquires  of  the  corporation  and  is  told  that  the  stock  is 
paid  up,  he  may  purchase  in  reliance  thereon,  and  cannot  after- 
wards be  held  liable,  even  though  the  stock  turns  out  not  to  have 
been  fully  paid  up. 

§  419.  Forfeiture  for  non  payment  of  calls.^ — Where  the 
coi*poration  is  given  by  its  charter,  or  by  statute,  the  right  to  for- 
feit and  sell  stock  for  non-payment  of  the  subscription  price,  when 
called  in  by  the  corporation,  a  notice  to  the  stockholder  of  the 
intended  forfeiture  is  always  required.     This  notice,  however,  is 


>  See  Chapter  XV.  "  See  Chapter  VII I. 

422 


CH.  XXIV.]  RISKS   IN  PURCHASING   STOCK.  [§  420. 

given  always  to  liim  who  appears,  by  tlie  corporate  registry,  to  be 
the  stockholders.  Accordingly  a  transferee  or  owner  of  stock, 
who  has  not  obtained  a  registry  of  his  transfer  on  the  corporate 
books,  is  liable  to  lose  his  stock  by  a  forfeiture  for  non-payment 
of  calls,  and  may  lose  it  without  knowledge  of  the  call  or  for- 
feiture unless  he  appears  on  the  registry  of  the  corporation  as  the 
owner  of  the  stock. 

§  420.  Statutory  liability} — The  liability,  by  statute,  of  a  pup- 
chaser  of  certificates  of  stock  to  corporate  creditors,  in  addition 
to  the  subscription  price  which  is  treated  of  above,  exists  in  a 
great  many  cases.  In  the  first  place  this  liability  may  not  exist 
at  all  against  any  one,  either  transferrer  or  transferee.  It  rarely, 
if  ever,  exists  in  the  case  of  railroad  corporations.  In  manufac- 
turing corporations  in  New  York  the  statute  of  1848,  which  has 
been  copied  by  most  of  the  States  of  the  Union,  provides  that 
until  the  whole  capital  stock  has  been  paid  in  and  a  certificate  to 
that  efi"ect  filed,  the  stockholders  are  liable  not  only  for  the  sub- 
scription price,  so  far  as  unpaid,  but  also  to  corporate  creditors 
for  an  amount  additional  and  equal  to  the  par  value  of  the  stock. 
But  the  creditor's  debt  must  have  been  payable  within  one  year 
from  the  time  it  was  contracted,  and  must  be  sued  on  within  one 
year  from  the  time  when  it  was  due.  In  national  banks  the  stock- 
holders are  liable  individually  to  corporate  creditors,  for  not  only 
the  unpaid  subscription  price,  but  also  for  an  amount  in  addition 
to  and  equal  to  the  par  value  of  the  stock.  In  New  York  bank- 
ing associations,  other  than  national  banks,  there  is  no  statutory 
liability,  unless  expressly  stated  in  the  articles  of  association  of 
the  bank.  Where  the  statutory  liability  exists  the  liability  of  a 
purchaser  of  stock  is  as  follows :  If  the  transferee  immediately 
registers  his  transfer  on  the  corporate  books  he  becomes  at  once 
liable  by  statute  for  debts  of  the  corporation  contracted  after  such 
registry,  and  the  transferrer  is  not  liable  thereon.  The  trans- 
feree may  or  may  not  be  liable  on  corporate  debts  contracted  be- 
fore he  purchased,  according  to  the  words  of  the  statute  creating 
the  liability.  He,  however,  is  liable  for  debts  contracted  after  ho 
purchased  but  before  he  registered  the  transfer.  The  transferrer 
is  also  liable  in  the  latter  case,  but  has  recourse  to  his  transferee. 


'  Sec  Chapter  XII. 

423 


§§  421-423.]  RISKS   IN  PURCHASING   STOCK.  [CH.  XXIV. 

§  421.  LiaMUty  where  the  purchaser  has  the  transfer  made 
to  a  nominal  holder.^ — The  law  is  not  clearly  settled  as  to  whether 
the  real  purchaser  is  liable  on  stock  which  he  as  the  trans- 
ferrer transfers  to  the  name  of  another  who  acts  merely  as  a 
man  of  straw  for  the  real  purchaser.  Such  arrangements  are  not 
necessarily  fraudulent  and  they  are  of  constant  occurrence  in 
business  communities.  The  courts,  however,  do  not  favor  them, 
and  in  several  instances  have  disregarded  the  dummy  and  held 
the  real  owners  liable  on  the  ground  that  a  principal  is  liable  on 
the  contracts  of  his  agent.  But  in  these  cases  generally  an  element 
of  fraud  on  the  public  was  involved.  It  may  be  said  that  the 
question  whether  any  and  all  such  arrangements  will  be  disre- 
garded by  the  courts  is  still  an  open  one,  with  a  strong  probability 
in  America,  that  for  the  benefit  of  corporate  creditors  the  nominal 
holder  will  be  passed  over  and  the  real  owner  held  liable.  Such 
certainly  is  the  rule  where  a  person  transfers  from  himself  to  one 
who  takes  title  nominally  only  and  holds  it  for  the  benefit  of  the 
transferrer.  The  dummy  is,  of  course,  liable  on  the  stock,  and  if 
legal  proceedings  succeed  in  obtaining  anything  from  him  he  has 
recourse  to  the  real  owner. 

§  422.  No  liability  for  assessments  after  the  par  value  of 
stocic  has  heen  paid  in.^ — By  well  established  principles  of  law 
stockholders  are  liable  on  their  stock  only  to  the  extent  of  the 
unpaid  par  value  of  the  stock,  unless  the  statute  expressly  pro- 
vides otherwise.  Neither  the  directors,  nor  all  the  other  stock- 
holders combined,  in  corporate  meeting  assembled  or  otherwise^ 
can  compel  a  dissenting  stockholder  to  pay  any  more  money  into 
the  corporation  or  subject  him  to  further  liability  on  his  stock. 
Nor  can  the  legislature  subsequently  to  his  purchase  of  the  stock 
pass  a  law  increasing  his  liability,  unless  the  power  to  alter  or 
amend  the  charter  is  reserved  to  it,  in  which  case  such  a  law  would 
be  constitutional. 

§  423.    Liability  when  stock  was  issued  for  property.^ — 

Shares  of  stock  may  be  issued  under  an  agreement  that  payment 
is  to  be  made  in  labor  services,  material,  or  contract  work.  If  so 
issued,  and  the  labor  or  material  received  by  the  corporation  is 
fairly  equal  in  value  to  the  par  value  of  the  stock,  the  transferee 
of  such  stock  takes  it  as  full  paid  stock,  and  cannot  be  held  liable 

"  See  §§  249,  253.  ^  See  Chapter  XIII.         ^  See  Chapters  II  and  III. 

424 


CH.  XXIV.]  RISKS  IN  PURCHASING   STOCK.  [§  424. 

for  any  further  amount,  even  tliougli  the  estimate  of  the  value  of 
the  property  turns  out  subsequently  to  have  been  overestimated, 
but  was  made  in  good  faith.  Where,  however,  the  property  is  in- 
tentionally overvalued,  and  stock  is  issued  for  it,  the  persons  re- 
ceiving the  stock  are  liable  to  have  the  transaction  set  aside,  the 
value  of  the  property  or  work  done  credited  to  them,  and  the  real 
value  of  the  stock,  not  necessarily  the  par  value,  charged  to  them, 
or  be  compelled  to  return  the  stock.  As  to  transferees,  the  case 
may  be  different.  If  they  purchased  with  notice  of  the  fraud, 
they  are  not  protected  ;  but  if  they  purchased  without  notice  or 
knowledge  that  the  property  was  intentionally  overvalued,  but 
supposed  that  the  stock  was  issued  as  paid  up,  by  payment  in 
property  or  work,  taken  at  a  hona  fide  value,  or  if  they  have  no 
knowledge  of  how  the  stock  was  paid,  but  take  it  as  paid  up  stock, 
they  may  retain  the  stock,  and  are  not  liable  for  any  further 
amount  thereon, 

§  424.  LiaMlity  as  partners  hj  reason  of  defective  incorpo- 
ration, or  for  other  reasons} — Where  a  supposed  corporation  has 
not  been  duly  incorporated,  owing  to  a  failure  of  the  incorporators 
to  comply  with  the  statutory  requisites,  or  because  a  corporation 
for  that  business  is  not  provided  for,  the  supposed  corporation  is 
but  a  partnership,  and  all  the  stockholders  are  liable  as  partners. 
Any  creditor  of  the  assumed  corporation  may  sue  the  stockholders 
as  partneps,  and  is  not  estopped  from  so  doing.  A  failure  to  file 
the  articles  of  association,  or  to  sign  and  publish  them,  or  the 
omission  from  them  of  any  of  the  essential  facts  required  to  be 
stated,  may  defeat  the  attempted  incorporation  and  render  the 
stockholders  liable  as  partners.  Again,  the  stockholders  are,  in 
some  jurisdictions,  liable  to  be  held  to  be  partners,  as  regards 
creditors  of  the  enterprise,  where  the  corporation  organizes  in  one 
place  and  proceeds  to  do  all  its  business  in  another  place.  This 
is  a  migration  of  the  corporation,  and  its  corporate  character  is 
respected  and  recognized  only  by  the  comity  of  the  States,  and 
this  comity  exists  only  to  the  extent  that  the  particular  court  de- 
ciding the  case  sees  fit  to  extend  it.  Accordingly,  in  some  flagrant 
cases,  the  members  are  held  liable  as  partners,  the  corporate  char- 
acter being  disregarded,  while  in  other  cases  the  corporation  is 
recognized   and  upheld.      The  latter  class  of  decisions  are  the 

'  See  Chapter  XIII. 

425 


§§425,426.]  RISKS   IN   PURCHASING   STOCK.  [CH.  XXIV. 

stronger,  and  certainly  more  to  be  commended  and  followed. 
Hence  a  transferee  of  stock  may  find  that  he  has  purchased  an 
interest,  not  in  a  corporation,  but  in.  a  partnership.  If  such  be 
the  case,  however,  he  is  not  liable  for  all  precedent  debts  of  the 
concern,  but  only  for  those  incurred  subsequently  to  the  registry 
of  his  transfer. 

§  425.  Danger  of  corporate  lien} — Frequently  corporations 
are  given  by  charter  or  statute  a  lien  on  a  stockholder's  stock 
for  debts  due  from  him  to  the  corporation.  When  such  lien 
exists,  a  purchaser  of  the  certificate  in  open  market  buys  sub- 
ject to  the  risk  that  the  one  from  whom  he  buys  owes  the  cor- 
poration a  debt,  and  that  the  corporation  will  not  allow  the  trans- 
feree of  the  certificate  to  obtain  a  registry  until  such  debt  is  paid. 
In  many  of  the  States  the  lien  of  the  corporation  cannot  be  creat- 
ed by  by-law.  Generally  it  exists  by  reason  of  a  provision  of  the 
charter.  When  it  does  legally  exist,  it  extends  to  all  debts  owed 
by  the  last  registered  stockholder,  whether  the  debt  be  due  or  not 
due,  and  includes  uncalled  parts  of  the  subscription  price  of  the 
stock.  It  does  not,  however,  apply  to  debts  due  from  one  who 
has  bought  and  sold  the  certificate  without  appearing  on  the  reg- 
istry as  a  stockholder.  The  corporation  may  waive  the  lien,  and 
a  registry  without  insisting  on  the  lien  is  such  a  waiver.  The 
lien  of  the  corporation  extends  to  debts  incurred  by  the  transferrer 
after  the  transfer  but  before  the  corporation  is  notified, thereof. 

§  426.  Overissued  stock?— Tha  capital  stock  of  a  corporation 
is  fixed  by  statute.  There  is  no  power  in  the  corporation  itself 
to  increase  that  amount.  It  can  be  done  only  by  a  legislative  en- 
actment. Accordingly,  if  the  corporation  issues  certificates  of 
stock  when  the  whole  capital  stock  has  already  been  issued,  the 
new  issue,  if  an  equivalent  amount  of  outstanding  certificates  are 
not  surrendered,  is  an  overissue,  and  is  void.  Any  issue  of  stock 
in  excess  of  the  amount  of  the  capital  stock  as  fixed  by  the  charter 
is  null  and  void.  The  purchaser  of  such  certificates,  however,  is 
not  without  his  remedy.  His  certificate  is  so  much  waste  paper, 
and  he  is  not  a  stockholder,  but  he  may  sue  the  corporation  for 
damages,  and  recover  to  the  extent  of  his  injury.  The  purchaser 
may  also  sue  the  corporate  officers  who  participated  in  the  issue 

'  See  Chapter  XXXI.  *  See  Chapter  XVII. 

426 


CH.  XXIV.]  RISKS   IN   PURCHASING   STOCK.  [§§427,428. 

of  the  spurious  stock,  and  may  recover  damages.  He  cannot, 
however,  hold  an  innocent  transferrer  liahle.  The  latter,  if  he 
knew  nothing  of  the  overissue,  is  not  to  be  held  as  a  guarantor  of 
the  validity  of  the  stock  which  he  sells. 

§  427.  Danger  that  transferrer  or  previous  liolder  is  an  in- 
fant, married  ivoman,  or  lunatic}— A  purchase  of  stock  from 
an  infant  is  a  dangerous  investment.  When  the  infant  comes  of 
age,  he  may  elect  to  disaffirm,  and  may  hold  the  transferee  liable 
for  the  stock.  There  is  less  danger,  however,  in  accepting  a  trans- 
fer of  stock  from  an  infant  who  has  previously  purchased  the 
stock  which  he  sells.  This  previous  purchase,  and  also  his  sale  of 
the  stock,  are  technically  voidable  acts,  but  after  the  stock  has 
passed  from  his  control,  the  law  disregards  the  doubtful  medium 
of  title,  and  considers  the  purchaser  from  the  infant  as  the  legal 
stockholder.  As  regards  married  women,  the  old  common  law 
allowed  the  husband  to  sell  her  stock  after  he  had  reduced  it  to 
possession  by  registering  it  in  his  own  name  on  the  corporate 
books.  In  modern  times,  however,  the  right  of  a  married  woman 
to  hold  and  convey  personal  property,  as  though  unmarried,  has 
been  established  in  most  States  by  statute.  Her  right  to  sell 
shares  of  stock  owned  by  herself  exists  where  she  may  sell  other 
personal  property  similarly  owned,  and  this  right  depends  upon 
the  law  and  statutes  of  her  domicile.  A  purchase  of  stock  from 
a  lunatic  is  void. 

§  428.  Purcliase  of  stock  hy  or  from  a  corporation.^— In 
England  a  corporation  cannot  purchase  shares  of  its  own  capital 
stock.  In  this  country  a  contrary  rule  prevails.  The  statutes 
governing  the  corporation,  however,  sometimes  prohibit  such  pur- 
chases. Such  is  the  case  with  the  national  banks,  and  in  New 
York  with  railroad  and  banking  corporations.  In  any  case,  how- 
ever, whether  the  corporation  purchased  the  stock  legally  or  ille- 
gally, a  purchaser  of  the  same  stock  from  the  corporation  itself 
is  not  affected  by  the  invalidity  of  the  title  of  the  corporation. 
Again,  it  is  a  general  rule,  both  in  England  and  America,  that 
one  corporation  has  no  right  to  purchase  stock  in  another  corpora- 
tion.    Sometimes  the  statutes  allow  such  purchases,  but   more 


'  See  §§  63,  260,  318.  319,  62,  308,  320.  *  See  Chapter  XIX. 

427 


§§  429,  430.]  RISKS   IN  PURCHASING   STOCK.  [CH.  XXIV. 

often  expressly  provide  to  the  contrary  by  prohibiting  them.  In 
JSTew  York,  railroad  corporations  and  manufacturing  companies, 
with  a  few  exceptions  for  the  latter,  are  restricted  herein  by  such 
statutes.  Nevertheless,  whatever  rule  applies  to  a  purchase  by  a 
corporation  of  stock  in  another  corporation,  the  law  is  very  clear 
that  a  purchaser  of  such  stock  from  the  corporation  is  protected  in 
his  purchase.  The  unauthorized  act  of  the  corporation  in  pur- 
chasing has  no  effect  upon  the  legality  of  its  sale  of  the  stock. 

§  429.  Purchase  from  joint  owners,  partners,  and  agents}— 

One  joint  owner  cannot  sell  stock  standing  in  the  name  of  two  or 
more  as  joint  owners.  One  partner  may  sell  and  convey  stock 
standing  in  the  partnership  name,  but  not,  it  seems,  where  the 
stock  stands  in  the  joint  and  individual  names  of  all  the  partners. 
As  regards  purchases  of  stock  from  agents,  greater  difficulty  oc- 
curs. If  the  purchaser  does  not  know  that  the  vendor  is  selling 
as  an  agent,  but  supposes  he  is  buying  stock  owned  by  the 
person  with  whom  he  is  dealing,  the  purchaser  is  always  pro- 
tected. The  same  rule,  after  considerable  doubt  and  discussion, 
has  been  established,  even  though  the  purchaser  knows  that  the 
agent  is  selling  as  agent.  The  sale  is  valid,  and  the  purchaser 
is  protected  provided  he  has  no  reason  to  suspect  that  the  agent 
is  selling  in  fraud  of  the  owner's  rights  or  in  contradiction  of  his 
orders. 

§  430.  Purchase  of  stock  at  sheriff's  execution  sale,  or  from 
assignee  in  bankruptcy,  or  for  henefit  of  creditors.^— A  pur- 
chase of  stock  at  an  execution  sale  by  the  sheriff,  is  a  dangerous 
investment.  Almost  always  the  judgment  debtor  has  already 
sold  and  transferred  his  certificates  of  stock  to  a  bo7ia  fide  pur- 
chaser. If  such  bona  fide  purchaser  has  registered  the  transfer 
on  the  corporate  books,  before  the  attachment  or  execution  is 
levied,  the  purchaser  at  the  execution  sale  gets  nothing.  If  no 
such  registry  has  been  made,  but  the  judgment  debtor  sold  and 
transferred  the  certificate  before  the  levy  of  attachment  or  execu- 
tion, in  most  of  the  States,  including  New  York,  such  a  pur- 
chaser takes  title  and  the  execution  purchaser  none.  In  Con- 
necticut, New  Hampshire,  and  a  few  other  States,  a  contrary 
rule  prevails.     If,  however,  the  judgment  debtor  sells  the    cer 

1  See  Chapter  XIX.  »  See  Chapter  XXVI. 

428 


CH.  XXIV.]  RISKS   IN   PURCHASING   STOCK.  [§§  431,  432. 

tificate  after  the  attachment  or  execution  is  levied,  the  pur- 
chaser takes  no  title.  The  execution  purchaser  is  entitled  to 
the  stock.  A  purchaser  of  stock  from  an  assie^nee  in  bank- 
ruptcy or  insolvency,  or  for  the  benefit  of  creditors,  takes  a 
good  title  if  he  obtains  the  certificates  of  stock.  If,  however, 
the  insolvent  has  sold  such  certificates  to  another,  the  latter  is 
entitled  to  the  stock. 

§  431.  Purchase  from  a  pledgee}— A  pledgee  of  stock  has 
no  right  to  sell  or  repledge  the  stock  held  as  collateral  by  him, 
unless  the  pledgor  intended  that  he  should  do  so.  Jf,  however, 
the  pledgee  sells  or  repledges  the  stock  to  one  who  takes  it  in 
good  faith,  for  value,  and  without  notice  of  the  fact  that  he  is 
dealing  with  a  pledgee  of  the  stock,  such  a  honajide  purchaser  is 
protected.  He  is  protected  absolutely,  and  can  keep  the  stock, 
if  he  purchased  it.  If,  however,  he  merely  took  it  in  pledge  from 
the  pledgee,  he  is  obliged  to  give  up  the  stock  to  the  real  owner, 
where  the  latter  tenders  to  the  repledgee  the  amount  of  the  debt 
owed  by  the  pledgee  to  the  repledgee,  for  which  the  stock  was 
given  as  security.  Where,  however,  a  person  buys  or  takes  in 
pledge  stock  from  one  who  makes  known  the  fact  that  he  is  hold- 
ing the  stock  as  pledgee,  the  former  is  not  a  honajide  purchaser. 
Moreover,  he  is  not  a  bona  fide  holder  where  he  would  not  be  a 
honafide  holder  of  a  promissory  note  transferred  under  similar 
circumstances,  as  for  instance,  where  he  loans  the  money  at  an 
usurious  rate  of  interest ;  or  where  he  knows  that  the  person 
with  whom  he  is  dealing  is  but  an  agent,  and  is  pledging  his 
principal's  stock.  In  all  these  cases,  where  the  purchaser  or 
pledgee  of  stock  is  not  a  honafide  holder,  the  real  owner  and 
original  pledgor  of  the  stock  may  reclaim  his  stock  from  the  re- 
pledgee, or  purchaser  from  the  pledgee,  where  the  original  pledgor 
could  recover  it  from  the  first  pledgee.  The  repledgee  or  ])ur- 
chaser  from  the  pledgee  stands  in  the  shoes  of  the  first  pledgee 
and  has  no  better  rights  than  the  latter. 

§  432.  Pledgee  is  ^protected  in  the  same  ivay  as  inirchaser  of 
sioc/c.^— The  rule  contained  in  this  chapter  exi)lains  the  rights,  dan- 
gers, and  liabilities  incurred  by  the  purchase  of  stock.  The  same 
rules  prevail  for  the  most  part  in  favor  of  one  who  receives  stock 

'  See  Chapters  XIX,  XXVI. 

420 


§§  433,  434.]  RISKS   IN   PURCHASING    STOCK.  [CH.  XXIV. 

in  pledge.  A  purchaser  and  a  pledgee  are  treated  in  the  cases  as 
being  similarly  protected  or  similarly  not  protected.  There  is, 
however,  one  important  exception  to  this  rule.  If  a  person  who 
is  about  to  take  stock  from  another,  knows  that  the  latter  is  dis- 
posing of  the  stock  as  an  agent,  the  former  may  purchase  the 
stock  and  be  protected,  but  cannot  take  it  in  pledge  and  be 
similarly  protected.  An  agent  to  sell  is  not  an  agent  to  pledge. 
Another  exception  to  the  similarity  of  position  of  a  vendee  and 
pledgee  of  stock  is  that  by  statute  frequently  the  latter  is  not 
liable  on  stock  where  the  former  is  liable. 

§  433.  Danger  of  purchasing  from  an  executor,  administra- 
tor, or  guardian}— There  is  practically  little  danger  incurred  in 
purchasing  stock  from  any  one  of  these.     It  is  the  duty  and  right 
of  the  executors  or  administrators  to  sell  the  personal  property 
and  convert  it  into  money.     As  regards  guardians  they  have  the 
right  to  change  the  funds  from  one  investment  to  another  unless 
a  statute  prescribes  otherwise.     Accordingly  a  purchaser  of  stock 
from  any  one  of  those  is  protected  in  his  purchase,  even  though 
he  knows  that  his  vendor  is  selling  in  his  official  capacity.     If, 
however,  the  vendee  knows  that  a  breach  of  trust  is  involved  or 
contemplated,  he  is  not  a  bona  fide  purchaser  and  is  not  pro- 
tected.    All  the  executors  or  administrators  need  not  join  in  a 
sale  of  the  stock  owned  by  the  estate.     A  sale  and  transfer  by  one 
is  sufficient. 

434.  Purchase  from  a  trustee}— An  entirely  different  rule 
prevails  as  regards  stock  held  by  a  trustee  as  trustee.  A  purchaser 
of  stock  which  he  knows  the  vendor  holds  as  belonging  to  a  trust 
estate  is  bound  to  ascertain  whether  by  the  instrument  creating 
the  trust  the  trustee  has  a  power  to  sell.  If  he  has  no  such 
power,  and  the  vendee  knows  that  he  is  buying  trust  estate  stock 
the  latter  is  not  protected,  but  is  a  party  to  any  breach  of  trust 
that  may  be  involved  by  the  sale.  If,  however,  the  purcliaser 
has  no  notice  or  knowledge  that  his  vendor  is  selling  trust  stock, 
the  former  is  a  hona  fide  purchaser  to  that  extent.  He  is  not 
bound  to  know  that  the  stock  is  trust  estate  stock  and  conse- 
quently is  protected  in  his  purchase.  Any  facts  that  would  put 
an  ordinary  intelligent  man    on   his  inquiry  as  to  whether   the 

1  See  Chapter  XIX. 

430 


CH.  XXIV.]  RISKS   IN  PURCHASING   STOCK.  [§§  435,  436. 

stock  belongs  to  a  trust  estate  is  notice  and  prevents  the  pur- 
chaser from  claiming  to  be  a  hona  fide  purchaser.  Thus,  such  a 
notice  is  held  to  be  given  by  the  fact  that  on  the  face  of  the  cer- 
tificate of  stock,  and  following  the  name  of  the  stockholder,  the 
word  ''  trustee  "  or  equivalent  words  are  written.  In  California, 
however,  the  mere  word  "  trustee  "  conveys  no  notice. 

435.  Sale  hy  vendor  to  another  purchaser  withmit  delivery 
of  certificate  of  stoch} — A  purchaser  of  certificates  of  stock  has 
no  reason  to  fear  that  the  vendor  can  sell  the  stock  to  another 
person  without  a  delivery  of  the  old  certificates,  and  thereby  de- 
feat the  rights  of  the  puichaser  with  the  certificates.  If  the  pur- 
chasei*,  without  certificates,  does  not  obtain  registry  on  the  cor- 
porate books,  he  obtains  nothing  as  against  the  purchaser  with 
the  certificates,  even  though  the  latter's  transaction  was  subse- 
quent in  time  to  the  former.  If,  however,  the  former  obtains, 
registry  on  the  corporate  books,  the  corporation  is  at  fault,  and  is 
liable  to  the  purchaser  with  the  certificates.  The  corporation 
must  either  issue  new  certificates  to  the  latter  or  pay  damages. 

436.  Danger  of  forgery} — Forgery  cannot  be  the  source  of 
a  good  title  to  any  chose  in  action,  whether  a  promissory  note, 
bond  and  mortgage,  or  a  certificate  of  stock.  Consequently  a 
purchaser  of  stock  takes  the  risk  that  some  previous  owner  of  the 
stock,  whose  name  appears  on  the  certificate,  either  as  the  regis- 
tered owner  or  as  transferee,  was  deprived  of  his  title  by  forgery. 
If  the  forgery  has  been  made,  the  purchaser  cannot  claim  or  hold 
the  stock,  although  he  liad  no  actual  knowledge  of  the  forgery. 
He,  however,  has  recourse  to  his  vendor  and  may  compel  him  to 
repay  the  amount  paid  for  the  stock.  Where,  however,  the  forgery 
was  committed  prior  to  the  last  registered  transfer  of  that  stock 
a  Ijonafide  purchaser  from  or  subsequent  to  tlie  last  registered 
holder  of  that  stock  is  protected.  All  rights  and  equities  to  par- 
ticular shares  of  stock  are  cut  off  by  a  registry  and  sale  of  the 
new  certificates.  The  party  whose  name  was  forged  has  recourse 
then  only  to  the  corporation,  or  to  the  party  obtaining  registry, 
or  to  previous  holders.  This  limitation  to  the  dangers  incident 
to  the  purchase  of  stock  extends  to  other  rights  and  wrongs,  as 


'  See  Chapter  XXI. 

431 


§§  437,  438. J  RISKS   IN  PURCHASING   STOCK.  [CH.  XXIV. 

well  as  to  a  case  of  forgery,  and  is  of  great  importance  in  protect- 
ing a  honafide  purchaser  of  stock. 

§  437.  Loss  or  tlieft  of  certificates  indorsed  in  UanTc} — It  is 

extremely  doubtful  whether  a  purchaser  of  a  certificate  of  stock 
which  was  indorsed  in  blank,  and  which  has  been  lost  by  the 
owner  and  found  by  another  who  sells  it,   or  which  has  been 
stolen  by  the  latter,  would  be  protected  in  his  purchase,  even 
though  he  buys  in  good  faith.     In  a  case  of  negotiable  paper, 
such  a  purchaser  would,  of  course,  be  protected.     But  probably 
the  purchaser  of  the  certificate  of  stock  would  not  be.     No  case 
holds  that  he  would  be  protected,  while  many  hold  that  he  would 
not.     If  the  real  owner  was  guilty  of  gross  negligence,  perhaps  the 
purchaser  from  the  thief  or  finder  ot  the  certificate  indorsed  in 
blank  would  be  protected.     In  one  case  this  question  of  negli- 
gence was  submitted  to  the  jury.     Again,  sometimes  a  person 
sells  stock  without  delivering  the  certificate,  the  vendor  telling 
the  vendee  that  the  certificates  have  been  lost.     Such  a  title  is 
very  precarious.     The  purchaser  should  refuse  to  buy  until  new 
certificates  are  issued  by  the  corporation  to  the  vendor,  an  issue 
which  the  corporation  will  make  upon  a  suitable  bond  of  indem- 
nity being  given  to  it  by  the  person  who  alleges  a  loss.     If  the 
purchaser  does  not  take  this  precaution,  he  buys  subject  to  hav- 
ing his  title  defeated  by  another  purchaser  who  obtained  the  cer- 
tificates which  are  alleged  to  have  been  lost. 

§  438.  Danger  that  a  previous  holder  has  teen  deprived  of 
that  same  stoch  by  fraud.^— Shaves  of  stock  are  the  same  as  other 
kinds  of  property,  in  that  a  person  who  has  been  deprived  of  his 
stock  by  fraud,  cannot  follow  the  stock,  and  take  it  from  the 
hands  of  a  ho7ia  fide  purchaser  for  value.  The  remedy  of  the 
defrauded  person  is  for  damages  against  the  person  defrauding 
him,  or  for  a  retransfer  of  the  stock,  if  the  latter  still  holds  it, 
together  with  an  injunction  against  a  transfer  by  the  latter.  But 
if  the  person  obtaining  the  stock  by  fraud,  sells  it,  even  in  viola- 
tion of  an  injunction,  the  honafide  purchaser  for  value  and  with- 
out notice  is  protected.  The  defrauded  party  may,  however, 
sue  the  person  defrauding  him,  in  the  State  of  the  corporation, 
and,'  by  an  attachment  or  execution,  obtain  the  stock.     Such  a 

1  See  Chapter  XXI.  "  See  Chapter  XX. 

432 


€H.  XXrv.]  RISKS    IN   PURCHASING    STOCK.  [§§439-441. 

danger,  however,  is  the  ordinary  danger  of  an  attachment  or  exe- 
cution. A  lis  pendens  of  a  suit  involving  stock,  never  charges 
the  vendor  of  the  stock  with  notice,  as  is  the  case  of  a  lis  pendens 
affecting  real  estate.  Cases  of  fraud  in  the  sale  of  stock  fre- 
quently arise  in  cases  of  sales  by  agents,  and  an  appropriation  of 
the  proceeds;  also  when  fraudulent  representations  are  made  to 
the  vendor. 

§  439.  Statute  of  frauds} — The  Statute  of  Frauds  requires  that 
sales  of  personal  property,  exceeding  in  value  a  certain  amount, 
generally  fifty  dollars,  shall  be  valid  and  enforceable  only  when 
the  property  is  partly  or  wholly  delivered,  or  partly  or  wholly 
paid  for  at  the  time  of  the  sale,  or  the  terms  of  the  sale  are 
reduced  to  writing.  A  sale  of  stock  must  conform  to  this  stat- 
ute. Generally  the  sale  is  made  by  a  delivery  of  the  certificate 
indorsed  in  blank.  Such  a  sale  is  legal,  and  is  not  void  by  the 
Statute  of  Frauds.  The  statute  applies  both  to  sales  of  stock 
which  are  considered  as  completed,  and  also  to  sales  which  are 
to  be  completed  in  the  future. 

§  440.  GamhUng  sales  of  stock.  — A  gambling  sale  or  con- 
tract to  sell  stock  is  void  absolutely,  and  cannot  be  enforced.  As 
a  matter  of  practical  experience,  however,  it  is  difficult  to  prove 
that  a  stock  sale  is  a  gambling  sale.  It  is  sucli  only  when  both 
the  vendor  and  vendee  intend,  not  to  actually  have  a  delivery  of 
the  stock,  but  to  wait  and  see  whether  the  stock  raises  or  falls  in 
the  market,  and  then  to  settle  the  contract  by  the  loser  paying 
the  loss.  An  intent  by  one  of  the  parties  that  there  shall  be  no 
delivery,  will  not  make  the  sale  a  gambling  one.  It  must  be  the 
intent  of  both. 

§  441.  Method  of  assigning  a  certificate  of  stock.^ — A  certifi- 
cate of  stock  is  generally  assigned  by  the  owners  signing  the 
blank  transfer,  and  power  of  attorney  on  the  back  of  the  certifi- 
cate. The  transfer  gives  title  to  him  whose  name  is  filled  into 
the  blank  transfer  thus  signed.  The  blank  power  of  attorney  is 
for  an  entirely  different  purpose.  It  enables  the  person  whose 
name  is  filled  in,  to  register  the  transferee  as  a  stockholder  in  the 
corporate  books.  Generally,  the  power  of  attorney  is  filled  in 
with  the  name  of  a  clerk  or  agent  of  the  transferee,  or  a  clerk  of 

'  See  Chapter  XX.  «  See  Chapter  XXII. 

[28J  433 


§§442,443.]  RISKS  IN  PURCHASING   STOCK.  [CH.  XXIV. 

the  corporation  who  has  charge  of  the  registry  books.  After  the 
registered  holder  has  signed  the  transfer,  leaving  the  transferee's 
name  in  blank,  the  certificate  passes  from  hand  to  hand,  until 
some  holder  cares  to  fill  his  name  into  the  blank.  He  may  then 
obtain  registry,  or  he  may  execute  another  transfer  and  sell  the 
certificate.  Transfers  need  not  be  under  seal  in  this  country. 
In  England,  by  statute,  they  generally  are  required  so  to  be. 

§  442.  Registry  of  transfer} — A  registry  of  transfer  is  made 
by  surrendering  an  old  certificate  of  stock  to  the  corporation, 
making  an  entry  of  the  transfer  on  the  corporate  registry,  and 
taking  from  the  corporation  a  new  certificate,  issued  in  the  name 
of  the  transferee.  The  entry  is  generally  made  by  a  corporate 
oflficer,  but  he  may  insist  on  its  being  made  by  the  person  apply- 
ing for  transfer.  The  object  of  obtaining  the  registry  is  to  obtain 
a  right  to  vote,  to  receive  dividends,  and  various  other  incidental 
stockholders'  rights  ;  also  to  cut  off  corporate  liens  and  the  rights 
of  third  parties  who  may  attach  or  claim  the  stock.  If  there  is 
a  reasonable  legal  doubt  as  to  the  right  of  the  applicant  to  obtain 
registry,  the  corporation  may  refuse  it,  and  thus  obtain  the  pro- 
tection of  being  compelled  to  make  it  by  legal  proceedings.  If 
two  parties  claim  the  stock,  each  denying  the  right  of  the  other, 
the  corporation  may  interplead,  provided  there  is  a  reasonable 
legal  doubt  as  to  who  is  entitled  to  the  stock.  If  the  corporation 
improperly  refuses  to  register  a  transfer  when  requested,  the  ap- 
plicant may  have  his  remedy  in  damages,  but  in  most  States  can- 
not have  a  mandamus. 

§  443.  Purchaser  not  affected  ly  rights  of  holders  of  that 
stoclc  hack  of  the  last  registry} — This  rule  is  peculiar  to  stock 
certificates,  and  cuts  off  rights,  even  such  as  those  of  an  owner 
who  has  been  deprived  of  the  stock  by  forgery.  In  this  respect 
certificates  of  stock  are  more  negotiable  than  negotiable  paper 
itself.  The  person  who  obtains  registry  first,  after  the  illegal  act 
has  been  done,  is  not  protected  by  this  rule.  But  his  honafide 
purchaser  of  the  new  certificates  and  all  subsequent  purchasers 
are  protected,  and  cannot  be  compelled  to  give  up  the  stock  to 
the  prior  owner,  who  was  deprived  of  it  illegally. 


1  See  Chapter  XXII.  »  See  §§  367,  369. 

434 


CH.  XXIV,]  RISKS   IN   PURCHASING   STOCK.  [§ 'i^^. 

§  444.  Summary. — It  will  be  seen  bj  a  review  of  the  sections 
of  this  chapter,  that  the  clangers  of  loss  incurred  by  the  purchase 
of  a  certificate  of  stock  are  not  serious  or  numerous,  and  it  is  well 
that  such  is  the  result.  Perhaps  the  most  striking  industrial 
feature  of  modern  times  is  the  accumulation  of  personal  prop- 
erty, and  the  investment  of  that  property,  not  in  landed  estates, 
but  in  the  stocks  and  bonds  of  corporations.  Such  investments 
are  made,  not  alone  by  capitalists,  but  by  thousands  whose  sav- 
ings have  no  other  satisfactory  mode  of  disposition.  The  con- 
stant tendency  of  the  statutes,  and  the  decisions  of  the  courts 
to  protect  bona  fide  purchasers  of  certificates  of  stock,  is  to  be 
commended  and  aided.  Beyond  all  question,  the  surplus  wealth 
of  the  future  will  be  invested  in  corporate  bonds  and  stocks.  It 
is  well,  then,  in  these  days  of  the  formative  period  of  the  law 
governing  stock,  that  the  principles  governing  the  transfer  of 
certificates  should  be  formed  for  the  protection  and  security  of 
an  investing  public,  against  secret  liens,  attachments,  claims,  and 
negligence  of  both  the  corporation  and  third  persons. 


4o5 


PART  III. 

MISCELLANEOUS    INCIDENTS     OF     STOCK. 


CHAPTER  XXV. 


STOCK-BROKERS  AND   THEIR   CONTRACTS. 


445.  Definitions. 

446.  Incompetency,  or  want  of  author- 

ity of  customer. 

447.  Facts  making  person  a  broker  or 

customer  unintentionally. 

448.  Broker  must  obey  specific  orders 

of  customer. 

449.  Must  act  in  good  faith  and  in  rea- 

sonable time. 

450.  Cannot  purchase  from  or  sell  to 

himself. 

451.  Duties  and  liabilities  of  customer 

towards  broker. 

452.  Duties  and  liabilities  of  a  broker 

towards  customer. 

453.  Method  of  completing  a  broker's 

contract. 


§  454 


455. 


456. 


457. 


Privity  of  contract  between  broker 
and  opposite  parties. 

Privity  of  contract  between  the 
opposite  customers. 

Intervening  sub-brokers  and  sub- 
customers. 

Purchases  or  sales  on  margins — 
broker  as  a  pledgee. 

458.  Broker's  rights  and  duties  on  fail- 

ure of  margin. 

459.  What  wall  excuse  notice  and  de- 

mand for  more  margin. 

460.  Customer  s  remedies  and  damages 

herein. 

461.  Broker's   remedies   and   damages 

herein. 

462.  Broker's  customs  and  usages. 


§  445.  Definitions. — Bj  far  the  greater  part  of  purchases  and 
sales  of  stock  are  made,  both  in  this  country  and  in  England, 
through  organizations  specially  formed  for  that  purpose  and  called 
Stock  Exchanges.  A  Stock  Exchange  is  a  place  of  business 
where  those,  who  make  up  the  membership  of  the  exchange,  buy 
:and  sell  stocks  and  bonds.  These  persons  are  called  stock-brokers. 
A  stock-broker  is  one  who  buys  and  sells  stock  as  the  agent  of  an- 
other, the  latter  being  called  a  customer  of  the  stock-broker.^ 
Accordingly  in  an  ordinary  purchase  of  stock  through  stock- 
brokers, there  are,  generally,  at  least  four  persons  involved — the 
.two  brokers  and  their  respective  customers.     Stock-brokers  have 


1  In  Sibbald  v.  The  Bethlehem  Iron 
■Company,  83  N.  Y.  378  (1881),  Finch, 
J.,  favors  the  definition  from  Pott  v.  Tur- 
ner, 6  Bing.  702,  706,  where  a  broker  is 
•defined  as  "  one  who  makes  a  bargain  for 
another  and  receives  a  commissiim  for  so 
■doing."     Story  on  Agency,  §  28  (9th  ed.), 

436 


says :  "  The  true  definition  of  a  broker 
seems  to  be  that  he  is  an  agent  employed 
to  make  bargains  and  contracts  between 
other  persons  in  matters  of  trade,  com- 
merce, or  navigation,  for  a  compensation 
commonly  called  brokerage." 


CH.  XXV.] 


STOCK-BROKERS. 


[§  446. 


a  language  of  their  own.  They  have  coined  and  put  into  general 
circulation  certain  phrases  and  terms  descriptive  of  their  busi- 
ness. These  terms  have  become  so  closely  identified  with  the 
subject  of  stock  and  transactions  in  stock  that  the  courts  have  de- 
fined their  meaning  and  explained  their  application.^ 

§  446.  Incompetency,  or  tvant  of  authority  of  customer. — 
Any  person  may  be  a  stock-broker  who  may  make  a  contract,  but  it 
is  beyond  the  power  of  a  national  bank  to  act  as  a  broker.^  Strict 
rules  prevail  as  to  who  may  be  a  customer.  An  infant  is  not 
bound  by  his  contracts  wnth  or  through  a  stock-broker  any  more 
than  he  is  bound  by  his  other  contracts.  Moreover,  if  the  broker 
carries  on  stock  transactions  for  an  infant,  he  is  liable  to  the  latter 
for  all  moneys  lost  thereby.^     Again,  a  broker  who  sells  or  buys 


'  A  "  bull "  is  a  dealer  who  endeavors 
to  make  the  price  of  stocks  go  hiffher.  A 
"  bear  "  is  a  dealer  who  endeavors  to  make 
the  price  of  stocks  go  lower.  A  "  short " 
sale  is  a  sale  of  stocks  which  the  seller  does 
not  possess,  but  which  he  expects  to  pur- 
chase later  on  at  a  lower  figure,  thus  fulfill- 
ing his  contract  and  making  profit  by  tlie 
decline.  In  the  meantime  the  broker  gen- 
erally borrows  the  stock  from  other  par- 
ties to  deliver  to  the  vendee,  and  to  be  re- 
turned to  the  person  loaning  the  stock  at 
the  end  of  the  transaction.  The  broker  is 
bound  to  continue  the  transaction  for  a 
reasonable  time.  Tlie  customer  deposits 
with  the  broker  a  small  amount  of  money 
as  security,  called  a  margin,  and  lie  is 
bound  to  keep  the  margin  good.  Hess  v. 
Rau,  95  N.  Y.  35'J  (1884);  White  v. 
Smith,  54  N.  Y.  522{]8'74);  Knowlton  v. 
Fitch,  52  N.  Y.  288  (1873);  Appleman  v. 
Fisher,  54  Md.  540  (18*71);  Sistare  «;. 
Best,  88  N.  Y.  527,  533  (1882).  A"long" 
purchase  of  stock  is  a  purchase  in  the  ex- 
pectation that  the  stock  will  rise  in  value. 
Stock  options  are  of  tliree  kinds — puts, 
calls,  and  straddles.  A  "  j  ut"  is  a  con- 
tract whereby  »  f)erson  has  the  privilege 
of  requiring  another  person  to  take  from 
the  former  certain  specified  stock  at  a 
specified  price,  at  any  time .  within  a 
specified  period  of  time,  the  former  not 
being  Vjound  to  sell.  See  Bigelow  ".  Bene- 
dict, 70  N.  Y.  202  (1877).  A  "call"  is  a 
contract  whereby  a  i)er.son  has  the  privi- 
lege of  requiring  another  person  ty  sell 
or  deliver  to  the  former  certain  specified 
stock  at  a  specific  1  ])rire,  at  any  time 
within  a  certain  sjjecified  [jcriod,  the  for- 
mer  not   being   bound  to   purcliase.     A 


"  straddle"  or  "  spread  eagle,"  is  a  com- 
bination of  a  put  and  a  call.  It  gives  a  per- 
son the  double  privilege  of  delivering  to 
or  demanding  from  another  person  certain 
stock  at  a  certain  price  witliin  a  specified 
time.  Harris  «'.  Tumbridge,  83  N.  Y.  92 
(1880);  Story  «.  Salomon,  71  N.  Y.  420 
(1877).  A  "corner"  exists  where  the 
"bears"  have  sold  a  large  quantity  of 
stock  "short,"  and  cannot  borrow  the 
stock  to  fill  their  contracts,  but  must  buy 
it  from  those  who  have  cornered  the 
market  on  that  stock.  See  Cameron  v. 
Durkheim,  55  N.Y.  425,  438  (1874).  Asta 
the  legality  of  these  various  transactions, 
see  §§  341-348.  A  "  stock-jobber  "  is  de- 
fined to  be  a  person  who  keeps  "  a  sort  of 
common  book  or  register  where  brokers 
who  have  shares  to  sell  go  to  deposit 
them,  and  persons  who  want  to  buy  go  to 
buy  them,  who  finally  at  the  i)roper  time 
bring  togetlicr  their  customers  on  the  one 
side  and  the  other,  so  as  to  procure  the 
result  desired  by  both,  each  of  the  par- 
ties to  the  transaction  still  remaining  un- 
known to  the  other."  Sheppard  v.  JMur- 
phy,  16  W.  H.  948  (1868).  Another  defi- 
nition is  that  a  stock-jobber  is  a  dealer  ia 
stocks ;  one  who  buys  and  sells  stock  on; 
his  own  account  on  speculation. 

''  First  Nat'l  Bk.  of  Allentown  v.  Hock, 
20  All).  L.  J.  21b. 

■■'  Ruchizky  v.  De  Haven,  97  Pa.  St. 
202.  The  transactions  in  this  case  were 
held  to  be  gambling  contracts.  Heath  v. 
Mahoney,  12  Week.  Dig.,  404  (1881). 
The  broker  himself  may  be  an  infant  and 
:i)ay  repudiate  his  obligations.  See  4 
Law  JS'otee,  314. 


437 


§§  447, 448.]  STOCK-BROKERS.  [CH.  XXV. 

stock  in  the  name  of  an  infant,  is  liimself  liable  to  the  other  party, 
in  case  the  contract  is  not  completed,  by  reason  of  such  infancy.^ 
On  the  other  hand,  if  the  broker's  customer  hands  in  the  name  of 
a  third  person,  an  infant,  as  the  seller  or  purchaser,  such  customer 
is  liable  to  the  broker  for  liabilities  thereby  incurred  by  the 
latter.^ 

§  447.  Facts  maldng  person  a  Iroker  or  customer  uninten- 
tionally.— The  relationship  of  broker  and  customer  may  be  estab- 
lished and  exist,  although  one  of  the  parties  is  personally  ignorant 
of  such  a  relationship.^  A  broker  also  may  be  liable  as  such,  in 
transactions  where  he  had  no  intention  of  incurring  any  lia- 
bility." 

§  448.  Broker  must  ohey  specific  orders  of  customer.— A 
broker  is  bound  to  obey  and  carry  out  strictly  the  orders  of  his 
customer  in  the  purchase  or  sale  of  stock.  This  rule  is  rigidly 
insisted  upon  by  the  courts.  The  orders  of  the  customer  may  be 
such  as  he  wishes  to  give,  and  when  given  they  must  be  obeyed, 
or  liability  will  be  incurred  by  the  broker.^  AVhen  the  customer 
fixes  a  limit  at  which  the  broker  may  purchase,  the  latter  cannot 
bind  the  customer  by  a  purchase  at  a  higher  figure.*  Frequently  the 


'  Nickalls  v.    Merry,    L.  R.    7   H.    L.  is  a  trustee  and  defaults  therein,  the  firm 

520(1875);  Heritage  v.  Paine,  .34   L.  T.  having  charge  of  the  trust  estate's  stocks. 

947(1876);  Maxted  ?^.  Paine,  L.  R.  4  Ex.  De   Ribeyre    v.    Barclay,   23    Beav.    107 

81(1869).     The  first  case  holds  him  lia-  (1856).     As  a  silent   partner   he  cannot 

ble,  although  ignorant  of  the  infancy  of  prevent    a    customer     from    setting    off 

his  customer.     See  same  case.  Merry  v.  against  a  liability  a  debt  personal  to  the 

Nickalls,  41  L.J.  (Ch.)  767(1872).  Broker  ostensibly  sole  broker.     Read  v.  Jaudon, 

is  liable,  although  the  name  of  the  infant  35  How.  Pr.  303  (1868). 
was  passed   to   him   by  another  broker.  ^  Parsons   v.   Martin,    77    Mass.     Ill 

Dent  V.  Nickalls,  29  L.  T.  536  (1873).    It  (1858).     Thus,    where   the   customer  au- 

is  no  defense  to  the  broker  that  the   in-  thorizes  a  sale  if  the  stock  goes  down  to 

fant's  father  was  the  real  customer.  Nick-  51,  but  the  broker  sells  when  it  goes  down 

alls  V.  Eaton,  23  L.  T.  689  (1871).  to    52,  he  is   liable  for  an  unauthorized 

2  Peppercorne  v.  Clinch,  26  L.  T.  656  sale.  Clarke  v.  Meigs,  10  Bosw.  337 
(1872).  (1863).     Cf.  Whelan  v.  Lynch,  60  N.  Y. 

3  Thus  the  customer  may  be  bound  by  469(1875);  Jones  v.  Marks,  40  111.  313 
the  acts  of  his  clerk.  Webb  v.  Challoner,  (1866).  But  the  broker  may  correct  a 
2  F.  &  F.  120  (1860).  So  also  where  the  palpable  error  in  the  order  given  him  by 
firm  does  a  broker  business  through  its  his  customer.  Luffman  v.  Hay,  13  N.  Y. 
ao-ents,  the  transactions  by  the  agents  on  Week.  Dig.  324  (1881). 

their  own  private  accounts,  but  ostensi-  ''  Whether  a  limit  was  fixed  is  a  ques- 
bly  for  the  firm,  will  bind  the  firm.  Wells,  tion  for  the  jury,  if  the  facts  are  disputed. 
Fargo  &  Co.  v.  Welter,  15  Nev.  276  Of.  Smith  v.  Bouvier,  70  Pa.  St.  375 
(1880).  (1872).  The  customer  may  ratify  the 
''  As  where  he  continues  to  allow  his  unauthorized  purchase.  Genin  v.  Isaac- 
name  to  remain  in  the  firm  name  after  its  son,  6  N.  Y.  Leg.  Obs.  213  (1848).  If 
dissolution.  Hixon  v,  Pixley,  15  Nev.  the  power  to  sell  depends  on  the  cod- 
475  (1880).     Also,  where  one  of  the  firm  struction  of  writings,  it  is  a  question  of 

488 


OH. 


XXV.] 


STOCK-BROKERS. 


[§  449. 


customer  gives  to  the  broker  a  "  stop  order,"  which  is  an  order  to 
sell  or  buj,  as  the  ease  may  be,  at  a  certain  specified  figure,  or 
upon  a  specified  contingency.  Under  this  order  the  broker  must 
sell  or  buy  when  the  price  or  contingency  occurs,  but  not  until  it 
occurs.  If  the  market  changes  too  quickly  for  him,  he  must  sell 
or  buy  at  the  market  price  immediately  after  the  fixed  price  or 
contingency  arises.^  The  customer  may  leave  it  in  the  discretion 
of  the  broker  as  to  the  best  time  for  buying  or  selling.^  When 
this  is  done  the  broker  must  exercise  such  discretion  in  ofood  faith 
and  with  reasonably  good  judgment  and  care.^ 

§  449.  Must  act  in  good  faith  and  in  reasonable  time. — The 
broker  must  make  the  purchase  or  sale  in  good  faith  on  the  best 
terms  possible,  and  must  give  the  customer  the  advantage  of  the 
transaction  as  actually  made.  Any  material  failure  to  do  this,  or 
to  make  the  sale  or  purchase  as  directed,  will  release  the  customer 
from  the  transaction,  although  it  was  reported  to  him  as  made  in 
accordance  with  orders.*  The  broker  is  allowed  a  reasonable  time 
within  which  to  make  the  sale  or  purchase." 


law  only.  Davis  v.  Gwynne,  51  N.  Y.  6Y6 
<1874);  8.  0.,  4  Daly.  218  (1871).  But 
the  written  order  may  be  subsequently 
modified  by  parol,  Burkitt  v.  Taylor,  86 
N.  Y.  618  (1881);  Clarke  v.  Meigs,  10 
Bosw.  337  (1863);  or  be  waived.  Hope 
-V.  Lawrence,  50  Barb.  258  (1867). 

■  Porter  v.  Wormser,  94  N.  Y.  431 
(1884);  Bertram  v.  Godfrey,  1  Knapp's 
Rep.  P.  C.  381(1 830).  The  latter  case  in- 
volved an  absohite  order  to  sell  should 
the  stock  reach  a  certain  price. 

'  Such  discretion  when  given  is  re- 
voked only  by  clear  notice  of  revocation. 
Davis  V.  Gwynne,  4  Daly,  218  (1871). 

^  Harris  v.  Tunibridge,  83  N.  Y.  92 
(1880). 

*  Where  the  broker  buys  in  his  own 
name  at  a  price  less  than  the  price  re- 
ported to  the  customer,  sells  without  no- 
tice, and  subsequently  pretends  to  sell 
again,  the  whole  transaction  is  void  as  to 
the  customer.  Levy  v.  Loeb,  85  N.  Y. 
3f.5  (18S1);  89  Id.  386.  So,  likewise, 
where  he  purchases  an  option,  instead  of 
cash  purchase,  and  reports  a  higher  price 
than  that  paid,  Voris  v.  McCreadv,  16 
How.  Pr.  87  (1856).  So,  likewise,  where 
the  broker  varies  the  order  from  a  cash 
purchase  to  an  option,  he  himself  taking 


the  risk  of  the  option.  Dey  v.  Holmes, 
103  Mass.  306  ;  Pickering  v.  Demerritt, 
100  Mass.  416  (1868). 

'  Fletcher  v.  Marshall,  15  Mees.  &  W. 
755  (1846).  Cf.  Dickinson  v.  Lilwal,  1 
Starkie,  128  (1815),  which  holds  that  the 
transaction  must  be  carried  out  on  the 
day  of  the  order.  The  broker  is  entitled 
to  his  commission,  altliouiih  his  customer 
fails  before  the  transaction  is  made.  Inch- 
bald  V.  The  Western  CofTee  Co.,  43  L.  J. 
(C.  P.)  15.  The  contract  is  to  be  carried 
out  within  a  reasonable  time.  A  broker's 
custom  is  evidence  as  to  what  is  reason- 
able time.  Stewart  v.  Cauty,  8  Mees.  <fe 
W.  160  (1840).  A  few  hours  notice  held 
insufficient.  Johnson  v.  Mulvy,  51  N.  Y. 
634  (1872).  _  "  Usually  the  bi-okcr  is  en- 
titled to  a  fair  and  reasonable  opportunity 
to  perform  iiis  obligation,  subject  of  course 
to  tiie  right  of  the  seller  to  sell  independ- 
ently. But  that  having  been  granted 
him,  the  rij^ht  of  the  i)rineipal  to  t«rmi- 
nate  his  authority  is  absolute  and  unre- 
stricted, except  only  that  he  may  not  do 
it  in  bad  faith  and  as  a  mere  device  to  es- 
cape the  payiTient  of  the;  hi'okcr'a  commis- 
sions." Sihbald  v.  The  liethleheiii  Iron 
Co.,  83  N.  Y.  378,  384  (1881). 

430 


§§  450,  451.]  STOCK-BROKERS.  [CH.  XXT, 

§  450.  Cannot  purcliase  from  or  sell  to  himself. — A  broker 
cannot,  in  behalf  of  his  customer,  buy  or  sell,  with  himself  as  the 
other  principal.  The  law  will  not  allow  him  to  act  both  as  agent 
and  as  principal  at  the  same  time.  Such  an  act  is  a  constructive 
fraud,  on  account  of  his  fiduciary  relation,  and  will  be  set  aside. ^ 
Custom  or  usage  cannot  legalize  such  a  transaction.^  The  broker 
may,  however,  show  by  parol  evidence  that  he  did  not  deal  with 
himself,  though  writings  indicate  otherwise.^  And  there  is  no 
rule  which  prevents  the  broker  from  acting  as  agent  both  for  the 
selling  and  the  buying  customer.* 

§  451.  Duties  and  liabilities  of  customer  towards  hroTier. — 

A  stock-broker  is  but  the  agent  of  his  customer.  As  such  he 
may  bind  his  customer  by  acts  within  the  scope  of  his  authority,, 
and  compel  the  customer  to  respond  to  the  liability.  Thus  the 
broker  may  proceed  to  close  the  transaction,  paying  out  his  own 
money  as  though  it  was  his  own  business,  and  may  then  compel 
the  customer  to  repay  to  him  the  money  so  expended  in  the  cus- 
tomer's behalf.^  Or  if  his  customer  refuses  to  carry  out  the 
transaction,  the  bi-oker  may  settle  with  the  opposite  party  by 
paying  the  loss  incurred  by  buying  or  selling  the  stock  elsewhere, 
and  may  then  sue  his  customer  for  the  differences  thus  paid.^ 


'    Conkey  v.  Bond,   36   N.   Y.   427  ;  the  defendant  has  not  done  this,  but  has 

Broolcman    v.   Rothschild,    3    Sim.    153  elected    to   treat    the   purchase    by   the 

(1829);  Marye  v.   Strouse,   5    Fed.   Rep.  plaintiff  as  illegal.     This  avoids  the  sale, 

483  (1880) ;    Robinson  v.  Mollett,  L.  R.  1  and  that  being  avoided  by  the  defendant, 

H.  L.  802,  818,  826  (1874).     Even  though  the  parties  are  remitted  to  their  rights 

the  purchase  was  in  good  faith  and  at  a  the  same  as  though  no  sale  had  been  at- 

lower  figure  than  the  market  price.  Taus-  tempted." 

sig  V.  Hart,  58  N.  Y.  425  (1874) ;  Gillett  *  Commonwealth  v.  Cooper,  130  Mass. 

V.  Peppercorne,  3    Beav.  78   (1840).     In  285  (1881).     The  custom  of  brokers  to 

Bryan  v.  Baldwin,  53  N.  Y.  232  (1873),  buy  in  large  quantities  and  sell  in  small 

the   court   says:     "The   plaintiff  being  quantities  is  illegal.     Robinson  v.  Mollett, 

pledgee  of  the  stock,  and  in  that  character  L.  R.  7  H.  L.  802  (1874). 
exposing  it  for  sale,  could  not  become  the  =*  Porter  i'.  Wormser,  94  N.  Y.  431 

purchaser  unless  the  defendant  assented  (188*4). 

to  such  purchase.     Story  on  Bailments,  *  Knowlton  v.  Fitch,    52  N.  Y.   288 

8  319;  Torry  v.  Bk.  of  Orleans,  7  Paige,  (1873). 

649;    Hawley   v.    Cramer,   4   Cow.    736.  £•  gayley  z-.  Wilkins,  7  C.  B.  886  (1849); 

This  sale  to  the  plaintiff  was  not  void  Whitehouse  t;.  Moore,   13  Abb.  Pr.   142 

but  voidable  at  the  election  of  the  de-  (1861);  Bails  v.  Lloyd,  12  C.  B.  531.   Cf. 

fendant.     Edwards    on    Bailments,    260.  Ux  parte  Neilson,  3  De  G.,  M.  &  G.  556 

The  defendant  was  at  liberty  to  ratify  (1853). 

the  sale    and  had  he  done  so  it  would  "  Durant  v.  Burt,  98  Mass.  161  (1867)r. 

have  been  valid  for  all  purposes.     The  Bayliffe  v.  Bulterworth,  5  Railw.  Cas.  283, 

ratification  would  have  made  it  lawful,  per  Parke,  B.;  Marten   v.  Gibbon,  33  L. 

and  relieved  it  from  any  imputation  of  T.  561  (1876);  Biederman  v.  Stone,  L.  R. 

beine  tortious  as  to  him.     .     .     .     But  2  C.  P.  504  (1867). 

440 


CH.  XXV.] 


STOCK-BROKERS. 


[§452. 


He  may  also  recover  his  disbursements, 'commissions,  and  interest.* 
The  customer  is  liable  to  the  broker  for  stock  purchased,  although 
the  stock  turns  out  to  be  spurious  or  unauthorized.^  If  the  broker, 
however,  seeks  to  recover  the  full  value  of  the  stock,  he  must 
first  tender  the  stock  to  the  customer,*  or  he  must  sell  it  after 
due  notice  to  the  customer,  and  thus  accurately  ascertain  the  loss.* 
If  he  is  seeking  to  recover  for  diiferences  paid  the  opposite 
broker  in  settlement,  assumpsit  is  his  remedy.^  He  must  clearly 
prove  that  the  customer  authorized  the  order.^ 

§  452.  Duties  and  liabilities  of  a  broker  towards  customer. 

— The  broker  also  owes  certain  duties  and  incurs  certain  liabili- 
ties in  his  relations  towards  his  customer.  It  is  said  that  he  can- 
not sell  on  credit,  since  that  is  not  the  usual  course  of  his  busi- 
ness.'' He  is  liable  in  damages  for  failure  to  buy  or  sell  in  ac- 
cordance with  his  express  orders.^  Where  the  customer  fails  to 
carry  out  the  transaction,  but  the  broker  does  carry  it  out  at  a 
profit,  the  profit  belongs  to  the  custon)er.^     But  the  customer  is 


'  Where  the  commissions  and  interest 
were  paid  to  other  brokers,  it  may  be 
charf^ed  to  the  customer.  Robinson  v. 
Norris,  51  How.  Pr.  442  (18Y4).  Even 
though  that  interest  be  usurious.  Smith 
V.  Heath,  4  Daly,  123(1871).  On  com- 
missions, see  Inchbald  v.  Western  Coffee 
Co.,  43  L.  J.  (C.  P.)  15.  Excessive  ex- 
penses will  not  be  allowed,  although  cus- 
tomary. Marye  v.  Strouse,  6  Fed.  Kep.  483 
(1880).  But  the  broker  is  entitled  to  com- 
missions only  when  he  has  rendered  some 
service  to  the  customer.  Sibbald  v.  The 
Bethlehem  Iron  Co.,  83  N.  Y.  378  (1881); 
Hoffman  v.  Livingston,  46  N.  Y.  Super. 
Ct.  552  (188U).  The  case.  Hatch  v.  Doug- 
las, 48  Conn.  116  (1880),  liolds  that  the 
broker's  customary  montlily  charges  and 
interest  thereon  are  not  usurious.  Cf. 
Robiiisoa  v.  Norris,  6  Hun,  233  (1875). 

'  .See  Adamson  v.  Jarvis,  4  Bing.  66 
(1827).  Spurious  stock.  See  Peckiiam 
V.  Ketcham,  5  Bosw.  506  (1850).  So 
also  for  spurious  stock  innocently  given 
to  the  broker  to  sell.  Westropp  v.  Sola- 
man,  8  C.  B.  345  (1849). 

^  Merwin  v.  Hamilton,  6  Duer,  244 
(1856);  Bowlby  v.  licil,  3  Com.  B.  284 
(1846).  But  after  once  tendernig  it,  he 
need  not  contiiiualiy  keep  it  on  hand. 
Wynkoop  v.  Scm],  64  Va.  St.  361  (1870). 
^Monroe  v.  Peck,  3  Daly,  128  {\m'.)). 
In  Kosenstock  v.  Tormey,  32  Md.  169, 
the  necessary  allegations  were  held  to  be 


a  purchase  of  stock  according  to  an  orders 
at  fair  market  price,  which  was  paid,  and 
the  customer  notified,  and  payment  de- 
manded ;  willingness  to  deliver  the  stock; 
refusal  of  customer  to  pay  ;  notice  of 
sale ;  a  proper  sale ;  and  loss. 

5  Pollock  V.  Stables,  12  Q.  B.  765 
(1848).  Contra,  Child  v.  Morley,  8  Terra 
R.  610  (1800). 

«  Ward  V.  Van  Duser,  2  Hall  (N.  Y.), 
167.  In  White  v.  Baxter,  71  N.  Y. 
254  (1877),  the  court  held  that  a  cus- 
tomer's contract  with  his  broker  to  pro- 
tect the  latter  against  loss  by  expulsion 
from  the  Stock  Exchange  for  non-compli- 
ance witli  its  rules,  is  a  valid  and  enforce- 
able contract. 

">  2  Kent's  Com.,  622  (b),  12th  cd. 

«  Speyer  v.  Colgate,  4  Hun,  622  (1875); 
Whelan'v.  Lynch,  60  N.  Y.  469  (1875). 
The  case  of  a  wool  broker.  See  also  Jones 
V.  Marks,  40  111.  313  (1866).  The  dam- 
ages may  sound  in  tort,  thus  preventing  a 
release  in  bankruptcy  from  barring  the 
action.  Parker  v.  Crol,  5  Bing.  63  (1828). 
Under  the  New  York  Code  he  may  be  ar- 
rested if  he  does  not  use  the  money  for 
the  purpose  designated.  Dnbois  v. 
Thon)pson,  1  Daly,  30v».  And  in  Knghiiid 
he  is  liable  criminally.  Kegina  v.  I'ron- 
mire,  54  L.  T.  Rep.  58o  (1885). 

«  Fowler  v.  N.  Y.  Gold  Fx.  Bk.,  07  N. 
Y.  138  (1876). 


441 


§  453.]  STOCK-BROKERS.  [CH.  XXV. 

• 

not  entitled  to  stock  held  for  him  bj  the  broker  until  he  pays  the 
broker  all  his  reasonable  disbursements  thereon.^  The  broker 
may  deposit  a  margin  with  the  opposite  broker,  according  to  cus- 
tom, and  not  be  responsible  to  his  customer  if  it  is  lost,^  although 
the  rule  may  be  otherwise  as  to  a  delivery  of  the  stocks  them- 
selves.^ The  broker  is  required  to  exercise  reasonable  diligence 
and  care,  and  no  more.*  The  broker  has  a  lien  on  the  customer's 
property  in  his  hands  for  all  debts  due  to  the  former.^  But  he 
has  no  such  lien  if  he  knows  that  the  customer  is  acting  as  agent 
for  another.®  It  is  a  question  of  doubt  whether  a  broker  who 
has  received  commissions  from  a  person  guilty  of  embezzlement 
is  liable  to  pay  over  to  the  persons  injured  by  his  customer,  com- 
missions so  received.''  A  broker  may,  by  bill  of  discovery,  be 
compelled  to  disclose  acts  amounting  to  misconduct.^ 

§  453.  Method  of  completing  a  Irolcers  contract. — The  for- 
malities and  method  of  completing  a  stock-broker's  contract  is 
governed  largely  by  the  usages  of  the  Stock  Exchange.  It  is 
weU  established  law  that  when  a  man  sells  or  buys  shares  through 
his  broker  on  the  Stock  Exchange,  he  enters  into  an  implied  con- 
tract to  sell  or  buy  according  to  the  custom  and  usages  prevalent 
in  that  body.^  These  usages  and  customs  are  to  be  found,  for  the 
most  part,  in  the  rules  of  the  Stock  Exchange,  so  far  as  the  for- 
malities of  completing  the  contract  are  concerned.  Occasionally, 
however,  such  formalities  are  reviewed  and  sanctioned  by  the 
€Ourts.^° 


I  See  McEwen  v.  Woods,  11  Q.  B.  13,  Chapman,  63  N.  Y.  625  (1875).     See  also 

•where  the  broker  paid  calls  made  on  the  Porter  v.  Parks,  49  N.  Y.  564  (1872). 
stock  after  its  sale.  ^  Green  v.  Weaver,  1  Sim.  404  (182Y). 

-  Gheen    v.    Johnson,  90  Pa.   St.   38  See  Raulings  v.   Hall,  1   Carr.    <fe  P.  11 

<1879).  (1823). 

3  Brown  v.  Boorman,   11  CI.  <fe  F.   1  «  See  §  462. 
n344\                                                                       '"  Thus  a  usage  by  which  the  ultimate 
^  Phillips  V.  Noir,  59  111.  155  ;  Gheen  purchaser's  name  is  handed  to  the  seller, 
V.  Johnson.  90  Pa.  St.  38  (1879).  for  the  purpose  of  having  the  latter  exe- 
s' Jones  V.  Peppercorne,  5  Jur.  N.  S.  cute  a  transfer  to  the  former,  is  upheld. 
Pt.  1,  p.  140.  Sheppard  ?^  Murphy,  16  W.R.  948  (1868). 
'^'Pisher   v.   Brown,    104    Mass.    259  The  custom  of  giving  the  seller  time  to 
(1870);  Pearson  v.  Scott,  L.  R.  9  Ch.  D.  investigate  and  object  to  a  purchaser  may 
198  (1878)  be  insisted  on  by  the  seller.     Sumner  v. 
•"See  Butler  v.   Finck,  21   Hun,  210  Stewart,  69  Pa.  St.  321  (1871).    The  pur- 
<1880).     The  case  of  Taft  1).  Chapman,  50  chaser  may  be  compelled,  by  a  bill  m 
N  Y.  445  (1872),  seems  to  hold  that  the  equity,    to   register   the    transfer    made 
broker  is  not  liable  where  he  acted  with-  through  brokers.     Paine  v.  Hutchinson, 
out    knowledge    of  his   customer's   acts.  L.  R.  3  Eq.  Cas.  257  (1866). 
See  also  s  c.  under  name  Brownson  v. 

442 


CH.  XXV.]  STOCK-BROKERS.  [§§  454,  455. 

§  454.  Privity  of  contract  between  broker  and  opposite  par- 
ties.— A  broker  who  buys  or  sells  stock  does  so  subject  to  certain 
liabilities  towards  the  parties  to  whom  he  sells  or  from  whom  he 
buys.  If  he  does  not  send  in  the  name  of  his  customer,  he  is 
liable  on  the  transaction  as  though  he  were  the  principal  himself.^ 
He  has  been  held  liable  for  a  forgery  perpetrated  by  his  customer.^ 
"Where,  however,  the  broker  hands  in  the  name  of  his  customer, 
and  that  name  is  accepted,  the  broker  is  thereby  discharged,^  un- 
less, of  course,  the  name  is  unauthorized,  or  is  that  of  an  infant.* 
Upon  the  disclosure  by  the  broker  of  his  customer's  name,  the 
opposite  party  has  the  option  of  holding  either  the  broker  or  his 
customer  responsible,  but  cannot  hold  both.^ 

§  455.  Privity  of  contract  between  the  opposite  customers  — 
When  the  broker  of  one  customer  has  agreed  with  the  broker  of 
another  customer  on  the  terms  of  a  purchase  and  sale  of  stock, 
there  immediately  arises  a  privity  of  contract  between  the  two 
customers.  The  purchasing  customer  is  liable  to  the  selling  cus- 
tomer for  all  calls  and  liabilities  arising  on  the  stock  after  the 
broker's  contract  is  made,  if  the  selling  customer  is  obliged  to  pay 
such  liabilities  by  reason  of  his  being  the  registered  stockholder.® 
So  also  the  purchasing  customer  may  hold  the  selling  customer 
responsible  for  the  carrying  out  of  the  contract.'     It  has  been 


'  Wynne  v.  Price,  3  De  G.  <fe  Sm.  310  option  remains  open  until  the  name  of  the 

(1849).  undisclosed  principal  is  given.      It  is  for 

^  Royal  Exchange  Ins.  Co.  v.  Moore,  the  jury  to  say  which  one  the  opposite 

1 1  Week.  Rep.  592.     The  broker  herein  customer  gave  credit  to,  irrespective  of  a 

sold  in  his  own  name,  but  the  opposite  Stock    Exchange   custom.     Mortimer    v. 

party  knew  he  acted  as  a  broker.  McCallan,  6  Mees.  <fe  W.  58  (1840). 

^  Maxted  v.  Paino  (2d  action),  L.  R.  6  ^  Hawkins  v.  Maltby,  L.  U.  Ch.  App. 

Ex.  132  (1871),  holding  that  the  broker  200  (1869);  affirming  s.  c,   L.  R.  6    Eq. 

does  not  guarantee  his  customer's  respon-  505.     Evans  v.  Wood,  L.  R.  5  Eq.  Cas.  9 

sibility,  nor  that  he  is  the  real  purchaser.  (1867);  Hodgkinsou  v.  Kelly,  L.  R.  6  Eq. 

So  also  of  the  stock-jobber.     Grissell  v.  Cas.  496  (1868);  37  L.  J.  (Ch.)  837;  Rem- 

Bristowe,  L.  R.  4  C.  P.  36  (1868).   Contra,  frey  v.  Rutter,  1  Ell.,  Bl.  <fe  lai.  887  ( 1 858 ); 

Cniso  V.  Paine,  37  L.  J.  (Ch.)  711.  Allan  v.  Graves,  39  L.  J.  157  (1870).     A 

*  See  §  446.     Broker  handing  in  the  Stock    Exchange    custom,    malving     the 
name  of  a  customer  witliout  authority  is  broker  a  principal,  does   not  jireveiit  the 
himself  liable.     Maxted  v.  Norria,  21   L.  customer  suing  as  principal.     Langton  v. 
T.  535.     C/.  Shepherd  v.  Gillespie,  L.  R.  Waitc,  16  W.R.  508  (1868).     Refusal   of 
I  Eq.  Oas.  293  (1867).  directors  to  register  the  sale  does  not  en- 

*  Watson  V.  Miller,  11  Week.  Notes,  able  the  purcliasing  customer  to  recover 
18(1876).  A  custom  or  usage  releasing  back  the  purchas'^  price.  Stray  »».  Uus- 
thc    broker   from   this    liability    is   void,  sell,  1  El.  it  El.  888(1859). 

Mugf-e  V.  Atkinson,   2   Mees.    &   W.  440  '  Even   though   the   selling    customiT 

(1837).     Cf.  Jones  v.  IJttledale,  1  Nev.  &  did  not  authorize  the  use  of  his  name,  but 

Per.  677  (1837),  the  sale   being  of  hemp,  knew  of  it  and  did  not  object.    Sheplierd 

Also  Thomson  v.   Davenport,  9    Barn,  it  v.  Gillespie,  L,  R.  5  Eq.  Cas.  293  (1867). 
Or.  78  (1829),  holding  that  the  purchaser's 

443 


§§456,457.]  STOCK-BROKERS.  [CH.  XXV. 

held  that  the  remedy  may  be  an  action  at  law^  or  in  equity. 
The  rio-ht  of  set-off  for  other  debts  applies  as  between  the  two 
customers/  but  not  for  debts  due  from  one  of  the  brokers  to  tlie 
opposite  customer.^ 

§  456.  Intervening  siib-lroliers  and  sub  customers. — Where  a 
customer's  broker  employs  another  broker  to  transact  the  busi- 
ness, the  customer  cannot  compel  the  second  broker  to  complete 
the  contract  as  he  might  compel  the  first  broker.^  The  second 
broker  cannot  claim  a  lien  on  the  stock  for  debts  due  him  from 
the  first  breaker."  If  the  first  broker  merely  introduces  the  par- 
ties, he  cannot  charge  a  commission  therefor,  although  custom 
allows  it.''  The  real  customer  may  hold  an  intermediate  customer 
liable. 

§  457.  Purchases  or  sales  on  margins— Br oTcer  as  a  pledgee. 

— By  far  the  larger  part  of  a  stock-broker's  business  consists  of 
purchases  and  sales  of  stock  on  what  is  called  a  '*  margin."  ^  The 
customer  deposits  with  the  broker,  as  security,  a  sum  of  money, 
equal  to  but  a  small  part  of  the  value  of  the  stock  involved. 
This  sum  of  money  is  the  "margin."  If  the  customer's  order  is 
to  purchase,  then  the  broker  keeps  both  the  margin  and  the  pur- 
chased stock  as  security  against  loss  in  the  final  closing  of  the 
transaction.  If  the  customer's  order  is  to  sell,  then  the  broker 
sells,  but  having  no  stock  to  deliver  he  borrows  the  same  from 
other  parties,  and  delivers  it  to  the  purchaser,  the  broker  still 
keeping  the  margin  as  security.  Frequently  no  stock  passes,  nor 
is  intended  to  pass,  but  merely  the  ultimate  profit  or  loss  called 
"  differences  "  is  paid  ;  the  losing  customer  loses  the  whole  or  part 
of  his  margin,  the  winning  customer  getting  back  his  margin  and 
also  the  profits,  less  commissions.   This  is  a  gambling  contract,  and 

'  Street  v.  Morgan,  L.  R.  4  Ex.  384.  '   Fisher   v.    Brown,    104   Mass.    259 

See  also  Davis  v.  Haycock,  L.  R.   4  Ex.  (1870). 
373  (1869).  ''  Gibson  v.  Crick,   1   Hurl.  &  C.  142 

'  Sheppard  v.  Murphy,  16  W.  R.  948  (1862).     He  may  hold  the   intermediate 

(1868).  customer  or  agent  liable  for  set-off  due 

3  Carr  v   Hinchlifif,  4  Barn.  &  Cr.  547  from  the  latter  to  the  broker.     Jaycox  v, 

(1825).  Cameron,  49  N.  Y.  645  (1872). 

*  Fish  V.  Kempton,  7  C  B.  687  (1849).  «  A  margin  "  means,  in  the  broker's 
See  also  Sweeting  v.  Pearce,  7  C.  B.  N.  lexicon,  additional  collateral  security 
S.  449  (1859).  Unless,  possibly,  where  against  loss  to  the  broker,  while  he  is 
the  customer  supposed  the  opposite  broker  •  ■  •  carrying  stock  for  his  employ- 
was  the  Driucipal.  See  Kelley  v.  Munson,  er."  McNeil  v.  Tenth  Nat.  Bk.  of  N.  Y., 
7  Mass:  318  (1811).  55  Barb.  59  (1869). 

5  Booth  V.  Fieldinc:,  1  Week.  Notes, 
245  (1866). 

444 


CH 


XXV.] 


STOCK-BROKERS. 


[§4 


?( 


like  all  gambling  contracts,  whether  in  or  out  of  a  stock  ex- 
change, is  not  enforceable.^  But  a  purchase  or  sale  of  stock  on 
margins,  where  there  is  no  proof  of  an  intent  not  to  actually  de- 
liver the  stock,  is  legal.^  The  relation  between  a  customer  and 
his  broker  in  cases  where  the  broker  buys  for  his  customer  and 
retains  the  stock  as  security,  is  the  relation  of  a  pledgor  towards 
a  pledgee,  the  customer  being  the  pledgor,  the  broker  being  the 
pledgee,  and  the  stock  being  the  article  pledged.^  Some  of  the 
most  important  questions  connected  with  brokers'  contracts  arise 
out  of  this  pledgee  relationship.  This  subject,  however,  is  fully 
treated  in  the  following  chapter.  Like  an  ordinary  pledgee  of 
stock,  the  broker  may  have  the  stock  transferred  into  his  own 
name ;  *  he  is  not  allowed  to  repledge  the  stock ;  ^  and  he  can  put 


1  McBurney  v.  Martin,  6  Conn.  .502. 

2  See  Ch.  XX,   where  the  character, 
eflfect,  and  non-enforceability  of  a  broker's 
gambling    contracts   are    fully    treated. 
A   "  margin "    transaction  is  not  neces- 
sarily   gambling  and  invalid.     The  im- 
portant case  of    Hatch    v.    Douglas,    48 
Conn.  116  (1880),  clearly  sets  out  the  le- 
gality of  such  contracts.    The  court  said : 
"  It  is  pretty  evident  that  the  parties  did 
not    contemplate  that   the    stock  should 
be  actually  transferi-ed  to  the  defendant. 
•    •    •    Thedefendant  [customer],  through 
his  agents,   the  plaintiffs,    actually  pur- 
chased the  stock,  and  there  was  an  actual 
delivery — not  to  the  principal,  but  to  the 
agents  for  tlie    principal."     The   brokers 
knew  "that the  defendant  was  speculat- 
ing, and  that  they  advanced  him  money 
for  that  purpose.     But  that  was   neither 
ille:;al    nor   immoral.     •     •     ■     No  case 
has  been  decided  which  declares  such  a 
contract  illegal.     If  we  should  so  hoM, 
it  would  be  difficult  if  not  impossible  to 
draw  the  line  between  legal   and  illegal 
transactions." 

3  Markham  v.  Jaudon,  41  N.  Y.  235 
0  869);  Baker  t/.  Drake,  66  N.  Y.  518 
(1876).  The  broker  is  bound  to  keep 
constantly  on  hand  the  amount  of  slock 
80  held  on  margin,  /.  e.  pledged.  Taussig 
V.  Hart,  58  N.  Y.  425  (1874).  In  fact, 
the  broker  is  oblii'ed  to  conform  to  the 
rules  governing  pledgees  of  stock,  a  sub- 
ject treated  in  Ch.  XXVI.  The  custom- 
er as  pledgor  may  claim  his  stock  from 
the  broker's  assignee  for  tlie  benefit  of 
creditors  if  the  customer  can  identify  it. 
Chamberlain  v.  Greenleaf,  4  Abb.  N.  C. 
178  (1878);  see  Boylan  v.  lluguet,  8  Me. 
345  (1873). 


*  Horton  v.  Morgan,  19  N.  Y.   170. 

^  Dykers  v.  Allen,  7  Hill,    497,  where 
it  was  untlerstood  between    a    firm    of 
brokers  and  its  customers,  for  whom,  and 
on  whose  order,  it  bought  stocks  on  the 
security  of  a  margin,  that  the  firm  might, 
according  to  the   usual   course   of  busi- 
ness, pledge  or  hyjfothecate   as   security 
for  loans  to  the   firm   the    stocks    thus 
bought,    held    that    a    mere    pledge    of 
such  stocks  would  not  be  of  itself  a  con- 
version.    Chamberlain    v.    Greenleaf,    4 
Abb.  N.  C.  178(1878);  see  also  Lawrence 
V.  Maxwell,  58  Barb.  511;  6  Lans.  469; 
53  N.   Y.   19.     In   Wood   v.   Hayes,    15 
Gray,  375,  it  was  held  that  "  a  broker  who 
advanced  money  to  buy  stock  for   anoth- 
er, and  held  it  in  his  own  name,  might, 
so  long  as  he  had  not  been   paid    or   ten- 
dered the  amount  of  his  advances,  pledge 
it  as  security  for  his  own  debt  to  a  third 
person,  without  making  himself  liable  to 
an  action  by  his  employer,  and   tliis  up- 
on the  ground  that  the  contract  was  con- 
ditional to  deliver   the    shares    upnn  the 
payment  of  tiic   money."     Approved    in 
Covell   V.    Loud,   136    Mass.    41     (1883), 
where  it  was  held    that    where   the   cus- 
tomer was  unable  to  advance  further  mar- 
gin and  tells  the  broker  to  do  the  best  ho 
can,  he  may  sell  without  notice.     The  de- 
cided   weight    of     authority,    however, 
holds  that  unless  the  power  is  expressly 
given    to  the    broker    to    repledge    the 
stock,  he  cannot  legally  repledge  it.      See 
Ch.    XXVI.     This,    however,    does  not 
artcct  the  rights   of  iyrepledgee  or  a  pur- 
chaser of  the  stock  from  thi;    broker.     A 
bona  Jide    transferee    absolutely    or    in 
pledge  from  a   broker   holding    his   cus- 
tomer's stock  in   pledge   is  protected   to 

445 


§§458,459.]  STOCK-BROKERS.  [CH.  XXV. 

his  customer  in  default  only  by  tendering  the  stock  and  demand- 
ing payment  for  their  whole  value  less  the  margin.^ 

§  458.  Broker's  rights  and  duties   on  failure  of  margin. 

When  the   "  margin  "  which  the  customer  deposits  with  his 

broker  happens  to  become  exhausted  by  the  fluctuations  of  the 
market  adversely  to  the  customer,  the  difficult  questions  arise  as 
to  the  several  rights  and  duties  of  the  broker  and  of  the  cus- 
tomer. If  the  broker  is  under  orders  to  close  the  transaction 
when  the  margin  becomes  exhausted,  he  of  course  is  obliged  to 
do  so.^  But,  otherwise,  the  rule  is  that  the  broker  cannot  sum- 
marily elose  the  transaction,  even  though  he  has  fear  of  greater 
loss,  involving  a  loss  by  himself.  He  is  obliged  to  demand  fur- 
ther margin  from  his  customer,  at  the  same  time  notifying  him 
that  the  previous  margin  is  exhausted  ;  also  that  in  case  the  mar- 
gin is  not  made  good  that  he  will  close  the  transaction,  holding 
the  customer  liable  for  the  loss ;  also  stating  the  time  and  place 
of  such  threatened  sale.^  The  notice  must  be  given  a  reasonable 
time  before  such  closing  of  the  transaction,  and  notice  may  be 
sent  by  mail.*  If  the  broker  fails  to  comply  with  these  rules, 
and  sells,  he  is  guilty  of  conversion  of  the  stock.^  Where  the 
broker  is  merely  authorized  to  sell,  he  is  not  bound  to  sell.^ 

§  459.  What  will  excuse  notice  and  demand  for  more 
margin. — All  these  rights  of  the  customer  to  notice  of  failure  of 
margin ;  demand  of  more  margin  ;  notice  of  intent  to  sell,  and 
of  time  and  place  of  sale,  may  be  waived,  and  brokers  generally 


the  extent  of  the  transfer,  the  transfei-ee  mey,  34  Md.  182  (1870),  and  see  Ch. 
having  no  notice  of  the  fact  that  the  XXVI.  Leaving  notice  at  office  held  in- 
stock  was  held  in  pledge  by  the  broker,  sufficient  where  it  did  not  reach  the  cus- 
Thompson  V.  Toland,  48  Cal.  99  (1874);  tomer.  Bryan  «;.  Baldwin,  52  N.  Y.  232 
McNeil  V.  Tenth  Nat.  Bk.  of  N.  Y.  46  N.  (1873). 

Y.    325  (1871);    Zulick  v.   Markham,    6  *  Worthington  t).  Tormey,  34  Md.  182 

Daly,  129  (1875),  and  see  many   cases  in  (1870).     Two  days'  notice  held  sufficient. 

§  321.     These  cases  apply  equally  wheth-  Stewart  v.  Drake,  46  N.  Y.  449  (1871). 

er  the  person    transferring   contrary   to  *  j^^ker  w.  Drake,  66  N.  Y.  518(1876). 

law  is  an  agent  or  a  pledgee,  and  equally  Cf.  Gregory  v.   Wendall,   40   Mich.   432 

also  whether  he  sells  or  only  repledges.  (1879),    involving    a    purchase   of  corn. 

'  Read  v.  Lambert,  10  Abb.  Pr.N.  S.  Stocks  alone,  in  brokers'  transactions,  give 

428  (1871).  rise    to    the    relation    of    pledgor    and 

'-*  See  t^  448.  pledgee. 

»  Markham  v.  Jaudon,  41  N.  Y.    235,  "^  Robinson  v.  Norris,  51  How.  Pr.  442 

overruling  Hanks  v.  Drake,  49  Barb.  186  (1874);  Esser  v.  Linderman,  71   Pa.    St. 

(1867),  and  Sterling  I).  Jaudon,  48  Barb.  76(1872);   Cf.  Harris  v.  Tumbridge,  83 

459.     See  also  Kenfield  v.  Latham,  2  Cal.  N.  Y.  92  (1880). 
Lg,  Rec.  235.     Cf.  Worthington  v.  Tor- 

446 


CH.  XXV.] 


STOCK-BROKERS. 


[§  ^60. 


require  their  customers  to  sign  written  contracts  to  that  effect.^ 
It  is  doubtful  whether  the  death  of  the  customer  will  authorize 
the  broker  to  close  the  transaction  without  notice.^  A  custoni 
of  brokers  to  dispense  with  these  notices  is  void,  and  not  binding 
on  the  customer.^  The  fact  that  a  panic  occurs,  or  unusual  fluctua- 
tions of  the  market  happens,  do  not  excuse  a  broker  from  giving 
such  notice.^ 

§  460.  Customer's  remedies  and  damages  herein. — For  an 
unauthorized  sale  by  a  broker  of  stock  held  upon  a  margin,  the 
customer  has  ample  remedies.  He  may  claim  the  benefit  of  the 
sale  or  may  claim  the  value  of  the  stock.^  Or  the  customer  may 
require  the  broker  to  replace  the  stock,  and  upon  his  failure  so  to 
do,  the  customer  may  replace  it  himself  and  charge  the  broker 
with  the  loss.^     Or  tlie  customer  may  recover  the  advance  in  the 


'  Thus,  a  written  authority  to  the 
brokers  "  to  sell,  at  their  discretion,  at 
public  or  private  sale,  without  any  notice 
whatever,  the  stocks  or  gold  which  they 
might  be  carrying  for  the  plaintiff,  when- 
ever the  margiu  should  fall  below  "  a  cer- 
tain figure,  waives  all  the  customer's 
rights  herein.  Wicks  v.  Hatch,  62  IS. 
Y.  535  (1875).  See  also  Cameron  v.  Durk- 
heim,  55  N.  Y.  425  (1874).  The  customer 
may  waive  his  rights  alter  the  broker  has 
made  the  unauthorized  sale.  Stewart  v. 
Drake,  46  N.  Y.  449  (1876)  ;  Milliken  v. 
Dehon,  27  N.  Y.  364  (1863).  But  au- 
thority "  to  close  the  account,  without 
notice,  by  purcliase  or  sale,  at  public  or 
private  sale,"  does  not  waive  right  to 
notice  of  failure  of  margin  and  demand 
for  more.  Stenton  v.  Jerome,  54  N.  Y. 
480  (1873)  ;  Keufield  v.  Latham,  2  Cal. 
Leg.  Rec.  235.  A  common  form  of  the 
contract  which  the  broker  requires  the 
customer  to  siirn  is  the  following  : 

" hereby  agree  to  maintain  with 

you  at  all  times  a  margin  of  per 

centum  of  the  i)ar  value  nt'  all  stocks  and 
bonds   against  which  you  have  made  or 

may  hereafter  make  advances  to and 

a  like  margin  on  stocks  or  bonds   which 

have    borrowed  or    may    hcreiifter 

borrow  through  you  to  make  deliveries 
on  sales  made  for account  or  other- 
wise. 

"  In  case margin  should  become 

impaired  and  the  Siime  is  not  proiiiptly 
made  good  in  response  to  personal  notice 
or  notice  sent  by  wire  or  letter  and  direct- 


ed to 


usual  address,  you  are  author- 


ized in  your  discretion  to  buy  or  sell  at 
the  N.  Y.  Stock  Exchange  or  at  public  or 
private  sale,  without  further  notice,  such 
securities  as  may  be  necessary  to  place 
the  account  in  condition  satisfactory  to 
you,  or  to  close  the  same  entirely,  as  you 
may  prefer. 

"  In  case  of  my  decease  you  are  hereby 
authorized  to  close  my  account  by  pur- 
chase or  sale  of  securities  as  the  same  may 
require. 


"  The  broker  will  be  protected  in  con- 
tinuing the  transaction  until  personal 
representatives  are  appointed.  Hess  v. 
Rau,  95  N.  Y.  359  (1884).  Cf.  Lacey  v. 
Hill,  L.  H.,  8  Ch.  App.  921  (1873). 

3  Markham  v.  Jaudon.  41  N.  Y.  235 
(1869);  Taylor  v.  Ketchum,  35  How.  Pr. 
289  (1861)  ;  8.  0.  5  Robt.  507.  Contra, 
Applemanv.  Fisher,  34  Md.  540(1871), 
a  case  of  a  gold-bi-oker.  Also  Colket  v. 
Ellis,  10  Phil.  375  (1875),  where  both 
parties  were  brokers  and  knew  the  cus- 
tom. If  the  customs  are  expressly  made 
a  part  of  the  contract,  insolvency  of  the 
customer  authorizes  sale  without  notice, 
such  bein^  the  custoni.  Lacy  v.  Hill, 
L.  II..  18  Eq.  182  (1874). 

•t  Markham  v.  Jaudon,  41  N.  Y.  235 
(1869);  Brass  v.  Worth,  40  Barb.  648 
(1863);  Hitter  v.  Cusiiman,  7  Hoht.  294 
(1867). 

'  Taussig  V.  Hart,  68  N.  Y.  425  (1874). 

«  Baker  v.  Drake,  53  N.  Y.  211,  217 
(1873);  Colt  V.  Owens,  90  N.  Y.  368 
(1882). 

447 


§§461,  462.]  STOCK-BROKERS.  [CH.  XXV. 

market  price  from  the  time  of  the  sale  up  to  a  reasonable  time  to 
replace  the  stock,  after  notice  of  the  sale.^  The  unauthorized  sale 
by  the  broker  herein  is  not  necessarily  a  fraudulent  sale.^  The 
suit  should  be  at  law,^  and  demand  and  tender  need  not  be 
alleged/ 

§  461.  Broher^s  remedies  and  damages  herein. — l!^everthe- 
less,  although  the  broker  makes  an  unauthorized  closing  of  the 
transaction,  yet  he  may  compel  his  customer  to  pay  him  the  loss 
incurred  therein,  and  the  customer  may  set  up,  as  a  counterclaim 
to  the  broker's  action,  the  beneiits  which  he  would  have  realized, 
if  the  unauthorized  act  had  not  occurred.^  Where  the  broker's 
act  is  strictly  according  to  law,  he  is,  of  course,  entitled  to  recover 
from  his  customer  any  loss  that  has  been  sustained  in  excess  of 
the  margin.^ 

§  462.  Broker's  customs  and  usages. — It  has  been  a  greatly 
disputed  question  as  to  how  far  and  when  a  custom  or  usage 
among  stock-brokers  or  at  stock  exchanges,  may  enter  into  and 
govern  stock-brokers'  contracts.  At  an  early  day  the  rule  was 
laid  down  by  the  English  courts,  that  he  who  buys  or  sells  stock 
through  a  stock-broker  must  be  considered  as  dealing  with  him 
according  to  the  usages  of  the  market  in  which  he  deals,  and  the 
customs  which  prevail  in   relation  to  that  species  of  business.' 


*  Colt  V.  Owens,  90  N.  Y.  368  (1882),  body."     To  the  same  effect  see  Bayliffei;. 

holding   that   prices  within  thirty  days  Butterworth,    5     Railw.    Cas.    283,    per 

after  the  sale  is  a  reasonable  rule.     See  Parke,  B.;  Mitchell  i-.  Newhall,  15  Mees. 

also  Gruman  v.  Smith,  81  N.  Y.  25  (1880).  &  W.  308  (1846);    Maxted   v.  Paine  (id 

Capron    v.    Thompson,    86    N.    Y.    418  action),  L.  R.,  6  Ex.  132  (1871) ;  Grissell 

(1881),     Cf.  Andrews  v.  Clerke,  3  Bosw.  v.  Bristowe,  L.  R.,  4  C.  P.  36,  47  (1868); 

585  (1868).  Appleman  v.  Fisher,  34  Md.  640  (1871); 

•^  Stratford    v.    Jones,    97   N.  Y.  586  Coles  v.  Bristowe,  L.  R.,  4  Ch.  App.  3  ; 

(1885).  Stray  i\  Russell,  1  El.  &  El.  888  (1869) ; 

3  Delevan  v.  Simonson,  3  J.  <fe  S.  243  Nickalls  v.   Merry,   L.   R.,  7  H.   L.    530 

(1873)  (1876).     Cf.  Pollock  v.  Stables,  12  Q.  B. 

•1  Clark    t;.  Meigs,  22  How.   Pr.    240  765  (1848);  Taylor  «.  Stray,  2  C.  B.  N.  S. 

(1873);  13  Abb.  Pr.  467.  197(1857);  Morrice  r.  Hunter,  14  L.  T. 

5  Gruman  v.  Smith,  81  N.  Y.  25  897 ;  Kingsbury  ?^.  Kirwin,  43  Super.  Ct. 
(1880).  See  also  Capron  v.  Thompson,  451  (1878);  77  N.  Y.  612.  But  the 
86  N   Y.  418  (1881).  usage  must  not  be  illegal.     Robinson  v. 

6  Sohepeler  v.  Eisner,  3  Daly,  11  Mollett,  L.  R.,  7  H.  L.  802,  818,  826 
(1869).  (1874(;  Hodgkinson  v.  Kelly,37  L.  J.(Ch.) 

•>  In  the  case  of  Biederman  v.  Stone,  837  (1868);  Taylor  v.  The  Great  Indian 
L.  R.,  2  Com.  PI.  504  (1867),  the  curt  Peninsula  Ry.  Co.,  4  De  G.  &  J.  559,  573 
says,  "  It  has  been  held  in  a  great  num-  (1859).  Nor  be  the  custom  established  by 
ber  of  cases  that  persims  buying  or  selling  that  one  traosadion.  Westropp  t).  Sola- 
stock  or  shares  through  members  of  the  m;m,  8  C.  B.  345  (1849).  It  must  be 
Stock  Exchange,  are  bound  by  the  rules  reasonable.  Goldschmidt  ?;.  Jones, 32  L.T. 
■which   govern  the  transactions    of    that  N.  S.  220.     The  usage  may  show  how  the 

448 


CH.  XXV.] 


STOCK-BROKERS. 


[§  ^62. 


The  American  rule  is  more  guarded,  and  allows  usages  of  brokers 
to  interpret  the  language  of  the  contract,  and  where  it  is  obscure 
to  ascertain  its  nature  and  extent,  but  not  to  varj  its  terms,  in- 
troduce new  conditions,  or  authorize  acts  contrary  to  its  provisions.^ 
The  customer  may,  however,  by  express  agreement,  waive  his 
common  law  rights  and  allow  usage  to  govern  the  transaction.^ 


business  is  to  be  transacted,  but  must  not 
be  unreasonable.  Rosenstock  v.  Torniey, 
32  Md.  169  (1869),  holding  also  tliat  the 
broker's  correspondence  with  his  city 
broker  is  not  competent  to  prove  pur- 
chases and  sales.  A  usage  that  is  con- 
trary  to  an  Act  of  Parliament,  requiring 
the  broker  to  notify  his  customer  of  the 
particular  numbers  of  the  shares  pur- 
chased on  his  account,  is  void.  Perry  v. 
Barnett,  L.  R.,  15  Q.  B.  D.  388(1885). 
Cf.  Seymour  v.  Bridge,  L.  R.,  14  Q.  B.  !>. 
460(1885). 

'  Parsons  v.  Martin,7YMass.l  11  (1858); 
Happer  v.  Sage,  12  N.  Y.  Week.  Dig.  78 
(1881);  Lombard©  v.  Case,  30  How.  Pr. 
117  (1865);  1  Add.  Contr.  (4th  Am.  fr. 
8th  Eng.  ed.  1883),  marc:,  p.  60,  c.  2:  21 
Am.  L.  Keg.  N.S.  176.  CJ.  Winansw.Has- 
sey,48  Ca).  634  (1874).  The  case  of  Baker 
V.  Drake.  66  N.  Y.  518  (1876),  holds  that 
stock-brokers'  usage  cannot  add  to  or 
make  part  of  the  contract.  Cf.  Horton 
V.  Morgan,  19  X.  Y.  170(1859);  Peckham 
V.  Ketchum,  5  Bosw.  506  (1859);  White- 
house  V.  Moore,  13  Abb.  142  (1861).  If 
there  is  doubt  as  to  the  existence  of  the 
usage  the  question  is  for  the  jury.  Dent 
V.  l^ickalls,  29L.  T.  636  (1873).  Upon 
the  effect  of  usage  in  other  transactions, 
Bee  Cora  Ex.  Bk.  v.  Nassau  Bk.,  91  N.  Y. 
74  (1883) ;  Richmond  v.  Union  Steamboat 
Co.,  87  JS.  Y.  240  (1881) ;  Walla  v.  Bailey, 
49  N.  Y.  464  (1872);  Vail  v.  Rice,  5  N. 
Y.  155(1851);  Delafield  v.  State  of  111., 
26  Wend.  192(1841);  Dawson  v.  Kittle, 
4  Ilil!,  107(1843);  Boardman  tr.  Gaillard, 
1  Ihiu.  217  (1874);  Minn.  C.  Ry.  Co.  v. 
Morgan,  52  Barb.  217  (1868);  Sipperly 
1,.  Stewart,  50  Barb.  62,  68  (1867); 
Duiiuid  V.  Edwards,  50  Barb.  288  (1867); 
Haskitis  v.  Warren,  115  Mass.  514,  536 
(1874);  Dickinson  v.  Gay,  89  Mass.  29; 
Parrott  v.  Thatcher,  26  Mass,  426  (1830); 


Greenleaf  «.  Moody,  13  Allen,  363  (1866) ; 
Tillcy  V.  County  of  Cook,  103  U.  S.  155 
(ISSd);  Natl.  Bk.  v.  Burkhardt,  100  U. 
S.  686  (1879);  Vermilye  v.  Adams  Ex. 
Co.,  21  Wall.  138  (1874);  Forrester  v. 
Boardman,  1  Story,  43(1839);  Oelrichs 
V.  Ford,  23  How.  49  (1859)  ;  Renner  v. 
Bk.  of  Columbia,  9  Wheat.  582(1824); 
Cape  V.  Dodd,  13  Pa.  St.  33  (1850);  Cor- 
bett  V.  Underwood,  83  111.  324  (1876); 
Phillip  V.  Moir,  59  111.  156;  Bissell  v. 
Rvan,  23  111.  566  (1860):  Williams  v, 
Gilman,3  Maine.  276(1825);  Partridge w. 
Forsythe,  29  Ala.  200  (1856) ;  Halwerson 
V.  Cole,  1  Spear  (S.  C),  321  (1843);  Hagg 
V.  Snaith.  1  Taunton,  347  (1808);  Gibson 
V.  Crick.  1  H.  &  C.  142  (1862);  Fleet  v. 
Murton,  L.  R.,  7  Q.  B.  126  (1871). 

^  Van  Brunt,  J.,  in  Robinson  v,  Norris, 
51  How.  Pr.  442  (1874),  says,  in  his  clear 
and  decisive  diction,  "  It  has  been  settled 
by  our  Court  of  Appeals  that  no  custom 
among  brokers  can  deprive  parties  of 
rights  -which  the  law  gives  them,  but 
they  have  not  decided  that  these  rights 
may  not  be  waived  by  agreement.  I 
think  it  perfectly  clear  that  if  the 
broker  informs  his  customer  of  the  terms 
upon  which  he  will  act  for  him  as  his 
broker,  and  in  view  of  that  notice  the 
customer  gives  an  order,  he  is  bound  by 
the  terms  on  which  the  broker  proposed 
to  act  for  him."  See  also  Baker  v.  Drake, 
66  N.  Y.  578  (1876).  See,  in  general, 
Colket  V.  Ellis,  32  Leg.  Int.  82 ;  Sutton  v. 
Tatham,  10  Ad.  &,  El.  25 ;  Bayley  v. 
"VVilkins,  18  L.  J.  (C.  P.)  273  ;  Duncan  v. 
Hill,  L.  R.,  6  Ex.  255;  Sheppard  v. 
Murphy,  Jr..  L.  R.,  2  Eq.  569  ;  Bowring 
t-.  Shepherd,  L.  R.,6Q.  B.  309;  Evans®, 
Wain,  71  Penn.  St.  69;  Sweeting  v.  Pearce, 
7  C.  B.  N.  S.  449  ;  Shaw  v.  Spencer,  100 
Mass.  382 ;  Day  v.  Holmes,  103  Mass.  308. 


[29] 


449 


CHAPTER  XXVI. 


PLEDGES  AND  MORTGAGES  OF  STOCK. 


464. 
465. 

466. 


46T. 


§  463.  Definitions  of  pledge,  mortgage, 
and  lien. 

Mortgages  and  pledges  of  stock. 

How  a  pledge  of  stock  arises  or 
is  made. 

Pledgee  may  have  the  stock  regis- 
tered in  his  own  name  or  the 
name  of  another. 

Stock-broker  purchasing  stock  for 
a  customer  on  a  margin  is  a 
pledgee. 

468.  Miscellaneous  rights  of  pledgee. 

469.  Pledgee  need  not  retain  or  return 
to  the  pledgor  the  identical  cer- 
tificates or  shares  of  stock  which 
were  pledged,  but  must  have 
equal  quantity  always  on  hand. 

4*70,  Pledgee's  liabiiily  on  subscription 
and  statutory  liability  on  stock. 


§471.  Pledgee  has  no  right  to  sell  or 
repledge  the  stock,  even  tempo- 
rarily. 
4*72.  Purchasers  or  pledgees  of  stock 
from  pledgee  with  notice  are  not 
protected. 

Bona  fide  repledgees  or  purchasers 
of  pledged  stock  are  protected. 

Pledges  by  agents,  trustees,  exec- 
utors, (fee,  legally  and  ill  breach 
of  trust. 

Pledgor's  remedies. 
476.  Pledgee's  remedies  when  debt  se- 
cured is  not  paid. 

Notice  of  sale  of  stock  by  pledgee 
to  apply  to  debt  secured. 

Formalities  of  sale. 

Pledgee  himself  cannot  purchase 
at  the  sale. 


473. 
474. 


475. 


477. 

478. 
479. 


§463.  Definitions  of  'pledge,  mortgage,  and  lien. — A  pledge 
■may  be  defined  to  be  a  delivery  of  personal  property  as  a  security 
for  some  debt  or  engagement.  A  mortgage  of  personalty,  on  the 
other  hand,  is  a  sale  witli  the  condition  attached,  tliat  if  the 
mortgagor  performs  some  act,  the  sale  shall  be  void.  In  a  pledge, 
the  title  remains  in  the  pledgor,  while  the  pledgee  has  a  special 
property  in  the  thing  pledged.^  In  a  mortgage,  the  title  passes 
to  the  mortgagee,  subject  to  being  revested  in  ihe  mortgagor 
upon  payment  of  tlie  debt.  In  pledges,  the  thing  pledged  must 
be  delivered  to  the  pledgee.  In  mortgages,  generally  the  posses- 
sion of  the  thing  mortgaged  remains  with  the  moitgagor.  A 
pledge  differs  from  a  lien,  in  that  a  pledge,  by  implication, 
gives  the  pledgee  a  power  to  sell,  on  due  notice,  in  case  the  debt 
is  not  paid  on  maturity,  while  a  lien  gives  merely  the  power  of 
detention  until  the  debt  is  paid.^ 

'  See  2  Parsons  on  Contracts,  113.  consistent  with  the  retention  of  the  pos- 

*  Donald  v.  Suckling,  L.  R.,  1  Q.  B.  session  by  the  person  entitled  to  the  lien; 

604,  the  court  saying  :  "  In  the  case  of  a  whereas,  in  the  case  of  a  pledge  or  pawn 

simple  lien  there  can  be  no  power  of  sale  of  goods,  to  secure  the  payment  of  money 

or  disposition  of  the  goods  which  is  in-  on  a  certain  day,  on  default  by  the  pawnor, 

450 


CH.  XXVI.] 


PLEDGE  OF  STOCK. 


[§  464. 


§  4G4.  Mortgages  and  jyledges  o/sfoc7c. —Shares  of  stock  may 
be  the  subject  of  a  mortgage  or  pledge.^  A  mortgage  of  stock, 
however,  is  not  often  made,  and  unless  there  is  a  clear  intent  to 
the  contrary,  the  courts  "will  treat  the  transaction  as  a  pledge, 
rather  than  a  mortgage.^  In  fact  it  is  difScult  to  ascertain  from 
the  cases,  how  shares  of  stock  may  be  mortgaged,  and  a  few  early 
decisions,  which  held  certain  transactions  to  be  mortgages,  would, 
to-day,  be  held  to  be  pledges.^     There  are  but  few  clear  cases  of 


the  pawnee  may  sell  the  goods  deposited, 
and  realize  and  become  a  trustee  for  the 
overplus  for  the  pawnor,  or  even  if  no 
day  of  payment  be  named,  he  may,  upon 
wai'ing  a  rensonable  time,  and  taking  the 
proper  steps,  realize  his  debt  in  like  man- 
ner." 

'  "  Nothing  is  better  settled  than  that 
shares  in  the  capital  stock  of  a  corpora- 
tion are  the  subject  of  pledge."  Dayton 
^ational  Bank  v.  Merchants  Natl.  Bk.,  37 
O.  St.  208  (18S1).  "  It  was  formerly 
doubted  whether  it  [stock]  could  be  the 
subject  of  a  pledge,  but  it  is  now  held  that 
it  can  be."  Newton  v.  Fay,  92  Mass.  505 
(1865).  The  pledge  maybe  for  a  run- 
ning liability,  and  is  not  released  by  an 
extension  of  any  particular  debt.  Mer- 
chants Natl.  Bk.  V.  Hall,  83  N.  Y.  338 
(1881).  Stock  m;iy  be  given  by  the  debtor 
to  his  creditor,  to  sell  for  the  benefit  of 
the  creditor,  and  the  surplus  to  be  re- 
turned to  the  debtor.  Bt'ckwith  v.  Bur- 
rough,  13  R.  I.  294  (1881).  This  prob- 
ably makes  the  creditor  the  agent  of  the 
debtor.  The  pledge  may  be  to  secure 
the  carrying  out  of  a  contract.  Vaupell 
V.  Woodward,  2  Sandf.  Ch.  143  (1844), 
If  the  loan  secured  by  the  pledge  of  stock 
is  usurious,  the  pledgor  may  recover  back 
the  stfjck  without  payment.  The  pledge 
is  void.  Cousland  v.  Davis,  5  Bosw.  619 
(1 859).  The  pledge  of  stock  may  provide 
that  for  part  payments  of  the  debt,  the 
pledgor  may  withdraw  part  of  the  stock 
pledged.  First  Natl.  Bk.  v.  Root,  8  North- 
east Rep.  105  (Ind.,  1886). 

*  Newton  v.  Fay,  mpra ;  Nabring  v. 
Bank  of  Mobile,  58  Ala.  204  ( 1877) ;  Mer- 
ciiants  Bii.  v.  Cook,  4  Pick.  405  (1826); 
Mechanics,  <fec..  Association  v.  Con- 
over,  14  N.J.  Eq.,  219(1862). 

»  Tiius  in  Huntington  v.  Mather,  2 
Barb.  538  (1848),  the  court  truly  says: 
"There  are  two  leading  considiT.itions  to 
be  regarded  in  detern)ining  whether  the 
transaction  is  a  pledge  or  a  mortgage, 
namely;  the  title  and  tlie  po.ssession.     If 


it  is  a  mortgage,  the  legal  title  passes  to 
and  is  vested  in  the  creditor.  With  a 
pledge  it  is  different,  the  legal  title,  until 
a  sale  on  default  of  payment  or  redemp- 
tion, continuing  in  the  pledgor.  .  .  . 
The  essential  difference  as  to  matter  of 
right,  is  that  in  one  the  title  passes,  and 
in  the  other  it  does  not.  But  the  differ- 
ence in  substance  and  fact,  is  that  in  the 
case  of  a  pawn  or  pledge,  the  possession 
must  pass  out  of  the  pawnor,  but  in  the 
case  of  a  mortgagor  it  need  not."  The 
court,  however,  influenced  probably  by 
the  equities  of  the  case,  held  the  transac- 
tion to  be  a  mortgage,  and  that  the  right 
of  the  debtor  to  redeem  was  barred  by 
the  ten  year  Statute  of  Limitations.  In  the 
case  of  Smith  v.  49  and  56  Quai-ta  Min. 
Co.,  14  Cal.  242  (1859),  the  court  held 
the  transaction  to  be  a  mortgage  rather 
than  a  conditional  sale  of  the  stock.  The 
question  of  pledge  was  not  considered. 
Manns  v.  Brookville  Natl.  Bank,  73  Ind. 
243  (1881),  speaks  of  the  transaction  as  a 
mortgage,  and  Williamson  v.  New  Jersey 
Southern  R.  R.  Co.,  26  N.  J.  Eq.  398 
(1875),  says  that  such  a  mortgage  need 
not  be  recorded  in  the  municipal  clerk's 
office,  as  required  by  the  chattel  mort- 
gage act.  In  both  cases,  the  transaction 
might  better  have  been  treated  as  a 
pledge.  In  Adderly  «.  Storm,  6  Hill.  624 
(1844),  the  court  said:  "  1  have  already 
said  that  tins  was  not  a  pawn  or  pledge 
of  the  stock,  neither  was  it  strictly  a  mort- 
gage." At  the  present  day  it  would  be 
held  to  be  a  pledge.  Wilson  v.  Little,  2 
N.  Y.  443  (1849);  Haabrouck  v.  Vander- 
voort,  4  Sand.  74  (1850).  In  the  case 
Brewster  v.  Hartley,  37  Cal.  15  (1869), 
the  court  says  :  "  The  transfer  in  writing 
of  shares  of  stock,  not  only  does  not  prove 
that  the  transaction  is  nwt  a  pledge,  but 
the  stock,  uidess  it  is  expressly  made  a8- 
sigtiable  by  tiie  delivery  of  the  certifi- 
cates, caiuiot  be  pledged  in  any  other 
manner." 


451 


§  465.]  PLEDGE   OF    STOCK.  [CH.  XXVI. 

a  mortgage  of  stock  to  be  found.  It  seems  tliat  a  formal  instni- 
ment  of  chattel  mortgage  of  stock,  dulj  executed  and  registered 
at  the  municipal  clerk's  office,  as  required  by  law  in  case  of  chat- 
tel mortgages,  would  not  constitute  an  effectual  mortgage  of 
stock,  and  the  mortgagee  would  not  be  protected,  where  he  does 
not  receive  the  certificate  of  stock  from  the  mortgagor,  or  does 
not  obtain  a  registry  of  transfer  on  the  corporate  books.^  Where, 
on  the  otlier  hand,  the  certificate  of  stock  is  delivered  to  the 
creditor  as  security,  it  is  evident  that  possession  of  the  property 
is  given  to  the  creditor,  but  that  the  debtor  still  considers  the 
stock  to  be  his.  Such  a  transaction  is  a  pledge,  and  not  a  mort- 
gage, and  consequently,  since  the  giving  of  stock  certificates  as 
security  is  almost  invariably  efl'ected  by  a  delivery  of  the  certif- 
icates, a  mortgage  of  stock  may  be  said  to  be  possible  but  not  prob- 
able or  even  sensible.  The  delivery  of  a  certificate  of  stock  with  a 
blank  power  of  attorney,  as  collateral  security,  constitutes  a  pledge 
and  not  a  mortgage,^  and  the  same  rule  provides  even  though  an 
absolute  transfer  or  registry  is  made  on  the  corporate  books.^ 

§  465.  E.01V  a  pledge  of  stock  arises  or  is  made.— A  pledge 
of  stock  is  generally  made  by  a  delivery  of  the  certificates  of 
stock,  indorsed  in  blank,  to  the  pledgee,  and  a  memorandum  in 
writing  to  the  eflect  that  the  stock  is  held  in  pledge  is  generally 
signed  and  given  to  the  pledgor,  and  a  copy  thereof  attached  to 
the  certificates  of  stock.*  A  mere  delivery  of  the  certificate  of 
stock  indorsed  in  blank,  however,  is  sufficient  to  constitute  a 

'  The  clearest  and  most  satisfactory  notice,  would  paralyze  trade  and  open  a 

case  is  Spalding  v.  Paine's  Admr.,  81  Ky.  wide  field  for  the  (raudulent  disposition 

416  (1S83),  where  a  chattel  mortgage  of  of  such  valuable  interests  at  the  expense 

a  share  of  stock  was  duly  recorded  in  the  of  honest  and  confiding  purchasers.'-'    Cf. 

proper  county,  the  mortgagor  retaining  Manns  v.  Brookville  Natl.  Bk.,   13  Ind, 

the  certificate  of  stock.     The  mortgagor  243  (1881);  Foster  v  P.tter,  37  Mo.  525; 

substquently  sold    and   transferred    the  Vowell  v.  Thompson,  3  Cranch,  428  (1829). 

certificate  of  stock  to  a  bona  fide  pur-  '■*  Mechanics   B.   &  L.  Association  v. 

chaser.     The  court  held  that  the  record-  Conover,  14  N.  J.  Eq.  219  (1862);  Lewis 

ing  of  the  mortgage  was  of  no  avail,  that  v.  Graham,  4  Abb.  Pr.  106  (1857). 

there  could  be  no  mortgage  of  choses  in  ^  Nabring  v.  Rank  of  Mobile,  58  Ala. 

action,  and  that  the  bona  fide  transferee  204  (l877);    Wilson  v.  Little,  2  N.Y.  443 

took   the   stock.     Pryor,   J.,    well   says:  (1849). 

"  Much  of  the  business  of  the  country  is  ^  In  a  few  cases,  a  mere  delivery  of 
conducted  on  the  faith  of  the  pledge  of  the  certificate  without  a  written  transfer 
Buch  stock  as  collaterals,  and  to  adjudge  has  been  held  suflicient  to  constitute  a 
that  the  holder  of  the  stock  by  transfer  pledge.  See  Brewster  v.  Hartley,  37  Cal, 
on  the  books  of  the  corporation,  or  by  15;  Jarvis  v.  Rogers,  13  Mass.  105;  Rob- 
indorsement  and  delivery  by  the  owner,  inson  v.  Hurley,  11  Iowa,  410,  but  see  Lol- 
is  subordinate  in  his  claim  to  the  mort-  lande  v.  Ingram,  19  La.  Ann.  364  (1867); 
gagee,  upon  the  doctrine  of  constructive  United  States  v.  Cutts,  Sumner,  133. 

452 


cii.  XXV r.] 


PLEDGE   OF   STOCK. 


[|  465. 


pledge,  without  any  inemorandnm  in  writing  to  that  effect,  and 
without  a  registry  of  the  same  being  made  on  the  corporate 
books.^  Not  even  a  provision  of  the  charter  or  a  by-law  of  the 
corporation  to  the  effect  that  transfers  are  not  valid  until  regis- 
tered on  the  corporate  books,  can  prevent  a  pledge  of  stock  being 
made  by  a  mere  delivery  of  the  certiiicates  indorsed  in  blank,  or  in- 
dorsed to  the  pledgee,  without  such  registry.^  The  provision  re- 
quiring such  registry  would  seem  not  to  concern  the  pledgee  in  any 
way,  except  that  he  could  not  claim  the  dividends  without  the  reg- 
istry, and  in  a  few  States  where  an  attachment  of  the  stock  for  the 
pledgor's  debts  would  cut  off  a  previous  unregistered  vendee's  or 
pledgee's  rights,  he,  by  not  registering,  encounters  that  risk.^  A 
transfer  of  stock,  whether  registered  on  the  corporate  books  or 
not,  may  be  shown  to  be  a  pledge,  and  parol   evidence  is  adrais- 


'  Mount  Holly,  &c.,  Co.  v.  Ferree,  17 
N.  J.  Eq.  117  (18f;4);  Finney's  Appeal.  .59 
Penn.  St.  398  (18^8);  Blouin  v.  Liquida- 
tors, »fec.,  30  La.  Ann.  714(1878);  Mer- 
cliants  Natl.  Bk.  v.  Richards,  6  Mo.  App. 
4.54  (1879);  affi'd  74  Mo.  77;  Broadway 
Bk.  V.  McElratli,  13  N.  J.  Eq.  24  (186<»1; 
Cornick  v.  Pilchards,  3  Lea,  1  (1879); 
Baldwin  v.  Caufield,  26  Minn.  43  (1879) ; 
Pitot  V.  .Johnson,  33  La.  Ann.  1286  (1881); 
New  Orleans  Natl.  Bankiuic  Assn.  v.  VViltz, 
10  Fed.  Rep.  330  (1881);  Continental 
Nitl.  Bk.  V.  Eliot  Natl.  Bk.,  12  Rep.  3.5 
(1881).  Of.  State  v.  First  Natl.  Hk.,  89 
Iriil.  302  (1883).  The  pledgor  may  by 
word  of  mouth,  extend  stock  already 
pledged  to  further  advancements  by  the 
pledgee.  Van  Blarcorn  v.  B'way  Bk.,  9 
Bosw.  ,532  (1862). 

''  McNeil  V.  Tenth  Natl.  Bank,  46  N. 
Y.  325  (1871);  Dickinson  v.  Central  Natl. 
Bk.,  129  Mass.  279  (1880);  Eraser  v. 
Charleston,  11  S.  C.  486  (1878);  Factors 
<fe  T.  Ins.  Co.  V.  Marine  D.  1).  Co.,  31  La. 
Ann.  149  (1879);  Pitot  v.  Johnson,  33  La. 
Ann.  r280(I.S81);  Contin.-ntal  Natl.  Bk. 
V.  I'-liot  Natl.  \'>]i.,  mtpra;  Lowry  v.  Com. 
Bank, Taney,  310(1848);  Blouin  t>.  Liqui- 
dat'irs,  Ac,  30  La.  Ann.  714  (1878); 
Lightner's  Appeal,  82  Perm.  St  301  ;  Unit- 
ed Stat.'S  V.  Cutts,  1  Suiim.  133  (1832); 
Leitch  V.  Wells,  48  N.  Y.  585  (1872); 
Commercial  Bk.  of  Buff  do  v.  Kortri-^iit, 
22  Wend.  3I8(1«3'.I);  afli'g  20  Wend.  91; 
Otis  V.  Gardner,  105  III.  436  (1883).  As 
regards  such  provisions  requiring  regis- 
try, a  pledge  of  stock  stands  on  the  same 
footing  as  a  sale  of  stoc!^.     The  unregis- 


tered pledge  is  protected  against  the 
pledgor's  assignee  in  bankruptcy.  He 
Shelly,  34  L.  J.  (Bankr.)  6  (1865). 

3  Thus  in  States  where  an  attachment 
has  precedence  over  not  only  transferees 
without  registry  made  after  the  attach- 
ment is  levied,  but  over  unregistered  trans- 
fers made  before  the  levy  of  attachment,  a 
pledge,  like  a  sale  of  stock,  is  protected 
against  attaclyiient  on  the  pledgor's  debts, 
only  by  registry.  Weston  v.  Bear  R.  ife 
A.  Co.,  5  Cal.  186  (1855);  Williams  v. 
Mechanics  Bank,  5  Blatch.  59  (1862); 
State  Ins.  Co.  v.  Sax,  2  Tenn.  Ch.  507 
(1875);  State  v.  First  Natl.  Bk..  89  Ind. 
302  (1883);  Shipman  v.  ^tna  Ins.  Co., 
29  Conn.  245  (1860)  ;  Pinkerton  v.  Man- 
chester, Ac.  R.  R.  Co.,  42  N.  H.  424 
(1861);  Oxford  Turnpike  Co.  v.  Brund, 
6  Conn.  552  (1827).  Cf.  Strout  v.  Na- 
toma  W.  cfe  M.  Co.,  9  Cal.  78  (1858).  But 
the  purcliaser  at  the  e.xpcution  sale  is  not 
protected  against  the  pledgee,  if  he  pur- 
chased with  notice.  Weston  v.  Bear,  R. 
dr.  A.  Co.,  6  Cal.  425  (1856).  And  if  no- 
tice  of  the  pledge  is  given  to  the  corpo- 
ration, the  pielgee  is  protected  against 
attacdiments,  although  no  re'.;istry  is  had. 
State  Ins.  Co.  v.  Geunett,  2  Tenn."  Cii.  100 
(1874).  As  regards  the  ordinary  rights 
of  stockholdersiiip,  it  is  no  obj<'ct  lo  the 
pledgee  to  obtain  registry.  Even  if  regis- 
tered lie  cannot  vote  nor  have  a  voice  in 
corporate  mei-tings.  See  ^5  '1''8.  .\a 
to  the  divid(Mids,  however,  he  is  en- 
titled to  them,  as  against  the  pledgor, 
but,  of  course,  can  obtain  them  from  the 
corporation  only  by  obtaining  registry. 

453 


§§  ^^Q,  467.] 


PLEDGE  OF  STOCK. 


[CH. 


XXVI. 


sible  to  prove  that  fact.^  A  mere  direction  to  the  corporation 
cannot  constitute  a  pledge.^  But  where  no  certificate  has  been 
issued  to  the  stockholder,  he  may  pledge  the  stock  by  an  instru- 
ment in  writing.^  A  corporation  may  pledge  its  unissued  stock/ 
but  there  is  a  difference  of  opinion  as  to  whether  the  pledgee 
is  liable  as  an  absolute  stockholder  on  such  stock,^ 

§  406.  Pledgee  may  have  the  stoclc  registered  in  his  own 
name  or  the  name  of  another. — Where  certificates  of  stock,  in- 
dorsed in  blank,  are  delivered  to  a  person,  in  pledge,  as  collateral 
security  for  a  debt  or  for  any  other  purpose,  the  pledgee  may  fill 
in  the  blanks  and  have  the  stock  registered  in  his  own  name,  on 
the  corporate  books,^  or  the  pledgee  may  have  the  stock  registered 
in  the  name  of  another  person,  in  order  that  he  may  protect  his 
special  property  in  the  stock  and  at  the  same  time  not  be  liable 
thereon.'^ 

§  467.  Stock-hrolier  'purchasing  stock  for  a  customer  on  a 
margiyi  is  a  pledgee  of  the  stock. — It  has  been  well  established 
that  where  a  stockholder  purchases  stock  on  an  order  from    his 


'  Brick  V.  Brick,  98  U.  S.  514  (1878); 
Wil3on  V.  Little,  2  N.  Y,  443  (1849); 
Ginz  V.  Stumph,  73  Ind.  209  (1880); 
Newton  v.  Fay,  92  Mass.  505  0865);  Mc- 
Mahon  v.  Macy,  51  N.  Y.  155  (1872); 
Becher  v.  Wells  Flouring  Mill  Co.,  1  Fed. 
Rep.  276  (1880);  Burg-ess  v.  Selicman, 
107  U.  S.  20  (1882) ;  Pinkerton  v.  R.  R. 
Co.,  42  N.  H.  424. 

2  Cumming  v.  Prescott,  2  Y.  &■  C.  (Ex.) 
488  (1837);  Lallande  v.  IngraiD,  19  La. 
Ann.  364  (1867),  the  court  saying:  "In 
all  cases  of  pledge,  the  pledgee  must  be 
put  in  possession  of  the  thing  pledged, 
and  if  it  be  a  claim,  the  evidence  of  the 
obligation  must  be  transferred  and  de- 
livered Shares  in  stock  cannot  be 
pledged  unless  they  be  evidenced  by  cer- 
tificates which  must  be  transferred  and 
delivered  to  the  pledgee."  But  see  note 
4,  §  465,  supra. 

3  First  Natl.  Bk.  v.  Gilford,  47  Iowa, 
675  ( 1 877),  where  such  a  pledgee  was  i^ro- 
tected  against  a  third  person  who  had  ad- 
vanced the  money  to  the  pledgor  to  pur- 
chase the  stock. 

Hartley,  37  Cal.  15 
Seligman,  7  Mo.  App. 
Seligman,   72  Mo.  110 

Si'lignian,  107U.  S.  20 


*  Brewster   v. 
(1869);  Fisher  v. 


S83;  Griswold  v. 
(1880);  Burgess r 
(1882);  Melvin  v.  Lamar  Ins.  Co.,  80  111. 


446  (1875);  Protection  Ins.  Co.  v.  Osgood, 
93  111.  69. 

6  See  Ch.  XIV,  §  247. 

^  Hubbell  V.  Drexel,  21  Am.  L.  Reg. 
N.  S.  452  (1881);  Re  Angelo,  5  De  G.  <fe 
S.  278  (1852);  Horton  v.Morgan,  19  N. 
Y.  170(1859);  Union  &  P.  Bk.  v.  Far- 
rington,  13  Lea  (Tenn.),  333  (1884); 
Hiatt  V.  Griswold,  5  Fed.  Rep.  573  (1881), 
holding  also  that  a  surety  is  not  thereby 
discharged.  Day  v.  Holmes,  103  Mass. 
.306  (1869),  the  court  saying:  "The  de- 
livery to  them  of  the  assignment  in 
blank  necessarily  implied  the  right  to  in- 
sert their  own  names,  and  tlie  doing  so 
and  taking  out  of  new  certificates  was  in 
accordance  with  the  implied  contract  of 
the  jJarties,  and  a  lawful  and  reasonable 
measure  to  protect  their  security,  and 
can  upon  no  principle  be  deemed  an  un- 
lawful conversion."  Fitchburo-  Sav.  Bk. 
V.  Torrey,  134  Mass.  239  (1883),  also 
holding  that  a  release  of  the  stock  by  the 
pledgee  releases  a  surety.  Fay  v.  Gray, 
124  Mass.  500  (1878).  Corporation  must 
allow  the  registry.  Cornick  v.  Richards, 
3  Lea  (Tenn.),  1  (1879). 

'  I>ay  V.  Holmes,  supra;  Heath  v. 
Griswold,  5  Fed.  Rep.  573  ;  Anderson  v. 
Philadelphia  Warehouse  Co.,  Ill  U.  3. 
479  (1884).     See  also  §  470. 


454 


CH.  XXVI.]  PLEDGE  OF  STOCK.  [§^68. 

customer,  and  the  customer  does  not  pay  for  the  stock,  but  de- 
posits with  the  broker  a  sum  of  money  called  a  "  margin,"  to  pro- 
tect the  broker  against  loss,  the  broker  is  bound  to  have  on  hand 
the  stock  so  purchased  during  the  entire  time  of  the  contract,  and 
has  the  rights,  duties,  and  liabilities  of  a  pledgee,  with  the  cus- 
tomer as  a  pledgor.^  The  broker  under  such  circumstances  must 
conform  to  all  the  rules  governing  a  pledgee's  attitude  towards  a 
pledgor.  He  cannot  repledge,  nor  sell  without  due  notice,  unless 
such  rights  be  waived  by  the  customer,  the  pledgor.- 

§  468.  Miscellaneous  rights  of  pledgee. — Dividends  declared 
during  the  continuance  of  the  pledge  belong  to  the  pledgee,  even 
though  the  latter  is  not  registered  as  owner  on  the  corporate 
books.^  It  has  been  held  that  a  pledgee  may  bring  an  action  to 
protect  the  corporate  interests  where  a  full  stockholder  would  not 
be  allowed  to  sue,  for  the  reason  that  the  latter  has  the  power  to 
affect  the  management  by  his  vote.  A  pledgee  has  not  the  right 
to  vote  on  the  pledged  stock  even  though  he  is  registered  as  a 
stockholder.*  If  so  registered  the  pledgor  may  compel  him,  by 
legal  proceedings,  to  give  a  proxy  for  voting  purposes.^  A  pled- 
gee is  not  bound  to  protect  the  stock  from  forfeiture,  for  non- 
payment of  calls.*'  The  pledgee  is  entitled  to  the  dividends  on 
the  stock,  but  must  account  for  them  when  the  pledge  is  re- 
deemed.'' A  pledgee  of  certificates  of  stock  is  protected  against 
further  sales  or  pledges  of  the  same  stock  by  the  pledgor,  such 
other  sales  or  pledges  being  without  the  delivery  of  any  certifi- 
cate, the  same  as  the  vendee  of  a  certificate  of  stock  is  protected 
against  another  sale  of  the  stock  to  a  purchaser  who  takes  with- 
out any  certificate.^  The  possession  of  the  certificate  protects  the 
pledgee  herein. 


'  Baker  v.  Drake,  66  N.  Y.  518  (1876) ;  274;  Laws  of  K  Y.   1850,  ch.  140,  §  6; 

Markham  v.  Jaudon,  41  N.  Y.  235(1869),  Buttcrworth  v.  Kennedy,  5  Bosw.  143. 

and  see  Chapter  XXV.  ^  See  Ch.  XXXVII. 

'  See  Chapter  XXV.  «  Southwestern  R.  R.  Bk.  v.  Douglas, 

2  Ilerrman  v.  Maxwell,  47  Super.  Ct.  2  Spear  (S.  C),  329  (1844). 
347(1881),  and  the  pled;,'or  wlio  collects  ■"  Isaac  v.  Clarke,  2   Bulst.  306;  Haa- 
thein  holds  them  in  trust  for  the  pled^jee.  brouck  v.  Vandervoort,  4  Sandf.  74;   Ed- 
Hill  V.  Newichawanick  Co.,  48  How.    Pr.  wards  on  Bailments,  300. 
427  (1874).  "  Mavbin  ?;.  Kirby,  4  Rich.    Eq.    106. 

''Baldwin   v.  Canfield,    20    Minn.    43  See  §  321.     The  cases  tlierein  cited  aro 

(1879).     See  also  Mercliants'  Bk.  v.  Cook,  partly  cases  of  pledge  and  partly  of  sale 

4  Pick.  40.');  Ex  parte  W'lWcDck,  1  Cowan,  of  certificates  of  stock.     The  rule  applies 

402;  McDaniels  w.  Flower,  itc.  Co.,  22  Vt.  equally  to  both. 

455 


§§  469,  470.]  PLEDGE   OF    STOCK.  [CH.  XXVI. 

§  4C9.  Pledgee  need  not  retain  or  return  to  the  jjJedgor 
the  identical  certificates  or  shares  of  stock  ichich  ivere  jyledged, 
hut  must  have  equal  quantity  alicays  on  hand. — One  share  of 
stock  dues  not  differ  from  another  share  in  the  same  capital  stock. 
Each  is  but  an  undivided  interest  in  tlie  corporate  rights,  privi- 
leges, and  property.  Accordingly,  it  is  held  that  a  pledgee  of 
stock  need  not  retain  in  his  possession  the  identical  shares  of 
stock  which  were  pledged  to  him,  but  that  the  rights  of  the 
pledgor  are  fully  preserved  if  similar  stock  is  returned  to  him 
upon  the  termination  of  the  pledge.^  But  the  pledgee  must  have 
on  hand  at  all  times  a  sufhcient  quantity  of  the  stock  pledged, 
whether  the  debt  secured  is  due  or  not,  since  the  law  will  not  al- 
low the  pledgee  to  speculate  or  deal  with  the  stock  of  another  as 
though  it  was  his  own.^  It  is  insufficient  that  he  can  at  once  pro- 
cure the  stock  from  one  to  whom  it  is  loaned,^  or  that  he  had  suf- 
ficient on  hand  for  the  plaintiff  pledgor,  but  not  enough  for  all 
the  pledgors  whom  he  had  at  any  particular  time.*  The  law  re- 
quires him  to  set  aside  so  much  stock  as  has  been  pledged  to 
him. 

§  470.  Pledgee's  liahiliiy  on  siibscription  and  statutory 
lidhility  on  stock? — A  pledgee  who  has  obtained  registry  on  the 
corporate  books  appears  to  third  parties  as  a  full  stockholder. 
Accordingly,  in  case  the  corporation  becomes  insolvent,  the 
registered  pledgee  is  held  liable  on  his  stock,  as  though  he  were 
an  absolute  stockholder.  In  order  to  avoid  this  danger,  the 
law  allows  the  pledgee  to  have  the  pledged  stock  registered  on 
the  corporate  books  in  the  name  of  a  nominee  of  the  pledgee.® 


'  Nourse  v.  Prince,  4  Johns.   Ch.   490  selling  the  pledgor's  stock,  on  notice,  for 

(1820);  Id.  7  Johns.  Cli.  69  (1823);  Hor-  non-payment  of  the    debt,    the    pledgee 

ton  ?'.  Morgan,    19   N.    Y.    170   (1859);  need  not  sell  the  identical  stock  pledged. 

Barclay   v.   Culver,  30  Hun,    1    (1883);  Berlin  t'.  Eddy.  33  Mo.  426  (1863). 

Noyes  ?;.  Spaulding,   27  Vt.  420   (1855);  2  ^x  joar^eDennison,  3  Yes.  552  (1797); 

Atkins  i\    Gamble,  42  Cal.  86;  Price  v.  Taussig «;.  Hart,  58   N.    Y.    425    (1874); 

Grover,    40   Md.    102  (1874);    Gilpin  t).  Thompson  «.  Toland,  48  Cal.  99  (1874); 

Howell,  5  Penn.  St.  41  (1846);  Harden-  HubbelH'.  Drexel,  21  Am.  L.  Reg.  N.  S. 

burgh  V.  Bacon,  33  Cal.  356  (1867) ;  Tay-  452  (1881).     The  pledgor  may  waive  this 

lor  ?;.  Ketchum,  35  How.  Pr.  289  (1867);  restriction  by  express   agreement.     Og- 

Langton »;.  Waite,  L.  R.  6  Eq.  165  (1868);  den  v.  Lathrop,  65  N.  Y.  158  (1875). 

Thompson  v.  Toland,  48  Cal.  99   (1874)  ;  ^  Dykers  v.  Allen,  3   Hill,  593;  7  Id. 

LeCray  v.  Eastman,  10  Mod.  499  (1735);  497  (1844);  Ex  parte  Denmaon,  supra. 

Hubbell  V.  Drexel,  21  Am.  L.  Reg.  N.  S.  •*  Fay  v.  Gray,  124  Mass.   500   (1878). 

452  (1N81);  Boylan  v.    Huguet,   8   Nev.  ^  See  Ch.  XlV,  §247. 

345(1873).     In  "the  case  Dykers  I'.  Allen,  «  Newry,   &c.    Ry.    Co.   v.   Moss,    14 

7  Hill,  497(1844),  the  pledgee  at  one  lime  Beav.  64  (1851).     See  g  466, 
seems  to  have  had  no  stock  on  hand.     In 

456 


CU.  XXYI.] 


PLEDGE  OF  STOCK. 


[§471. 


Where  such  a  registry  is  obtained  the  pledgee  has  the  advantage 
of  a  control  of  the  stock,  and  at  the  same  time  escapes  the  dangers 
of  liability  as  an  ordinary  stockholder. 

§  471.  Pledgee  lias  no  right  to  sell  or  repledge  tlie  stock, 
even  temimrarily. — This  necessarily  follows  from  the  principle 
of  law  that  a  pledgee  of  stock  must  retain  constantly  in  his  pos- 
session, shares  of  stock  equal  in  quantity  to  that  pledged  ;  tliat  the 
pledgee  cannot  legally  part  with  the  possession  of  such  stock  by 
a  sale  or  repledge  of  it ;  and  that  if  he  does  so  he  is  guilty  of  a 
conversion.^    In  Pennsylvania  it  is  a  penal  oifense  for  the  pledgee 


'  Goss  V.  Hampton,  16  Nev.  185 
(1881).  The  case  of  Ex  parte  Sargent, 
L.  E.  17  Eq.  273  (1874),  contained  a  dic- 
tum giving  a  contniry  rule,  but  the  case 
of  France  v.  Clark,  L.  R.  22  Ch.  Div.  830 
(1883),  disapproves  such  dictum  and 
says:  "  As  a  general  rule  the  pawnee  of 
chattels  has  no  right  to  sell  them,  unless 
a  time  was  originally  fixed  for  their  re- 
demption, and  that  time  has  expired,  or 
unless  he  had  made  a  demand  upon  the 
pawnor  for  the  payment  of  what  is  due 
to  him."  In  Langton  v.  Waite,  L.  R.  6 
Eq.  165  (1868),  the  court  says:  "The  law 
is  clear  that  in  the  absence  of  express 
contract  to  the  contrary,  a  pawnee  cannot 
sell  without  the  express  permission  of  the 
owner,  and  that  if  he  does,  the  owner 
can  chargo  him  with  the  excess  of  the 
price  over  the  loan."  The  court,  however, 
seemed  to  think  that  the  pledgee  could 
repledge  the  stock.  Fay  v.  Gray,  124 
Mass.  5(i0  (1878),  holds  that  the  pledgee 
has  no  right  to  sell,  lend,  or  repledge  the 
stock.  In  the  notes  contained  in  21  Am. 
Lasv  Reg.  N.  S.  454,  a  contention  is  made 
tliat  the  pledgee  should  be  allowed  to  re- 
pledge, Ijut  it  is  admitted  that  the  weight 
of  autliority  holds  otherwise.  The  fol- 
lowing cases  are  cited:  Bank  v.  Tren- 
holin,  12  Ileisk.  (Tenn.)  520;  Bank  v. 
Bryce,  10  Am.  Law  Reg.  N.  S.  603;  Taus- 
sig w.  Hurt,  58  N.  Y.  425(1874);  Work 
W.Bennett,  70  Penn.  St.  48i;  Wood  v. 
Hayes,  15  Gray,  375;  Thompson  v. 
Patrick,  4  Watts  (Pa.),  414,  and  see  §  469. 
In  (iould  V.  Farmers'  Loan  &  Trust  Co., 
23  Ilnn,  322  (1880),  the  court,  said  that 
the  pledgee  might  repledge  the  stock  to 
the  extent  th;it  he  had  in  it.  In  Law- 
rence V,  Maxwell,  53  N.  Y.  I'J  (1873),  the 
court  says:  "Ordinarily  and  in  the  ab- 
sence of  any  agreement  or  assent  by  the 
pledgor,  the  pledge"  would  have  no  right 
to  use  the  thing  pledged,  and  a  use  of  it 


would  be  illegal.  But,  under  special 
circumstances,  depending  somewhat  up- 
on the  nature  of  the  pledge,  and  in  all 
cases,  with  the  assent  of  the  pledgor,  ex- 
press, or  implied,  the  property  pledged 
may  be  used  by  the  pledgee  in  any  way 
consistent  with  the  general  ownership, 
and  the  ultimate  riglits  of  tlie  [iledgor." 
Story  on  Bailments,  §  324,  says:  the 
pawnee  "  may  sell  or  assign  all  his  in- 
terest in  the  pawn,  or  lie  may  convey 
the  same  interest  conditionally,  by  way 
of  pawn,  to  anotiier  person,  wiliiout  in 
either  case  destroying  or  invalidating  his 
security."  See  also  Talty  ".  Free(hnan'a 
Sav.,&c.  Co.  93  U.  S.  "^321  (1876);  2 
Kent's  Com.  579;  Jarvia  v.  Rogers,  13 
Mass.  105;  15  Id.  389,408;  Mores  v. 
Conham,  Owen,  123;  Ratcliffe  v.  Davis,  1 
Buls.  29  ;  Anon.  2  Salk.  522.  The  right  of 
the  pledgee  to  repledge  may  exist  by 
force  of  a  custom  understood  by  both 
parties.  Chamberlain  v.  Greenieaf,  4 
Abb.  N.  C.  178  (1878).  In  the  case.  Lewis 
V.  Mott,  36  N.  Y.  394  (1867),  where  alter 
the  debt  was  due  and  unpaid  the  y)lcdgee 
turned  over  the  debt  and  security  to 
another,  without  a  foreclosure  or  sale  on 
notice,  the  court  held  that  the  latter 
could  hold  the  collateral  stock  until  the 
pledgor  tendered  the  amount  of  the  debt. 
The  late.-^t  English  cases  hold  that  al- 
though the  repledge  may  bo  wrong,  yet 
that  the  pledgor  cannot  reclaim  the  stock 
from  the  repiedgee  until  the  former  ])ay8 
the  debt  for  whicii  the  pledge  was  made. 
Donald  v.  Suckling,  L.  R.  1  Q.  B.  585; 
Ilalliday  v.  IIolga>.e,  L.  R.  3  Ex.  299. 
Wiicre  a  broker  Itolding  stock  in  pledge 
on  aniargin,  repledges  it  wilhont  tlie  con- 
sent of  his  custom.T,  it  lias  been  held 
that  he  cannot  recover  the  value  <>f  the 
stock  from  the  customer  on  a  tender  of 
th(!  certitic;ile.  (;iarks(m  v.  Snider,  5 
Canadian  Law  Times,  587  (1885). 

457 


P  472,  4:73.]  PLEDGE  OF  STOCK.  [cH.  XXVI. 

to  repledge  the  stock.^  Although  apparently,  the  pledgor  would 
not  be  injured  by  the  pledgee's  transferring  to  another  the  debt 
and  the  stock  pledged  as  collateral  security,  yet  the  law  rigidly 
protects  the  interests  of  the  debtor  and  pledgor  and  will  not  com- 
pel him  to  submit  to  the  danger  and  trouble  of  transfers  by  the 
pledgee  to  distant  or  irresponsible  persons.  There  may,  of  course, 
be  an  express  agreement  or  understanding  to  the  contrary. 

§  472.  Purchasers  or  pledgees  of  stock  from  pledgee  ivitli 
notice  are  not  protected, — A  person  who  purchases  or  takes  in 
pledge  stock  which  lie  knows  is  held  in  pledge  by  the  person  from 
whom  he  takes  it,  is  not  a  hona  fide  holder  of  such  stock,  and  is 
not  entitled  to  the  rights  of  such.  At  the  best  he  stands  merely 
in  the  place  of  the  pledgee  from  whom  lie  receives  the  stock. 
He  must  restore  the  stock  to  the  owner,  in  case  the  yjledgee 
would  be  obliged  to  restore  it,  had  no  second  sale  or  pledge  been 
made.  The  second  pledgee  or  vendee,  with  notice  that  he  was 
taking  pledged  stock,  has  no  rights  which  the  first  pledgee  has 
not.  He  is  but  an  equitable  assignee  of  the  latter,  and  can  be 
compelled  by  the  owner  to  deliver  the  stock,  in  any  case  where 
the  first  pledgee  could  be  so  compelled.'^  The  same  rule  applies 
whether  the  pledgee  assigns  or  repledges  both  the  debt  and  the 
stock,  or  the  stock  alone.^ 

§  473.  Bona  fide  repledgees  or  purclmsers  of  pledged  stock 
are  protected.— Where,  however,  a  pledgee  of  certificates  of  stock 
indorsed  in  blank  takes  the  certificates  and  sells  or  pledges  them 
to  another,  who  takes  such  certificates  in  good  faith  and  for 
value  and  without  notice  that  his  vendor  or  pledgor  held  them  as 
a  pledge,  the  purchaser  or  pledgee  from  the  pledgee  is  as  fully 
protected  in  his  rights  as  though  the  person  with  whom  he  dealt 

'  Act  of  May  25th,    1878    (Purdou's  St.    153  (1873).     A    bank    receiving    a 

Dio-est  2107),  modified  as  to  pnrcliases  by  collection  with  collateral  is  not  entitled 

broker  on  margin,  by  Act  of  June  10th,  to  the  latter,  where  it  becomes  insolvent 

1881  (P.  L.  1881,  107).  before  the  collection  is  remitted.^     Corn 

-  Any  fact,  such  as  usury  in  the  sec-  Exchange  Bank  v.  Blye,  N.  Y.  Daily  Reg. 

end  transaction,  which  prevents  the  sec-  Sept.  9th,  1886.     In    general     see    also 

end    pledgee    or    purchaser  from  being  Duncan  t).  Jaudon,  15  Wall,   lb5 ;    bbaw 

a  bona  fide  purchaser,  applies  to  a  re-  v.  Spencer,  100  Mass.  382  ;  Ellis  Appeal, 

pled"-ee  of  stock.     The  repledgee  is  not  8  Weekly  Notes  of  Cases  (Penn.),  538; 

protected.    Felt  v.  Heye,  33  How.  Pr.  359  Porter  v.  Parks,  49  N.  Y.   564. 
(1862) ;  Little  v.  Barker,  1  Hoff.  Ch.  487  '  Felt  v.   Heye,  mpra      Nor  can   the 

(1840)      So  also    where    the    repledgee  repledgee  claim  the  benefit  ot   the  debt 

takes  in  consideration  of  a    pre-existing  not  assigned  to  |^i™-   ^^^e^  ^^'^J^^/ff  y  „'"; 

indebtedness.     Ashton's  Appeal,  73  Penn.  Freedman's,  &c.  Co.,  93  U.  b.  321  (lS7bj. 

458 


CM, 


XXVI.] 


PLEDGE  OF  STOCK. 


[§  4T3. 


was  the  absolute  owner  of  the  stock.^  This  rule  arises  not  on  the 
ground  that  the  certificate  of  stock  is  negotiable,  but  for  the  rea- 
son that  the  owner  is  held  to  have  enabled  his  pledgee  to  sell  the 
stock  as  the  pledgee's  own,  and  that  as  between  the  owner  and 
the  hona  fide  purchaser  or  pledgee  from  the  pledgee  the  owner 
must  bear  the  loss.  The  law  of  estoppel  prevents  his  denying 
the  right  of  his  pledgee  to  sell  or  pledge,  as  against  a  honafide 
purchaser  or  pledgee  from  the  pledgee.  So,  also,  under  the  well 
established  rule  that  where  one  of  two  innocent  parties  must  suf- 
fer from  the  fraud  of  a  third,  the  loss  must  fall  upon  him  who 
enabled  the  third  jjartj  to  perpetrate  the  fraud.  If  the  pledgee 
has  repledged  the  stock  the  owner  can  obtain  his  stock  only  by 
paying  to  the  repledgee  the  amount  of  the  latter's  advancement 
to  the  first  pledgee.^  The  pledgor  of  stock  under  these  rules  has 
practically  no  protection  as  to  his  stock,  except  the  iionesty  and 
responsibility  of  his  pledgee.  The  honafide  purchaser  or  pledgee 
from  the  pledgee  is  equally  protected  whether  the  certificates  of 
stock  are  indorsed  by  the  pledgor  or  vendor,  or  are  indorsed  in 
blank  by  some  previous  holder.^  The  repledgee  or  vendee  is  held 
to  be  a  honafide  holder,  only  where,  in  general,  he  would  be  held 
so  to  be.* 


'  The  important  case  of  McNeil  v. 
Tenth  Nat'l  Bank,  46  N.  Y.  325  (1871), 
was  on  the  rights  of  a  honafide  repledp^ee 
of  stock  and  fully  Sustains  the  general 
rule.  See  alsoFatinan  v.  Lobach,  1  Duer, 
354  (1852);  Wood's  Appeal,  92  Penn. 
St.  379(1880);  Wood  v.  Smith,  8  "Week. 
Notes,  441;  Goss  ?).  Hampton,  16  Nev. 
185  (1881);  Mount  Holly,  tfec,  Co.  v. 
Ferree,  17  N.  J.  Eq.  117  (1864);  Otis  v. 
Gardner,  105  111.  436  (1883)  ;  Ex  parte 
Sargent,  L.  R.  17  Eq.  273  (1874);  Cherry 
V.  Frost,  7  Lea  (Term.),  1  (1881),  the 
court  saying  that  in  general  a  pledgee  of 
personal  property  cannot  convey  a  good 
title  to  another,  but  "  if  the  owner  in- 
trusts to  another  not  merely  the  posses- 
sion of  the  property  but  also  written  evi- 
dence over  his  own  signature  of  title 
thereto,  and  of  unconditional  power  of 
disposition  over  it,  the  case  is  vaslly  dif- 
ferent." In  the  case  Ortigosa  v.  Brown, 
47  L.  J.  (Ch.)  168  (1878),  the  court,  fol- 
lowing tlie  English  doctrine  that  an  un- 
registered trarjsferee  of  certificates  of 
railway  stock  has  no  more  rights  tlnui 
his  transferrer,  refused  to  protect  llie  un- 
registered repledgee  of  stock. 

^  Wood's  Appeal,    92  Penn.    St.   379 


(1880);  Fatman  v.  Lobach,  1  Duer,  354 
(1852 1 ;  Ez  parte  Sargent,  L.  R.  17  Eq. 
273  (1874)  ;  Cherry  v.  Frost,  7  Lea 
(Tenn.),  1  (1881),  holding,  however,  that 
payments  on  the  subscription  by  the 
owner,  subsequently  to  the  repledge,  does 
not  inure  to  the  benefit  of  the  latter.  If 
the  re]3ledgee  has  other  collateral  also, 
it  will  be  applied  to  the  debt  before  the 
repledged  stock  is  applied.  Gould  v. 
Farmers  Loan  &  Trust  Co.,  23  Hun,  822 
(1880).  See  in  general,  Donald  v.  Suck- 
ling, L.  R.  1  Q.  B.  585;  Moore  r.  Conhain, 
Owen,  123;  Ratcliffe  i'.  Davis,  Yclv.  178; 
.lohnson  v.  Gumming,  Scott's  C.  B.  N.  S. 
331  ;  Jarvis,  Adm'r  v.  Rodgeis,  15  Mass. 
3C9. 

»  Goss  V.  Hampton,  16  Nev.  185  (1881). 

■*  In  California  the  peculiar  doctrine  is 
sustained  that  t"lie  word  "  trustee "  on 
the  face  of  the  certificate  is  no  notice, 
and  does  not  deprive  the  pledgee  of  his 
character  of  being  a  bma  fiilc  holder. 
Brewster  v.  Sime,  42  Cal.  139  (1871); 
Thompson  w.  Toland,  48  Gal.  99  (1874). 
If  the  repledgee  receives  the  stock  as  se- 
curity for  an  antecedent  indebtedness  ho 
is  not  a  bona  fiilc  holder.  Gould  v.  Fiir- 
meis  Loan  &   Trust   Co.,   23   Hun,   322 

459 


§§  474,  475.]  PLEDGE   OF   STOCK.  [CH.  XXVI. 

§  474.  Pledges  hj  agents,  trustees,  executors,  (&c.,  legally 
and  in  hreacli  of  trust.-^it  is  within  the  power  of  an  executor 
or  administrator  to  pledge  shares  of  stock  belonging  to  the  es- 
tate, and  the  pledgee  is  protected,  even  though  he  knew  that  the 
executor  pledged  it  as  an  executor.^  A  trustee,  on  the  other 
hand,  has  no  implied  power  to  pledge  or  sell  corporate  stock  be- 
longing to  the  trust.^  An  agent's  pledges  of  his  principal's  stock 
follow  the  same  rules  as  where  a  pledgee  repledges  the  stock  given 
to  him  in  pledge.  A  honafide  holder  for  value  and  without  notice 
is  protected,  while  one  who  takes  with  notice  is  not  protected. 
Where,  however,  the  one  taking  stock  in  pledge  from  an  agent 
knows  that  the  latter  is  acting  as  agent,  he  is  bound  to  inquire 
whether  the  principal  has  authorized  his  agent  to  pledge  the 
stock,  since  a  power  to  pledge  cannot  be  presumed  from  a  power 
to  sell.^  The  right  of  corporations  and  persons  to  give  and  take 
stock  in  pledge  is  also  treated  of  elsewhere.* 

§  475.  Pledgor's  remedies. — Where  the  pledgee  of  stock  has 
been  guilty  of  a  conversion  of  it,  the  pledgor's  remedy  against 
him  is  generally  by  an  action  at  law  for  damages.  He  need  not 
tender  to  the  pledgee  the  amount  of  the  debt  secured  by  the 
pledge,  since  tlie  pledgee  may  recoup  to  that  extent  and  thus  de- 
crease the  damages  of  the  pledgor.^  The  pledgor's  damages  are 
measured  by  the  market  value  of  the  stock  at  the  time  of  the  con- 
version, together  with  interest  and  subsequent  damages.®  The 
pledgor  may  be  barred  from  his  action  for  damages  by  a  waiver 
of  the  particular  act  of  conversion  by  the  pledgee.'     He  has  the 

(1880).  A  pledgee  is  not  bona  fide  when  v.  Graham,  4  Abb.  Pr.  106  (1857) ;  Cortel- 
the  name  of  another  pledgee  in  the  certifi-  you  v.  Lansing,  2  Caines'  Cas.  200.  How- 
cate  is  erased  and  hi-i  owu  inserted.  Den-  ever  a  later  case  in  Massachusetts,  Cum- 
ny  V  Lyon,  38  Penn.  St.  98  (1860).  nock  v.  Institution  for  Sav.,  34  Alb.  L. 
1  Goodwin  v.  American  Nat'l  Bk.,  48  J.  208  (1886),  holds  that  a  tender  of  pay- 
Conn.  550  (1881);  Wood's  Appeal,  92  ment  of  a  debt  is  necessary  to  enable  a 
Penn.  St.  379  (1880);  Carter  v.  Mfa.  Nat'l  pledgor  to  maintain  trover  for  a  conver- 
Bk.,  11  Me.  448  (1880),  and  see  Ch,  XIX,  sion  of  property  pledged,  unless  the  lien 
8  329.  created  by  the  pledge  has  been  otherwise 

■•i  See  Ch.  XIX  §§  323-32'7;  Shaw  v.  discharged. 

Spencer,  100  Mass.  382  (1868).  «  See  Ch.  XXXV.    In  Fowle  v.  Ward, 

3  See  Ch.  XIX,  §  321.  113  Mass.  548  (1873),  the  court  soid  the 

*  See  Chapter  x'lX.  damages  shoukl  be  "  a  sum  of  money  which 

6  Allen  V    Dykers,  3  Hill,  93  (1842);  would  enable  him  to  purchase  seventeen 

1 1d  497;  New  York,  L.  E.   &  W.   R.  R.  new  shares  to  replace  those  which  have 

Co.  v.  Davies,  38  Hun,  477  (1886) ;  Work  been  taken  from  him,  with  such  additional 

i).   Bennett,    70   Penn.    St.    484    (187-2);  sum  as  would  indemnify  him  for  the  divi- 

Fisher  v.   Brown,  104  Mass.  259  ;  Neiler  dends  which  he  has    lost  since  the  sale, 

V.  Kelly,  69  Penn.  St.  403  (1871);    Lang-  and  also  an  equitable  allowance  for  m- 

ton  V.  Waitp,  L.  il.  6Eq.  165  (1868);  Felt  terest." 

V.  Heye.  23   How.  Pr.  '659  (1862);  Lewis  '  Child  v  Hugg,  41  Cal.  519  (1871). 

460 


CH.  XXVI.] 


PLEDGE   OF   STOCK. 


[§  4TG. 


option,  however,  of  ratifying  a  conversion  by  an  unauthorized 
sale  and  claiming  the  proceeds,  or  he  may  repudiate  the  sale  and 
sue  for  conversion.^  The  pledgor  may,  if  he  prefers,  begin  suit 
in  a  court  of  equity,  when  the  pledgee  has  converted  the  stock, 
and  compel  him  either  to  replace  the  stock  or  give  compensation 
in  damages.  The  jurisdiction  of  a  court  of  equity  in  such  a  case 
has  been  questioned,^  but  has  been  sustained  on  the  ground  that 
only  a  court  of  equity  can  compel  the  pledgee  to  replace  the  stock 
or  to  take  an  accounting  of  the  dividends  declared  while  the 
pledge  was  running,  or  to  reach  third  persons  to  whom  the 
pledgee  has  assigned  the  debt  and  pledge.®  A  pledgor  cannot 
compel  his  pledgee  to  sell  the  stock  and  apply  the  proceeds  to 
the  debt  by  a  notice  to  make  such  a  sale.^  When  the  pledgee 
causes  the  stock  to  be  sold  the  pledgor  is  entitled  to  the  surplus 
proceeds  of  the  sale  remaining  after  the  debt  and  the  expenses 
of  the  sale  have  been  paid.^ 

§  476.  Pledgee's  remedies  ivlien  debt  secured  is  not  paid. — 
Where  shares  of  stock  are  pledged  as  collateral  security  for  a  debt 
and  the  debt  is  not  paid,  and  the  pledgee  wishes  to  apply  the 
stock  to  the  payment  of  the  debt,  he  has  the  right  to  pursue  either 
one  of  two  remedies  :  he  may  file  a  bill  in  equity  for  the  foreclosure 
and  sale  of  the  pledge,^  or  he  may  give  notice  to  the  pledgor  of 


'Atkins  V.  Gamble,  42  Cal.  86,  91 
(1871). 

"■  Genet  v.  Howland,  45  Barb.  500 
(1866). 

3  Bryson  v.  Raynor.  25  Md.  424  (1866); 
Conyngham's  Appeal,  57  I'enn.  St.  474 
(1868) ;  Ilasbrouck  v.  Vandervoort,  4 
8and.74  (1850).  Where  the  repledgee  con- 
verts the  stock  the  remedy  fur  conversion 
is  with  the  first  pledgee,  not  wiih  the 
first  pledgor.  Thomjison  v.Toland,  48  Cal. 
99  (1874).  The  pledgee  must  return  the 
stock  and  stock  dividends  and  account  for 
money  dividends.  Vaughan  v.  Wood,  1 
M.  <fe  K.  40:i  (1833).  The  assets  applica- 
ble to  the  debt  will  be  marshalled.  Hur- 
bert  V.  Mechanics  Bldg  <fc  Loan  Ass'n,  17 
N.J.  Eq.  497  (1804),  and  the  pledgor's 
interests  protected.  Gould  u.  Farmers 
L.  <fe  T.  Co  ,  23  Ilun,  322  (18.S0).  In 
case  of  a  wrongful  repledge  liie  [iledgor 
may  claim  tiie  prucC"  ds  or  redeem  the 
stock  from  the  tsec'ind  pledgee.  (Cham- 
berlain v.  (ireenleaf,  4  Ahb.  N.  C.  178 
(1878).  Where  the  second  ])leJgce  has 
sold  tiie  stock  fornon-paymont  of  hisdebt, 


the  first  pledgor  may  claim  the  excess, 
the  aiixjunt  retained  by  the  repledgee  be- 
ing more  than  the  first  pledgor's  debt.  Re 
Bonner,  i  Daly,  75  (1878). 

■*  Lawrence  v.  Maxwell,  53  N.  Y.  19; 
Robinson  v.  Hurley,  11  Iowa,  412;  O'Xeill 
V.  Whigham,  88  Penn.  St.  394;  Rozet  v. 
McClellan,  48  111.  345  ;  Smou^e  v.  Bail, 
1  Grant,  397;  Taggard  »;.  Centi-nius,  15 
Wend.  155;  Fisher  v.  Fisher,  98  Mass. 
303  ;  Napier  v.  Central,  &.c.  Bk. ,  68  Ga. 
637,  holding,  however,  that  where  the 
pl(  d.,'ee  does  not  sell,  because  he  and 
others  were  "bearing"  the  market,  tliere 
may  be  an  element  of  fraud  which  gives  a 
cause  of  action, 

'>  And  the  pledgor's  assigree  for  tho 
benefit  of  creditors  may  claim  it.  The 
pledgee  bank  has  no  banker's  lien  on  the 
surplus  for  otiier  debts.  T.rown  v.  New 
Bedford  Inst,  for  Sav.  137  Mass.  262 
(1881). 

"  Vaupell  V.  Woodsvard,  2  Snndf.  Ch. 
143(1844).  The  pledge  may  he  made  to 
secure  the  carrying  out  of  a  contract  and 
a   court  of    equity  will    foreclose  it   ul- 

4G1 


§  ^^0.] 


PLEDGE  OF  STOCK. 


[CH.  XXVI. 


an  intent  to  sell  the  stock,  and  may  so  sell  it,  without  any  judicial 
proceedings,  and  apply  tlie  proceeds  to  the  payment  of  the  debt.^ 
jS^o  express  power  to  sell  need  be  contained  in  the  memorandnm 
of  pledge  in  order  to  authorize  the  latter  remedy.  It  exists  by 
force  of  law. 

The  pledgee,  however,  is  not  bound  to  pursue  either  remedy, 
merely  because  the  debt  is  due  and  unpaid.^  He  need  not  sell 
the  stock  upon  the  maturity  of  the  note  secured,  nor  is  he  liable 
because  the  stock  declines  in  value.  He  may  sue  on  the  debt 
without  tendering  back  the  stock.^  The  pledgor  cannot  compel 
him  to  sell  by  merely  giving  him  notice  so  to  do.*  Nor  is  the 
pledgee  bound  to  sell  on  non-payment  of  the  debt,  although  the 
memorandum  of  pledge  expressly  authorizes  a  sale,  but  he  may 
file  a  bill  in  equity  to  foreclose  instead  of  pursuing  the  other  rem- 
edy.^ The  pledgee's  remedy  as  a  pledgee  is  never  by  attaching  the 
stock  and  selling  it  at  an  execution  sale.^   In  pursuing  such  a  pro- 


though  the  damages  are  unliquidated. 
Robinson  v.  Hurley,  11  Iowa,  410,  from 
which  it  seems  that  where  the  pledge 
was  made  without  a  written  transfer  of  the 
certificate  this  is  the  only  remedy.  See 
also  Merchants  Nat'l  Bk.  i.  Hall,  83  N.  Y. 
338  (1881);  Smith  v.  Co&le,  34  Leg.  In- 
tel. 58;  Blouiii  v.  Liquidators,  <fec.,  30 
La.  Ann.  714  (1878);  liiiggs  i>.  Oliver,  68 
K  Y.  336 ;  Johnson  v.  Dexter,  2  McAr- 
thur,  630. 

'  Story  on  Bailments,  9th  ed.  (1877) 
§  310,  saying  :  "The  law  as  at  present  es- 
tablished leaves  an  election  to  the  pawnee. 
He  may  fill  a  bill  in  equity  against  the 
pawnor  for  a  foreclosure  and  sale;  or  he 
may  proceed  to  sell  ex  niero  motu,  upon 
giving  due  notice  of  his  intention  to  the 
pledgor.  In  the  latter  case,  if  the  sale  is 
bona  fide  and  reasonably  made,  it  will  be 
equally  obligatory  as  in  the  first  case." 
The  leading  case,  allowing  this  remedy  of 
the  pledgee  against  the  pledge,  is  Tucker 
V.  Wilson,  5  Bro.  Par.  Cases,  193  (1714), 
rev'g  1  P.  Wms.  261.  In  Brown  v.  Ward, 
3  Duer,  660  (1854),  the  court  says:  "Since 
the  time  of  the  case  of  Hart  v.  Ten  Eyck 
[2  Johns.  Ch.  Cas.  180],  before  Chancellor 
Kent,  the  right  of  the  pledgee  to  sell  af- 
ter the  debt  is  due,  upon  reasonable  no- 
tice, has  been  unquestioned,  and  a  custom 
has  grown  up  and  has  been  sanctioned  by 
the  courts  of  selling  stocks  at  the  Mer- 
chants Exchange."  To  same  effect,  Dil- 
ler  «.  Brubaker,  52  Penn.  St.  498(1866); 
Finney's  Appeal,  59  Penn.  St.  398(1868); 

462 


Mount  Holly,  &c.,  Co.  v.  Ferree,  17  N. 
J.  Eq.  117  (1864),  where  the  court  says, 
"A  sale  of  a  pledge  by  the  pawnee  where 
reasonably  and  bona  fide  made,  and  after 
notice  to  the  pawnor,  is  equally  obliga- 
tory as  if  made  by  judicial  process."  2 
Kent's  Com.  582,  saying  that  the  pledgee 
"  may  file  a  bill  in  chancery  and  have 
a  judicial  sale  under  a  regular  decree  of 
foreclosure  .  .  .  and  he  may  sell 
without  judicial  process,  upon  giving 
reasonable  notice  to  the  debtor  to  re- 
deem." Stearns  v.  Marsh,  4  Denio,  227 
(1847)  ;  Markham  v.  Jrtudon,  41  N.  Y. 
235,  241  (1869).  The  parties  may  pro- 
vide for  any  manner  of  disposing  of  the 
pledge  to  satisfy  the  claim  upon  it,  which 
is  not  in  contravention  of  statute,  against 
public  policy  or  fraudulent.  McNeil  v. 
Tenth  Nat'l  Bk.,  46  N.  Y.  325,  334,  says: 
"  The  distinction  between  a  lien  and  a 
pledge  is  said  to  be  that  a  mere  lien 
cannot  be  enforced  by  sale  by  the  act 
of  the  party,  but  that  a  pledge  is  a  lien 
with  a  power  of  sale  superadded." 

"^  O'Neil  V.  Whigham,  87  Penn.  St.  394 
(1878);  Rezet  v.  McClellan,  48  HI.  345 
(1868).     , 

*  Taylor  v.  Cheever,  6  Gray,  146. 

<  See  §  476. 

^  Cornick  v.  Richards,  3  Lea  (Tenn.), 
1  (1879);  Coffin  v.  Cliicago  &  N.,  <t'C.,Co., 
4  Hun,  625  (1875). 

6  Lee  V.  Citizen's  Natl.  Bk.,  2  Cin.  Su- 
per.  Ct.  298  (1872).  It  seems,  however, 
that  his  remedies  as  a  pledgee  are  not  af- 


CH,  XXVI,] 


PLEDGE  OF  STOCK. 


[§  477. 


cednre,  he  abandons  his  character  as  pledgee,  and  retains  that  of 
creditor  only. 

§  477.  Notice  of  sale  of  stocic  hj  pledgee  to  a'pphj  to  debt  se- 
cured.— In  case  the  pledgee  pursues  the  remedy  of  selling  the 
stock,  without  any  judicial  proceedings,  he  must  give  the  pledgor 
reasonable  notice  of  the  intent  to  sell  and  of  the  time  and  place 
of  sale.^  A  sale  without  a  notice  is  a  conversion  of  the  stock.^ 
The  pledgee  must  demand  payment  of  the  debt  secured  by  the 
pledge  of  stock,  and  a  waiver  of  notice  of  sale  is  not  a  waiver  of 
a  right  to  have  such  a  demand  made.^  A  notice  of  intent  to  sell, 
however,  is  equivalent  to  a  demand  of  payment.*  A  broker's 
custom  to  the  effect  that  no  notice  is  necessary  is  illegal  and  void.^ 
The  time  and  place  of  the  proposed  sale  must  be  specified  in  the 
notice.^  The  time  between  the  service  of  the  notice  and  the  time 
when  the  sale  is  to  take  place  must  be  reasonable  in  length,  so  as 
to  give  the  debtor  an  opportunity  to  obtain  money  to  pay  the 
debt.^     in  Massachusetts,  by  statute,  sixty  days'  notice  must  be 


fected  by  his  pursuit  of  other  remedies. 
See  Hill  v.  Beebe,  13  N.  Y.  556,  563,  567. 
'  "  To  authorize  the  defendants  to  sell 
the  stock  purchased,  they  were  bound, 
first,  to  call  upon  the  plaintiff  to  make 
good  his  margin ;  and,  failing  in  that,  he 
was  entitled,  secondly,  to  notice  of 
the  time  and  place  where  the  stock  would 
be  sold  ;  which  time  and  place,  thirdly, 
must  be  reasonable."  Markham  v.  Jau- 
don,  41  N.  Y.  235,  243  (1869).  See  also 
Stratford  v.  Jones,  97  N.  Y.  586  (1885); 
Baker  v.  Drake,  66  N.  Y.  518  (1876); 
Conyngham's  Appeal,  57  Penn.  St.  474; 
Stearns  v.  Marsh,  4  Denio,  227  ;  Neiler  v. 
Keiley,  69  Penn.  St.  403  ;  Cushraan  v. 
Have?,  46  111.  145.  A  joint  owner  is  en- 
titled to  notice.  Clark  v.  Sparhawk,  2 
Weekly  Notes,  115. 

'  Fowle  V.  Ward,  113  Mass.  548  (1873); 
Hemppling  v.  Jiurr,  26  Northwest,  llep. 
496  (Mich.,  1886). 

^  Lewis  V.  Graham,  4  Abb.  Pr.  106 
(1857);  Brass  r'.  Worth,  40  Barb.  59 
(1863);  Wilson  v.  Little,  2  N.  Y.  443,  448 
(1849),  saying:  "It  is  well  settled  that 
where  no  time  is  expressly  fixed  by  con- 
tract lietween  the  parlies  lor  the  payment 
of  a  debt  secured  by  a  pledge,  tlie  pawnee 
cannot  se'l  the  pledge  witlioiit  a  previous 
demand  of  pavment,  altlioiigli  tiie  debt  is 
technically  due  immediat.rly."  Genet  v. 
Uowland,  4  5  Barb.  560  (1866). 


*  Nabring  v.  Bk.  of  Mobile,  58  Ala, 
204  (1877).  So  also  of  notice  of  intent  to 
foreclose.     Howe  v.  Bemis,  2  Gray,  203. 

"  Markham  v.  Jaudon,  41  N."  Y.  235 
(1869). 

^  Conyngham's  Appeal,  57  Penn.  St. 
474  (1868);  Genet  v.  Howland,  supra; 
Canfield  v.  Minn.,  <fec.,  Assn.,  14  Fed. 
Rep.  801.  See  Schouler  on  Bailments, 
206-212.  It  has  been  held  in  Maryland 
that  a  notice  of  the  place  is  uiiiuMU'ssar}^ 
Worthington  v.  Tormey,  34  Md.  182.  But 
such  a  decision  would  be  unsafe,  and 
probably  would  not  be .  followed  else- 
where. In  New  York,  the  place  of  sale 
formerly,  by  custom,  was  at  the  Mer- 
chants' Exchange,  No.  Ill  Broadway, 
but  is  now  at  the  Ileal  Estate  Ex- 
change in  Liberty  Street. 

''  In  Maryland,  Ac,  Co.  v.  Dalrymple, 
25  Md.  242,  a  week's  notice  was  held  suf- 
ficient. Lewis i;.  Graham,  4  Abb.  Pr.  106 
(1857),  holding  that  34  days,  where  the 
pledgor  resides  in  Illinois  and  the  sale  ia 
to  he  in  New  York,  is  sufficient.  Hryan 
V.  Baldwin,  7  Lons.  174  (1H72);  alli'd,  52 
N.  Y.  232,  holding  that  two  days  was 
sufficient.  Stevens  i.  Ilurllmt  Bk.,  31 
Conn.  146(1862),  liolding  that  a  saloon 
the  same  day  is  unreasonable  and  the  no- 
tice insullieient.  See  other  eases  in  Chap- 
ter XXV,  tj  458;  Willoiighby  v.  Corn- 
stock,    3    Hill,    389    (1842j,    where    two 

4C3 


§  478.]  PLEDGE   OF   STOCK.  [CH.  XXVI. 

given.^  A  notice  by  a  newspaper  advertisement  is  insufficient.'^ 
It  must  be  served  personally,  and  it  seems  that  it  cannot  be 
served  on  one  who  has  charge  of  the  pledgor's  office  for  the 
transaction  of  business.^  By  an  express  agreement  the  pledgor 
may  waive  his  right  to  a  notice  of  the  time  and  place  of  the  sale.* 
Such  contracts  are  frequently  entered  into  with  stock-brokers  by 
customers  buying  stock  on  a  margin.  But  an  express  power  to 
the  pledgee  to  sell  the  pledge  on  certain  contingencies  is  not  a 
waiver  of  a  right  to  notice.^ 

§  478.  Formalities  of  sale. — A  sale  of  stock  on  notice  by  a 
pledgee,  for  the  purpose  of  applying  the  proceeds  to  the  pledgor's 
debt,  must  be  at  public  auction.^  A  private  sale  is  unauthorized 
and  illegal,  even  though  the  utmost  market  price  is  obtained.' 
The  pledgee  cannot  have  the  sale  made  at  a  broker's  board  or  in 
a  Stock  Exchange,  since  only  the  members  of  the  association  are 
allowed  to  bid  for  stocks  sold  therein,  while  the  law  requires  that 
the  public  shall  be  allowed  to  bid  at  a  pledgee's  sale.^  Frequently 
a  special  agreement  is  made  between  the  pledgor  and  pledgee,  es- 
pecially between  a  customer  and  his  stock-broker,  whereby  the 
pledgee  is  allowed  to  sell  at  a  broker's  board.^  Such  an  agree- 
ment, however,  does  not  authorize  a  private  sale  at  the  broker's 
board.^° 

days  -was  held    sufficient.     Edwards    on  of  notice.     Bryson  v.  Raynor,  25  Md.  424 

Bailments,    285.     As    to    place    of   sale,  (1866). 

see  Chapter  XXV,  §  458  and  §  476.  «  Conyngham's  Appeal,  51  Penn.  St. 

1  Gen.  Stat.  c.  151,  §  9.  474  (1868);  Rankin  v.   McCullough,   12 

2  Lewis  V.  Graham,  mpra  ;  and  see  Barb.  103(1851);  Genet  v.  Howland,  45 
g  ]ig  Barb.  560  (1866);  Ogdeu  v.  Latbrop,  65 

■i  Bryan  ^.Baldwin,  52  N.Y.  232  (1873).  N.  Y.  158  (1875).     An  express  power  to 

C/.ilillikenw.  Dehon,  27  N.Y.  g64  (1853).  sell  has  been  held  to  authorize  a  private 

"«  Maryland  Fire  Ins  Co.  v.Dalrymple,  sale.      Bryson  v.   Raynor,    25   Md.   424 

25  Md    242  (1866);  Genet  v.  Howland,  (1866).     Or  a  sale  at  a  broker's  board. 
«Mm-a;'andsee  Ch.  XXV,  §§  459,  462;  '  Castello  v.  City  Bk.  of  Albany,  1 

Milliken  v.  Dehon,  27  X.  Y.  364  ;  Stevens  Leg.  Obs.  25  (1842);  Willoughby  v.  Loin- 

V  Hurlbut  Bk.,  31  Conn.  146;  Hyatt  v.  stock,  3  Hill,  389  (1842).  Cf.  Nabring  v. 
Ar"-enti,  3  Cal.  151;  Wheeler  v.  New-  Bk.  of  Mobi  e,  58  Ala.  205  (1877).  i  he 
bould,  16  N.  Y.  3'.t2;  Stenton  v.  Jerome,  pledgee's  right  to  object  is  waiver!  by 
54  N.' Y.  480;  Wicks  v.  Hatch,  62  N.  Y.  long  delay.  Hayward  v.  Natl.Bk.,  96  U. 
635       Formerly  the  validity  of  a  waiver  S.  611  (1877). 

was'  doubted.       Campbell   v.   Parker.    9  »  Brass  u.  Worth,  40  Barb.  648  (1883); 

Bosw.  322;  Wilson  f.  Little,  2  N.  Y".  443,  Rankins  v.   McCullough,    12   Barb.    103 

448;  Gilpin  v.  Howell,  5  Penn.  41;  Hanks  (1851). 

V  Drake  40  Barb.  186  ;  Sterling  v.  Jau-  '  Wicks  v.  Hatch,  62  N.  Y.  535  (1875). 
don  48  id    459.  In   Maryland    a   contrary  rule  prevails. 

6  Stevens  v.  Hurlbut  Bk.,  31  Conn.146  Maryland  Fire  Ins.  Co.  v.  Dalrymple,  25 

(1862).     Cf.  Milliken  v.  Dehon,  27  N.  Y.  Md.  242  (1866).     See  Ch.  XXV. 
364  (1863).     But  an  express  power  to  sell  >"  Allen  v.  Dykers,  3  Hill,  593;  7  Id. 

on  a  specified  day  is  held  to  waive  right  497. 

464 


CH.  XXTI.] 


PLEDGE  OF  STOCK. 


[§  -iT9. 


§  479.  Pledgee  himself  cannot  piwchase  at  the  sale. — It  is  a 
■vrell  established  rule  that  where  a  pledgee  pursues  the  remedy  of 
selling  the  stock  upon  notice,  the  pledgee  himself  is  disqualified 
from  purchasing  the  stock.^  This  rule  is  based  on  the  principle 
that  the  law  carefully  protects  the  interest  of  the  pledgor,  and 
will  not  open  the  door  to  jDOSsible  devices  of  the  pledgee  for  pur- 
chasing the  stock  for  himself  at  a  low  price.  The  pledgee  cannot 
purchase  either  directly  or  indirectly,  in  his  own  name  or  in  the 
name  of  another.  Tiie  eifect  of  a  purchase  by  the  pledgee  for 
himself  is  that  the  whole  proceeding  of  the  pledgee  for  subjecting 
the  pledge  to  the  payment  of  the  debt  is  utterly  futile,  and  void- 
able at  the  election  of  the  pledgor.  The  pledgor  cannot  claim 
that  the  pledgee  has  converted  the  stock  by  purchasing  at  the 
sale,^  but  he  may  disregard  the  notice  and  sale  and  whole  proceed- 
ing as  being  ineffectual  and  voidable.  The  pledge  relationship 
continues  as  though  no  attempt  had  been  made  by  the  pledgee  to 
subject  the  pledge  to  the  payment  of  the  debt.^  Where,  however, 
the  pledge  is  foreclosed  by  legal  proceedings  similar  to  those  for 
the  foreclosure  of  chattel  mortgages,  it  seems  to  be  in  the  power 
of  the  court  to  insert  in  the  decree  a  provision  allowing  tl^e 
pledgee  to  purchase  on  the  sale. 


>  Brvan  v.  Baldwin,  52  N.  V.  232 
(1873),  the  court  saying:  "The  plaintiff 
being  the  pledgee  of  the  stock,  and  in  that 
character  exposing  it  for  sale,  could  not 
become  the  purchaser  unless  the  defend- 
ant assented  to  such  purchase.  This  sale 
to  the  plaintiff  was  not  void,  but  voidable, 
at  the  election  of  the  defendant."  Mary- 
land Fire  Ins.  Co.  v.  Dalrymple,  25  Md. 
242  (1860).  Nor  can  he  buy  where  the 
pledge  is  being  sold  on  a  forfeiture  sale 
for  non-payrnent  of  calls.  Freeman  v. 
Ilarwood,  49  Me.  195  (1859).  The  pledg- 
or's silence  may  constitute  a  ratification 
of  the   pledgee's   purchase.      Carroll   v. 


MuUanphy  Sav.  Bk.,  8  Mo.  App.  249 
(1880).  If  the  pledgee  is  n  corporation, 
its  president  cannot  purchase  for  it.  Star 
Fire  Ins.  Co.  v.  Palmer,  41  Super.  Ct.  267 
(1876);  Lewis  v.  Graham,  4  Abb.  Pr.  106 
(1857),  holds  that  a  special  partner  of  the 
pledgee  firm  may  purchase.  And  see 
Chap.  XXV,  §  450.  Qf.  Finney's  Ap- 
peal, 59  Penn.  St.  398  (1868). 

*  Bryan  v.  Baldwin,  52  N.  Y.  232 
(1873). 

3  Bryson  v.  Raynor,  25  Md.  424  ( 1 806); 
Middlesex  Bk.  v.  Minot,  45  Mass.  326 
(1812;  ;  Ilestonville,  <tc.,  K.  R.  Co.  v. 
Sheilds,  3  Brews.  (Penn.)  257(1809). 


[30] 


465 


CHAPTER  XXVII. 

LEVY  OF  ATTACHMENT  AND  EXECUTION  UPON  SHARES  OF 

STOCK. 


^5  480.  An  execution  at  common  law  could 
not  reach  shares  of  stock. 

481.  Nor,   it  seems,   could  a  court  of 

equity  subject  stock  to  the  pay- 
ment of  debts. 

482.  "By    statutory  provisions,  execu- 

tions are  generallj'  suiBcient  to 
reach  the  debtor's  stock. 

Attachment  of  stock  as  allowed 
by  the  statutes  of  the  various 
States. 

Attachment  of  pledge,  &c.,  and 
of  stock  which  the  debtor  has 
fraudulently  transferred  away. 

485.  Stock  can  be  attached  only  in  the 
State  creating  the  corporation. 

486.  Rights  of  an  unregistered  trans- 
feree of  a  certificate  of  stock  as 


483. 


484. 


against  an  attachment  or  execu- 
tion levied  on  that  stock. 
§  487.  Rule  in  New  York,  Pennsylvania, 
New  Jersey,  South  Carolina, 
Texas,  Louisiana,  and  the  Fed- 
eral Courts. 

488.  Rights  and  duties  of  the  corpora- 

tion in  such  cases. 

489.  Rule     in      Connecticut,      Maine, 

New  Hampshire,  Vermont,  Indi- 
ana, Illinois,  Wisconsin,  and 
California. 

490.  Rule  in  Massachusetts. 

491.  Shares  of  stock  cannot  be  subject- 

ed to  the  payment  of  the  stock- 
holder's debts  by  the  process  of 
garnishment. 


§  480.  An  execution  at  common  laiv  couJd  not  reach  shares 
of  stock. — A  share  of  stock  is  in  the  nature  of  a  chose  in  action, 
and  at  common  law  a  chose  in  action  conld  not  be  reached  by  or 
made  subject  to  a  levy  of  execution.  Consequently  it  has  been 
uniformly  held  by  the  courts  that  at  common  law  a  levy  of  execu- 
tion could  not  be  made  on  shares  of  stock.  Unless,  therefore, 
the  process  of  execution  has  been  extended  by  statute,  so  as  to 
reach  such  property,  the  stock  of  a  judgment-debtor  cannot  be 
subject  to  the  payment  of  his  debts  by  means  of  an  execution.^ 
An  attachment,  being  entirely  statutory,  can  be  levied  on  shares 


'  Van  Norman  v.  Jackson  County  Cir- 
cuit Judge,  45  Mich.  204  (1881) ;  Goss  v. 
Phillips,  (fee.  Co.,  4  Bradw.  510  (1879); 
Blair  v.  Compton,  33  Mich.  414  (1876)  ; 
Slaymaker  «.  Bank  of  Gettysburg,  10 
Penn.  St.  &Y3  (1849);  Foster  v.  Potter, 
37  Mo.  525  (1866) ;  Howe  v.  Starkweather, 
17  Mass.  240  (1821);  Nabring  v.  Bk.  of 
Mobile,  58  Ala.  204  (1877);  Denton  v. 
Livingston,  9  Johns.  96  (1812),  per  Chan- 
cellor Kent ;  Nashville  Bk.  v.  Ragsdale, 
Peck(Tenn.),   296  (18-i3).     Even   where 

466 


the  stock  is  held  to  be  real  estate.  Cooper 
V.  Canal  Co.,  2  Murph.  (N.  C.)  195  (1812). 
Cf.  Gue  V.  Tidewater  Canal  Co.,  24  How. 
(U.  S.)  257  (1860).  At  an  early  day, 
when  the  nature  of  stock  was  little  under- 
stood, an  attachment  was  attempted  on 
the  corporate  property  for  the  debts  of 
a  stockholder.  It  failed.  Williamson  v. 
Smoot,  7  Mart.  (La.)  31  (1819).  Stock 
cannot  be  taken  on  a  tax  warrant.  Barnes 
V.  Hall,  55  Vt.  Rep.  420. 


CH.  XXVII.]  ATTACHMENT   AND   EXECUTION.  [§§  481,  482. 

of  stock  only  when  the  words  of  tlie  statute  declare  that  an  attach- 
ment may  be  levied  on  such  property.^ 

§  481.  Nor,  it  seems,  could  a  court  of  equity  subject  stoclc  to  tlie 
payment  of  debts, — There  is  some  doubt  whether  a  court  of  equity 
has  power  to  subject  a  judgment-debtor's  choses  in  action  to  the 
payment  of  his  debts,  where  the  only  ground  for  the  interference 
of  the  court  is  that  unless  it  does  interfere,  such  property  cannot 
be  reached  by  the  judgment-creditor.  In  New  York,  previous  to 
the  statutes  regulating  this  subject,  the  jurisdiction  of  a  court  of 
equity  herein,  was  emphatically  denied  in  one  case,^  and  with 
equal  emphasis  declared  to  exist  in  another  case.^  The  English 
authorities  are  quite  uniform  in  holding  that  a  court  of  equity 
has  no  such  jurisdiction.^  And  in  America,  for  the  most  part,  a 
similar  conclusion  is  arrived  at.^  Where,  however,  the  debtor 
has  conveyed  away  his  stock,  for  the  purpose  of .  defrauding  his 
creditors,  a  court  of  equity  will  aid  the  judgment-creditor,  inas- 
much as  it  has  jurisdiction  in  all  mattei's  involving  fraud,  trust, 
or  accident,  or  other  ingredient  of  similar  character.^ 

§  482.  By  statutory  provisions,  executions  are  generally 
sufficient  to  reach  the  dehtor^s  stock. — Nearly  all  of  the  States 
of  the  Union  have  enacted  statutes  extending  the  scope  of  execu- 
tions, so  as  to  render  subject  to  them,  all  choses  in  action,  includ- 
ing shares  of  stock  in  a  corporation.  Frequently  special  pro- 
visions are  made  applicable  to  stock  and  prescribing  the  steps 


'  Plimpton  V.  Bigelow,  03  N.  Y.  592,  ^  Williams   v.  Reynolds,  1    Ind.    (.22 

602(1883);  Merchants  :Slut.   Ins.  Co.  v.  (1856);  Disborough  v.  Outcalt,  Saxton's 

Brower,  38  Texas,  230  (1813).  Ch.  (N.    J.)  298,  306    (1831);  McFerran 

2  Donovan  v.  Finn,  Hopk.  Ch.  67,  91  v.  Jones,  2  Litt.  (Ky.)  219  (1822);  Erwin 

(1823).  V.  Oldman,  6  Yerg.   185(1834).     Contra, 

'  Storm  V.  Waddell,  2  Sand.  Ch.  495,  didum,  Watkins  v.  Dorsett,  1  Bland's  C'li. 

511  (1845).  530  (1828)      In  Hrightwell  v.  Mallory,  10 

*  Dundas     v.    Dutens,     1    Ves.    196  Ycrg.  (Tenn.)   198  (1830),    the  proceed- 

n790) ;  Bk.  ofEng.  v.  Lunn,  15  Ves.  569  in g  was  statutory. 

(1809);  Grogan   v.    Cooke,  2   Ball  <fe   B.  " «  See    §§    339,    340.    on    Statute   of 

(Ir.  Ch.)  230(1812);  Nantes  v.  Corrock,  Frauds;  alVo  Tavlor  v.  Jones,  2  Atk.  60G 

9  Ves.  183  (1803) ;  McCartliy  v.  Gould,  1  (1743),  holding  that  tlie  debtor's  transf.-r 

Ball    <fe    B.  (Ir.    Ch.)   387  (1810),  apply-  of  stock  in  trust  was  in  fraud  of  creditors. 

ing  the  same  rule  to  dividends.     In  King  Dadden  v.  Spader,  20  Johns.   (N.  Y.)  .')54 

V.    Dupinc,   2   Atk.    003,    note    (1744),    a  (1822);      Scott    v.     Indianapolis     Wagon 

court  of  equity  sidijected  to  the  payment  Works,  48  Ind.   75  (1874);    Van  Norman 

of  a  debt  the  debtor's  reversionary  inter-  v.  Jackson  Circuit  Judge,   45   Mich.  204 

est  in  an    annuity.      In    Horn    v.   Horn,  (1881);  Lathrop  !^.  McBuruey,  71  Ga.  816 

AmbI    79  (1749),  the  court  rcfuped    aid,  (1883). 
inasmuch     as    the  debtor   had  been    im- 
prisoned under  a  cap.  s  Uis. 

407 


4^2.] 


ATTACHMENT   AND   EXECUTION. 


[cn.  XXVIT. 


whicli  are  necessary  in  rendering  the  execution   levy  effectual. 
Where  an  execution  is  levied  in  accordance  with   such  statutes, 
its  provisions  must  be  substantially  complied  with,  and  if  not 
complied  with,  the  sale  is  not  merely  voidable,  but  is  wholly  un- 
authorized and   void.^     It  is  fatal  to  the  levy  and  sale,  if  the 
sheriff  fails  to  give  to  the  corporation  the  notice  as  is  generally 
required  by  statute;^  or  if  the  sale  by  the  sheriff  is  not  made 
promptly,  as  advertised  in    accordance    with   the  statute.'     The 
sale  itself   is    not  complete  until  the  sheriff  gives    the   proper 
instruments  of  title  to  the  purchaser,  and  until  then  the  corpora- 
tion is  not  obliged  to  recognize  the  latter  as  having  any  rights." 
"Whether  or  not  an   execution  can  be  levied  on  stock  which  has 
been  fraudulently  transferred  away  by  the  judgment-debtor,  de- 
pends upon  the  wording  of  the  statute  allowing  the  levy  of  execu- 
tion on  stock.     If  it  allows  a  levy  on  all  interests  of  the  debtor, 
whether  legal  or  equitable,  then  the  fraudulent  transfer  may  be 
disregarded,  and  the  stock  seized  as  though  still  standing  in  the 
name  of  the  judgment-debtor.^     If,  however,  the  statute  does  not 
expressly  provide  for  a  levy  on  an  equitable  interest,  the  judg- 
ment-creditor's remedy  is  not  an   execution,  but  a  suit  in  equity 


1  Blair  v.  Compton,  33  Mich.  414  (1876), 
holding  that  where  the  sheriff  sold  with- 
out knowing  or  stating  how  many  shares 
of  stock    the  debtor  owned,  and  which 
were  being  sold,  that  the  sale  was  void. 
See  also  People  v.  Goss,  &c.,  Mfg.  Co.,  99 
111.  356  (1881),  reversing  Goss,  (fee,  Mfg. 
Co.  V.  People,  4  Bradw.   510,   the  court 
Srtying,  that    in   Illinois  an  actual  levy 
upon  sliares  of  stock  held  by  a  debtor  in 
a  corporal  ion   is    accompli -hed    by    the 
sheriff,    when   he   has   exhibiled   to   the 
keeper  of  the  stock  books  of  the  corpora- 
tion his  execution,  and  on  demand,  for  the 
purpose  of  the  levy,   has   procured   and 
received  from  the  corporation  "  a  certifi- 
cate of  the  number  of  shares  or  amount 
of  interest  held  by  the  judgment-debtor," 
and  has  indorsed   upon  his   execution  a 
statement  that  the  shares  named  in  the 
certificates    are   taken   in    execution,  or 
levied  upon.    When  the  sheriff  delivers  to 
the   proiier  officer  of  the  corporation  an 
attested  copy  of  the  execution,  the  stock 
of  the  debtor  is  considered  as  seized  on 
execution,  this  being  a  constructive  levy. 
The  procedure  in   levy  of  execution  on 
stock,  as  laid  down  by  the  charter  of  the 
corporation,  supersedes  the  pi-ocedure  of  a 

468 


previous  general  statute.  Tit  comb  v. 
Union  Marine,  &c.,  Ins.  Co.,  8  Mass.  326 
(1811).  And  vice  versa,  Howe  v.  Stark- 
weather, 11  Mass.  240  (1821).  The 
sheriff'  need  not  sell  the  stock  in  parcel.-^, 
but  may  sell  th-.'  whole  at  once.  Morris 
V.  Conn.  <fec.,  it.  R.  Co.  (Montreal  Ct.  of 
Appeals,  Septembir,  1886). 

•-'  Princeton  Ilk.  v.  Crozer,  22  N.  J. 
Law,  383  (1850),  where  no  notice  was 
given,  but  the  stock  was  merely  men- 
tioned in  the  inventory  returned  by  the 
sheriff. 

2  Titcomb  v.  Union  Marine,  <fec.,  Ins. 
Co.,  8  Mass. 326  (1811),  and  Howe  ?'.Stark- 
weather,  17  Mass.  240(1821),  where  the 
sale  was  made  after  the  proper  day,  with- 
out a  re-advortisement,  and  consequently 
was  held  to  be  void.  The  court  said, 
"  The  sale  of  them  upon  execution  not 
being  justifiable  at  common  law,  the 
statute  must  be  strictly  pursued  to  give 
any  property  to  the  purchaser." 

*  Morgan  v.  Thames  Bk.,  14  Ci^nn.  99 

(1840). 

^  Scott  V.  Indianapolis  Wagon  Works, 
48  Ind.  75  (1874).  Of.  State  v.  Warren 
Foundry,  &c.,  Co.,  32  N.  J.  L.  439 
(1868). 


CH.  xxvn.] 


ATTACHMENT   AND   EXECUTION. 


[§483. 


to  set  aside  the  fraudulent  transfer.^  If  the  statute  prescribes 
that  the  corporation  shall  register  as  a  stockholder  the  purchaser 
at  the  execution  sale,  the  writ  of  mandamus  will  lie  to  compel 
the  corporation  to  make  such  registry,^  but  the  relator  must  allege 
that  he  presented  to  the  corporation  the  required  papers,  and  was 
refused  such  registry.' 

§  483.  Attacliment  of  stock  as  allowed  hy  the  statutes  of  tlie 
imrious  States. — The  States  of  the  Union  have  quite  generally 
passed  statutes  providing  for  the  attachment  of  a  debtor's  property 
where  the  debtor  is  a  non-resident,  or  is  guilty  of  a  fraud,  or 
where  other  facts  exist  which  bring  the  case  within  the  attach- 
ment statute.  Inasmuch,  as  in  modern  times,  a  large  part  of  the 
property  of  individuals  consists  of  shares  of  stock  in  corporations, 
the  attachment  statutes  generally  provide  specially  for  the  attach- 
ment of  stock,  and  give  specific  directions  in  reference  to  the 
steps  necessary  to  be  taken  in  making  such  attachment.*  In  New 
York  an  attachment  of  stock  is  provided  for,  but  an  execution 
without  a  previous  attachment  is  not  allowed.^     It  has  been  held 


'  Van  Norman  v.  Jackson  County  Cir- 
cuit Judue,  45  Mich.  204  (1881). 

-  Biiiley  v.  Strohecker,  38  Ga.  259 
(1868).     See  also  §  390. 

3  Lippett  V.  American  Wdod  Paper 
Co.,  14  K.  I.  301  (1883). 

•*  Cal.,  Code  of  C.  Proc.  §  5141  ;  Colo- 
rado, Code  of  C.  Proc.  §  97  ;  Conn.,  Gen. 
Stat.  (1875),  §  6;  Ga.,  Code  of  1882, 
g§  3289-3291;  Ind.,  R.  S.  (1881),  §  933; 
Iowa  (McClain's  Annotated  Stat.  1880), 
§  2967  ;  Maine,  R.  S.  1884,  ch.  81,  §  27  ; 
Md.,  R.  Code  of  1874,  §  20;  Mass.,  Public 
Stat.  1882,  ch.  161,  i;§  71-73 ;  Mich. 
(Howell's  Annotated  St;it.  1883);  Minn., 
Gen.  Stat.  1878,  5^  156;  Mo.,  R.  S.  1S79, 
j;  4!7;  Neb.,  Com.  Laws  1881,  ch.  3, 
g  201  ;  Nc-v.,  Gen.  Stat.  1885,  ch.  4, 
g§  3149,31."i0;  New  Hampshire,  Gen.  L. 

1878.  cli.  224,  t5  13  ;  N.  Y.,  Code  of  Civil 
Proc,  §  647;  also   §  649,  as  anid.  by  L. 

1879,  ch.  541,  also  ;;§  050,  651,  708  (2); 
Ohio,  R.  S.  1880,  title  1.  div.  6,  ch.  2, 
^  5524;  Pcnn,,  Hri-litley's  P.  Dig.,  g  71; 
8.  C,  Code  of  C.Pn.c.cli.  4,  8^256-258; 
Wis.,  R.  S.  1878.  ^  2738.  Where  both 
an  attachment  and  an  execution  on  stock 
is  alloweil  by  statute,  the  former  is  said 
to  be  tlic  preferable  remedy  when  the 
corporation  has  a  lien  on  the  ^tock,  or 
there  is  a  claimant  to  the  stock.     Weaver 


V.  Huntino-don,  <fec.,  Coal  Co.,  50  Penn.  St. 
314  (1865);  Lex  v.  Potters,  16  Penn.  St. 
295  (1851).  In  New  York  shares  of  stock 
cannot  be  levied  on  under  a  writ  of  ex- 
ecution, although  they  may  be  attached 
and  subsequently  sold  by  execution  in 
that  suit.  Code  of  Civil  Procedure, 
§§  649-651.  See  4  Wait's  Pr.  36,  J. 
Stock  may  be  reached,  however,  by  pro- 
ceedings supplementary  to  execution. 
See  in  general,  Barnes  ;•.  Morgan,  3  Hun, 
703.  Under  the  English  statutes,  1  ifc  2 
Vict.,  c.  110,  §  14,  and  3  <fe  4  Vict.,  c.  82, 
§  1,  stock  in  any  public  company  stand- 
ing in  the  name  of  any  per.^on  ngaiiist 
whomjudgmcnt  shall  have  been  obtained, 
whether  "  in  his  own  right  or  in  the  name 
of  any  person  in  trust  for  hiTri,"  may  be 
charged  by  a  judge's  order  with  the  pay- 
ment of  the  amount  of  the  judgment. 
The  statute  says :  "  The  interest  of  any 
judgment-debtor,  whether  in  possession, 
remainder,  or  reversion,  and  whetlier 
vested  or  contingent,"  may  be  so  reached. 
Cragg  V.  Taylor,  L.  R.,  2  Ex.  131  (1867) ; 
Baker  v.  Tynte,  2  Ell.  &  E.  897  (1860). 

'  O'Brien  v.  Mechanics  <fe  T.  Ins.  Co., 
56  N.  Y.  52  (1874);  Smoot  v.  Heira,  1 
Civ.  Proc.  Rep.  208  (1881),  aro  cases 
arising  under  the  attacliment  law. 

4fi9 


§  ^8i.] 


ATTACHMENT   AND   EXECUTION. 


[CH.  XXVII. 


that  shares  of  stock  may  be  attached  under  the  general  provisions 
of  an  attachment  law,  which  does  not  specify  shares  of  stock  as 
being  subject  to  an  attachment.^  The  formalities  prescribed  by 
the  statute  must  be  complied  with  fnlly,  as  iii  the  case  of  a  levy 
of  execution  upon  stock.* 

§484.  Attacliment  of  jjledge,  c&c,  and  of  stocli  ivMcli  the 
debtor  lias  frauduleyitly  transferred  away. — As  has  beeu  said  in 
the  case  of  an  execution  levied  on  shares  of  stock,  an  attachment 
may  be  levied  on  the  same,  when  the  words  of  the  attachment 
statute  are  so  broad  as  to  render  subject  to  the  attachment,  all 
equitable  interests  of  the  debtor  whose  stock  is  attached.  Thus 
it  has  been  held  in  Ohio  and  Xew  Jersey,  that  where  the  debtor 
has  transferred  away  liis  stock,  for  tlie  purpose  of  defrauding  liis 
creditors,  an  attachment  of  the  stock  will  lie  nevertheless,^  An 
attachment  may  be  levied  upon  stock  although  the  stock  has  been 
mortgaged  or  pledged,  and  the  attMching  creditor  is  seeking  to 
i-each  merely  the  equity  of  redemption.*  An  attachment  is  not 
the  proper  remedy  for  a  pledgee  who  wishes  to  subject  the  pledge 


1  Chesapeake  &  0.  R.  R.  Co.  v.  Paine, 
29  Gratt.  (Va.)  502  (1877),  where  stock 
■was  held  to  be  included  under  the  word 
"estate,"  and  the  procedure  prescribed 
for  frarnishment  was  followed  and  upheld. 
So  also  Curtis  v.  Steever,  36  N.  J.  L.  R. 
304  (1873),  where  an  attachment  of  stock 
was  upheld,  though  the  statute  merely 
allowed  attachment  of  "rights  and 
credits."  In  Haley  v.  Reid,  Ifi  Ga.  437 
(1854),  however,  an  attachment  of  stock 
was  not  allowed  where  the  statute  allowed 
levy  "  upon  the  estate,  both  real  and  per- 
sonal." See  also  Merchants  M.  Ins.  Co. 
V.  Brower,  38  Texas,  230  (1873).  It  has 
been  held  that  there  can  be  no  attach- 
ment of  stock  under  a  statute  which 
allows  an  attachment  of  "real  and  per- 
sonal property."  Foster  v.  Potter,  37  Mo. 
525. 

"  «  Stamford  Bk.  v.  Ferris,  17  Conn.  259 
(1845),  where  the  attachment  failed,  be- 
cause the  sheriff  did  not  leave  a  copy  of 
the  writ  duly  indorsed,  with  the  corpora- 
tion, even  though  the  cashier  of  the  cor- 
poration was  absent.  A  transfer  subse- 
quent to  such  irregular  attachment  is  valid 
and  carries  title. 

3  Natl.  Bk.  of  N.  L.  v.  Lake  Shore  <t 
M.  S.  R.  R.  Co.,  21  O.  St.  221  (1871), 
holding  also  that  the  attachment  is  good, 

470 


even  though  the  corporation  deny  that 
the  defendant  owns  any  stock  therein. 
Curtis  V.  Steever,  36  N.J.  L.  Rep.  304 
(1873),  the  court  saying  that  the  attach- 
ment is  good,  since  the  fraudulent  trans- 
fer is  void,  and  holding  that  the  transferee 
may  bring  a  suit  for  trespass,  and  that 
the  attaching  creditor  may  then  set  up 
the  fraud  in  defense.  Cf.  State  v.  War- 
ren Foundry,  die,  Co.,  32  K  J.  L.  439 
(1868). 

^  Edwards  v.  Beugnot,  7  Cal.  162 
(1857),  holding  also  that  if  the  mortgage 
is  recorded  on  tiie  corporate  books,  no- 
tice must  be  served  on  the  mortgagee 
also,  and  that  where  one  attachment  was 
served  on  the  corporation,  and  another 
on  the  morts:as:ee,  that  the  latter  attach- 
meiit  prevails  and  takes  the  surplus. 
Norton  v.  Norton  (Ohio,  Nov.,  1885), 
holding  that  the  court  will  order  the 
stock  to  be  sold,  the  pledgee  paid  and  the 
balance  held  under  the  attachment.  A 
garnishment  for  the  surplus  is  ineffectual, 
ivyle  v.  Montgomery,  73  Ga.  337  (1884); 
Seeligson  ».  Brown,  61  Texas,  114  (1884); 
Mechanics,  <fec.,  Assn.  v.  Conover,  14  N. 
J.  Eq.  219  (1862);  Foster  v.  Potter,  37 
Mo.  525  ;  Manns  v.  Brookville  Natl.  Bk., 
73  Ind.  243  (1881);  Nabring  v.  Bk.  of 
Mobile,  58  Al:\  204  (1877). 


CH, 


XXYH.]  ATTACHMENT   AND   EXECUTION.  [§  4:85. 


to  the  payment  of  the  debt.^  His  remedy  is  by  foreclosure  or  a 
public  sale  on  notice  to  the  pledgor.  Dividends  on  the  stock 
which  is  attached  follow  the  stock,  and  are  covered  by  the  attach- 
ment.^ An  attachment  will  lie  in  Rhode  Island,  for  stock  which 
is  registered  in  the  name  of  a  person  other  than  the  defendant, 
the  transfer  by  the  defendant  having  been  in  fraud  of  creditors.^ 
Where  the  corporation  has  a  lien  on  stock  for  debts  due  from 
the  stockholder  to  the  corporation,  it  may  enforce  the  lien  by  an 
attachment.'* 

§  485.  Stocic  can  be  attached  only  in  ilie  State  creating  the 
coryoration. — Shares  of   stock  in   a    corporation    are  personal 
property,  whose  location  is  in  the  State  where  the  corporation 
is  created.*     It  is  true,  that  for  purposes  of  taxation  and  some 
other  similar  purposes,  stock  follows  the  domicile  of  its  owner, 
but  considered  as  property  separated  from  its  owner,  stock  is  in 
existence  only  in  the  State  of  the  corporation.     All  attachment 
statutes  provide  for  the  attachment  of  a  non-resident  debtor's 
property   in   the  State,  and  generally,  under  such  statutes,  the 
stock  owned  by  a  non-resident  in  a  corporation  created   by  the 
State  wherein  the  suit  is  brought,  may  be  attached  and  juris- 
diction  be  thereby  acquired   to  the  extent  of  the  value  of  the 
stock   attached.^      But  under   no   circumstances   can    an   attach- 
ment be  levied  on  a  defendant's  shares  of  stock,  in  an  action  com- 
menced outside  of  the  State  wherein  the  corporation  is  incor- 
porated.    For  purposes  of   attachment,  stock    is  located   where 
the  corporation  is  incorporated,  and  nowhere  else.''^     The  shares 
owned  by  a  non-resident  defendant  in  the  stock  of  a  foreign  cor- 
poration,  cannot  be  readied  and  levied   upon  by  virtue  of  an 
attacliinent,  although  officers  of  tlie  corporation  are  within  the 
State  engaged  in  carrying  on  the  corporate  business.^     Nor  can 

•Lee   V.  Citizens   Natl.   Bk..   2   Cin.  M.  S.  R.  R.   Co.,  21  O.  St.  221(1871); 

Super.  Ct.  298,  312  (1872).  Cliesapeake   &  O.   R.  R.  Co.  v.  Paine,  29 

2  Moore  v.  Geuuctt,  2  Tenn.   Ch.  375  Gratt.  (Va.)  502  (1877). 
(1875).  '  Winslow  v.  Fletcher,  13  Am.  &  Eng. 

=*  Bcckwith  V.  Burroughs,  14  R.  I.  36G  Corp.  Cas.  30  (Conn.,  188G),  the  court  say- 

(1884).     And  the  purchaser  at  the  execu-  ing  that  "  stock  in  a  corporation  for  the 

tion  sale  may  tile  a  hill  in  efjuity  to  clear  purposes  of  an   attaclirnent,  has  its  situs 

the  title  to  the  stock.      Cf.  Id.',  13   R.  I.  where  the  corporati(jn  is  located." 
•294(1881).  •'Plimpton   «.  Bigclow,   93   N.   Y.  592 

*  Sahin  V.  Bk.  of  Woodstock,  21  Vt.  (1883),  the  court  saying:  "We  do  not 

353  (1849).  doubt  that  shares  for  the  purpose  of  at- 

5  Evans  v.  Monet,  4  Jones'  Eq.  (N.  C.)  tachment  proceedings  may  be  deemed  to 

227(1858).  be  in  the   possession  of  the  corporation 

■*  Natl.  Bk.  of  N.  L.  v.  Lake  Shore  <fe  which  issiutd  tlicm,  but  only  at  the  place 

471 


§  486.]  ATTACHMENT   AND  EXECUTION.  [CH.  XXVn. 

such  an  attacliment  be  levied  although  the  foreign  corporation 
has  a  branch  registry  office  in  the  State  where  the  attachment  is 
levied,  and  although  the  certificates  of  stock  are  also  in  such 
State.^  Certificates  of  stock  are  not  the  stock  itself.  They  are 
but  evidence  of  the  stock,  and  the  stock  itself  cannot  be  attached 
by  a  levy  of  attachment  on  the  certificate.'''  As  was  well  said  by 
the  Supreme  Court  of  Pennsylvania,  stock  cannot  be  attached 
by  attaching  the  certificate,  any  more  than  lands,  situated  in  an- 
other State  can  be  attached  by  an  attachment  in  Pennsylvania 
levied  on  the  title  deeds  to  such  land.^  There  can  be  no  attach- 
ment of  stock  as  the  property  of  an  unregistered  holder,  through 
whom  title  has  passed  to  another.* 

§  48G.  Eights  of  an  unregistered  transferee  of  a  certificate 
of  stoclc  as  against  an  attachment  or  execution  levied  on  that 
stoclc. — The  most  difficult  and  unsettled  question  connected  with 
an  attachment  or  execution  levied  on  stock,  is  the  question  of 
how  far  a  purchaser  of  the  certificate  of  stock  from  the  stock- 
holder and  debtor  is  protected  in  his  ownership,  where  such  pur- 
chaser does  not  have  his  transfer  registered  on  the  corporate  books, 
before  the  attachment  or  execution  is  levied.  This  question  is 
especially  important,  since  it  affects  the  rights  of  a  bo?ia  Jide 
purchaser  of  stock  in  the  open  market,  and  constitutes  one  of  the 


where  the  corporation  by  intendment  of  "Winslow  v.  Fletcher,  13  Am.  &  Eng. 
law  always  remains,  to  wit,  in  the  State  Corp.  Cas.  39  (Conn.,  1886),  the  court 
or  country  of  its  creation.  .  .  Mani-  well  says :  "  While  the  certificates  are  in 
festly  the  res  cannot  be  within  the  juris-  themselves  valuable  for  some  purposes, 
diction,  as  a  mere  consequence  of  a  legis-  and  to  some  extent  may  properly  be  re- 
lative declaration,  when  the  actual  locality  garded  as  property,  yet  they  are  distinct 
is  undeniably  elsewhere."  Garnishment  from  the  holders'  interest  in  the  capital 
proceedings  also  will  not  apply.  The  de-  stock  of  the  corporation,  and  are  not 
fendant  may  move  to  have  the  attach-  goods  and  effects  within  the  meaning  of 
ment  levy  set  aside.  Martin  v.  Mobile  &  the  statute  relating  to  foreign  attach- 
O.  R.  R.  Co.,  1  Bush  (Ky.),  116  (1870),  ment.  They  are  no  more  subject  to  an 
holds  that  a  statute  authorizing  a  foreign  attachment  or  a  trustee  process  than  a 
corporation  to  exercise  certain  powers  promissory  note.  The  debt  is  subject  to 
does  not  make  it  a  domestic  corporation,  attachment,  but  the  note  itself,  which  is 

'Christmas  v.   Biddle,   13  Pcnn.   St.  simply  evidence  of  the  debt,  is  not.     So 

223  (1850),  approved  in  Childs  v.  Digby,  with  stock.     That  may  be  attached,  but 

24  Penn.  St.  23  (1854).     In  this  case  the  the  certificate  cannot  be." 
attachment  was  levied  in  Pennsylvania  on  ^  Lippett ».  American,  &c.,  Co.,  1  East, 

certificates  of  stock  in  Pennsylvania,  but  Rep.  487  (R.  I.,  1885).     Thus,  where  A, 

belonging  to  a  citizen  of  Mississippi,  and  the  registered  stockholder,  transfers  the 

the  corporation  was  created  by  the  laws  certificate  of  stock  to  B,  and  B  transfers 

of  Mississippi.  it  to  C,  and  C  obtains  registry  directly 

'^Christmas  i).  Biddle,  supra;  Moore  from  A,  there  can  be  no  attachment  of  the 

V.  Gennett,  2  Tenn.  Ch.  375  (1875).  stock  against  B. 

2  Christmas    v.   Biddle,    supra.      In 

472 


CH.  XXVTI.]  ATTACHMENT   AND   EXECUTION,  [§  4S7. 

greatest  dangers  incurred  in  the  purchase  of  certificates  of  stock. 
On  one  point,  it  seems  that  the  courts  of  all  the  States  agree.  If 
a  stockholder,  whose  stock  has  been  alreadv  attached  or  sold  on 
execution,  sells  his  certificate  of  stock,  after  the  levy  of  such  at- 
tachment or  execution,  the  vendee  or  transferee  buys  subject  to 
such  levy,  even  though  he  had  no  knowledge  of  it.  The  stock, 
in  contemplation  of  law,  has  already  been  seized  by  the  levy, 
and  the  purchaser  is  bound  to  take  notice  of  that  fact.^  The  only 
means  of  avoiding  this  danger  in  the  purchase  of  stock,  is  by  an 
inquiry  at  the  ofiice  of  the  corporation,  at  the  time  of  making 
the  purchase.  A  different  question  presents  itself,  when  the 
stockholder  against  whose  stock  an  attachment  or  execution  is 
levied,  has  already  and  before  such  levy  sold  and  transferred  his 
certificate  of  stock,  but  that  transfer  has  not  been  registered  on 
the  corporate  books.  The  courts  of  the  different  States  are  in 
inreconcilable  conflict  on  this  question  of  whether  the  unregis- 
tered transferee  is  protected  in  his  purchase. 

§  487.  Eule  in  New  York,  Pennsylvania,  New  Jersey,  Sontli 
Carolina,  Texas,  Louisiana,  and  tlie  Federal  Courts. — The 
decided  weight  of  authority  holds,  that  he  who  purchases  for  a 
valuable  consideration,  a  certificate  of  stock,  is  protected  in  his 
ownership  of  the  stock,  and  is  not  aflfccted  by  a  subsequent  at- 
tachment or  execution  levied  on  such  stock,  for  tlie  debts  of  the 
registered  stockholder,  even  though  such  purchaser  has  neglected 
to  have  his  transfer  registered  on  the  corporate  books,  thereby 
allowing  his  transferrer  to  appear  to  be  the  owner  of  the  stock 
upon  which  the  attachment  or  execution  is  levied.  Such  is  the 
rule  prevailing  in  the  Federal  coui  ts,  and  in  the  courts  of  the 
above  named  States.''*      Frequently  this  rule  is  justified  and  ex- 


'  Chesapeake  &  0.  R.  R.  Co.  v.  Paine,  ment.     And  the  principle  is  well  estab- 

29  Gratt.  (Va.)  502  (1877);  Shenandoah  lidicd  in  this  State,  that  such  a  purchaser 

Valley  R.  K.  Co.  v.  Griffith,  76  Va.  913.  would  not  acquire  any  interest  whatever, 

'  The  CMsc  of  Smith  v.  American  as  Jigninst  a  prior  purchaser  for  value." 
Coal  Co.,  7  Lans.  317  (1873),  fully  dis-  For  I'ennsylvunia,  see  Eby  v.  Guest,  94 
cusses  and  sustains  this  rule.  See  also  I'enn.  St.  IGO  (1880);  Finney's  Api)eal, 
Comeau  ?;.  Guild  Farm  Oil  Co.,  3  Daly,  f;9  I'enn.  St.  308  ( 1868);  Conimonweallli 
218  (1870),  whore  Van  Brunt,  J.,  says  »•.  Watmoulh,  (1  Wluirt.  117  (18.10).  hold- 
that  the  sheriff,  "  by  the  levy  of  such  an  \n<f  also  that  the  sheriff  need  not  levy  on 
attachment,  could  not  aicjuire  any  better  stock  which  he  knowrt  has  niready  l)een 
or  greater  title  to  the  stock,  than  a  per-  sold  to  an  unregistered  trnnsferee.  United 
son  would  have  done  who  had  jjurcha.'jed  States  v.  Vaughan,  3  Biun.  394  (1811), 
this  stock  of  tiie  person  in  whose  niirt.e  it  where  the  unregistered  transferees  resided 
stood  on  the  day  of  the  levy  of  the  attach-  in    foreign    lands.     See    also,    for    other 

473 


§  488.]  ATTACHMENT    AND   EXECUTION.  [cil.  XXvn. 

plained,  on  the  ground  that  registry,  and  by-laws  or  charter  pro- 
visions requiring  registry  of  ti-ausfers  on  the  corporate  books,  are 
not  for  the  purpose  of  notifying  the  creditors  of  the  old  regis- 
tered stockholder  that  he  no  longer  owns  the  stock,  nor  for  any 
similar  purpose,  but  are  for  the  purpose  of  protecting  the  corpo- 
ration in  paying  dividends,  and  allowing  the  stock  to  be  voted. 
Another  and  stronger  reason  is  that  the  law  favors  the  transfer  of 
stock  certificates,  and  decreases,  so  far  as  possible,  all  secret  dan- 
gers incurred  in  its  purchase. 

By  protecting  the  purchaser  against  subsequent  attachments 
and  executions,  the  law  removes  one  of  the  chief  risks  incurred  by 
holding  certificates  of  stock  without  a  registry,  and  thereby  in- 
creases the  safety  and  desirability  of  such  investments.  If  the 
corporation  improperly  refuses  to  allow  the  transferee  of  stock  to 
register  his  transfer,  and  the  stock  is  afterwards  attached  by  a 
creditor  of  the  old  stockholder,  the  transferee  may,  if  he  chooses, 
hold  the  corporation  liable  in  damages  for  its  refusal  to  allow  the 
registry.^ 

§  488.  Bights  and  duties  of  the  corporation  in  such  cases. — 
The  corporation  has  a  dangerous  duty  to  perform  when  stock  has 
been  attached  or  sold  under  levy  of  execution,  and  a  registry  is 
requested  by  the  purchaser  at  such  sale,  or  by  a  purchaser  of  the 
outstanding  certificate  of  stock.  If  the  purchaser  of  the  certificate 
detnands  registry,  before  registry  has  been  allowed  to  the  pur- 


States,  Broadway  Bank  v.  McElrath,  13  ern  decisions,  is  to  regard  certificates  of 

N.  J.  Eq.  24  (1860) ;  s.  c.  sub  nom.  Hunt-  stock  attached  to  an  execution  blank,  as- 

erdon  Bk.  v.  Nassau  Bk.,  2  C.  E.  Gr.  496;  signment,  and  power  to  transfer,  as  ap- 

Rogers  w.  Stevens,  8  N.  J.  Eq.  16Y  (1849);  proximating     to     negotiable    securities, 

Eraser  v.  Charleston,  11    S.   C.   486,  519  though  neither  in  form  or  character  ne- 

(1878);    Seeligson  v.  Brown,   61   Texas,  gotiable."    Even  in  Massachusetts,  where 

114(1884);  Pitot  w.  Johnson,  33  La.  Ann.  the  courts  upheld  an   opposite  rule,  the 

1286(1881);  Smith  w.  Crescent  City,  tfec,  State  courts  will  follow  the  above  rule 

Co.,  30  La.  Ann.  1378(1878).    In  regard  to  when  the  stock  of  a  national  bank  is  in 

stock    in    national    banks,    the    Federal  question.     Sibley  v.  Quinsigamond  Natl, 

courts  have  firmly  established  the   rule  Bk.,  133  Mnss.  515  (1882),  but  see  State 

that  the  unregistered  transferee  is  pro-  ?;.  First  Natl.  Bk.  of  J.,  89  Ind.  302  (1883). 

tected  against  a  subsequent  attachment  Williams  v.  Mechanics  Bk.,  5  Blatch.  59 

or  execution.     Continental  National  Bk.  (1862),  is  not  in  accord  with  the  other 

V.  Eliot  Natl.  Bk.,  5  Fed.  Rep.  359  (1881),  Federal  decisions.    As  regards  Tennessee, 

-with  a  full  review  of  the  authorities  by  compare  Cornick  v.  Richards,  3  Lea,   1 

Judge    Lowell.       Scott    v.    Pequonnock  (1879),  with  State  Ins.  Co.  v.  Sax,  2  Tenn. 

Nati.  Bk.,  15  Fed.  Rep.  494  (1883),  where  Ch.  607  (1875). 

the  rule  was  applied,  although  the  na-  '  Robinson  v.  Natl.  Bk.  of  New  Berne, 

tional  bank  was  in  Connecticut,  a  State  95  N.  Y.  637  (1884).     See  also  Plymouth 

•which  strongly  favors  the  opposite  rule.  Bk.  v.  Bk.  of  Norfolk,  27  Mass.  454  (1830). 
The  court  said  :  "  The  tendeucy  of  mod- 

474 


en.  XXVII.] 


ATTACHME^'T   AND   EXECUTION. 


[§  488. 


chaser  at  the  execution  sale,  and  if  the  former  claims  to  have  pur- 
chased the  certificate  before  the  attachment  or  execution  was 
levied,  the  right  of  tlie  corporation  is  clear.  It  may  refuse  to 
allow  the  registry,  and  when  sued  therefor  may  interplead  and 
compel  the  claimants  to  litigate  the  matter  between  themselves.^ 
But  where  the  corporation  does  not  know  whether  the  outstand- 
ing certificate  is  in  the  hands  of  a  purchaser  or  not,  and  a  registry 
is  demanded  by  a  purchaser  at  an  execution  sale,  the  rights  and 
duties  of  the  corporation  are  not  so  clear.  It  has  two  courses 
open  to  it."^  It  may  refuse  to  allow  a  registry,  until  compelled  to 
do  so  by  a  court,  or  it  may  allow  registry  without  being  so  com- 
pelled. The  former  is  the  safer  course,  since  the  corporation  will 
probably  be  thereby  protected  from  all  liability  to  a  possible 
purchaser  of  the  outstanding  certificate.^  The  coi-poration,  it 
seems,  is  protected  in  its  obedience  to  the  decree  of  a  court. ^  It 
is  quite  probable,  also,  that  no  court,  in  any  of  the  above-named 
States,  would  require  the  corporation  to  issue  new  certificates  of 
stock  to  a  purchaser  of  stock  at  an  execution  sale,  unless  such 
purchaser  give  to  the  coi-poration  a  bond  of  indemnity,  where- 
by an  unknown  purchaser  of  the  outstanding  certificate  may 
be    protected.^     The    other    course   open    to    the    corporation. 


•  See  Chap.  XXII,  §  387.  The  prop- 
er remedy  for  the  purchaser  from  the 
judgment-debtor  to  pursue  under  such 
circumstances  is  to  enjoin  the  corporation 
and  the  purchaser  at  the  execution  sale 
from  registering  the  latter  as  a  stockhold- 
er. Smith  V.  Crescent  City,  &c.,  Co.,  30 
La.  Ann.  1378  (1878).  If  an  attachment 
has  been  levied  he  should  enjoin  that. 
Cheever  v.  Meyer,  62  Vt.  66  (1879). 

'■'  Robinson  v.  Natl.  Ek.  of  New  Berne, 
95  N.  Y.  637  (1884). 

^  "  Where  a  judicial  tribunal  of  com- 
petent jurisdiction  of  last  resort,  after  a 
fair  contest,  in  good  faith  by  the  corpora- 
tion, orders  the  stock  to  be  transferred  to 
the  purchaser  under  such  seizure  and  sale, 
the  corporation  cannot  be  liable  to  the 
holder  of  the  certificate  who  took  no  steps 
to  protect  himself."  Friedliinder  v. 
Slaughter  House  Co.,  31  La.  Ann.  623 
(1879).  Where,  also,  the  unregistered 
transferee  contested  in  the  courts  the  right 
of  the  purchaser  at  the  execution  sale,  and 
was  defeated  in  the  lower  court,  and  ap- 
pealed without  sta^  ing  tix;  decree  hi'low, 
the  corporation  is  not  liable  for  obeyii'g 
ihe  decree  of  the  lower  court,  although 
the    appeal    is    successful,     (.'liupman    v. 


New  ( trleans  Gas  Light,  <fec.,  Co.,  4  La. 
Ann.  153  (1849). 

4  See  §§  359,  388. 

5  The  Supreme  Court  of  Ohio,  in  Natl. 
Bk.  of  N.  L.  V.  Lake  Shore  &.  M.  S.  R.  R. 
Co.,  21  O.  St.  221  (1871),  very  properly 
and  very  distinctly  refused  to  compel  a 
registry,  altliough  conceding  that  the  ex- 
ecution purchaser  is  entitled  to  dividends. 
The  court  said:  "  Can  it  be  that,  because 
the  defendant  refused  to  assume  the  peril 
of  deciding  between  the  contending 
claimants,  by  issuing  other  certificates 
for  the  same  stock  to  the  plaintiff  upon 
demand,  that  it  thereby  became  a  wrong- 
doer and  converted  the  plaintiff's  stock 
to  its  own  use,  and  rendered  itself  liable 
to  re8pf)nd  in  the  full  value  of  the  stock 
to  the  claimant  who  could  establish  his 
right  in  a  court  of  law  ?  The  very  state- 
ment of  the  proposition  refutes  it." 
Where  the  attaclmient  is  on  stock  that 
the  complainant  alloges  was  transferred 
in  fraud  of  creditors,  inandnnuis  will  not 
lie  to  cotnpel  the;  c<)r])oi'atiuii  to  allow  a 
registry  under  the  execution  sale.  State 
V.  Warren  Foundry  &.  M.  Co.,  82  N.  J.  L. 
439  (1868). 

475 


§  489.]  ATTACHMENT   AND   EXECUTION.  [CH.  XXVII. 

that  of  allowing  a  registry  by  the  purchaser  at  the  execu- 
tion sale,  without  being  compelled  to  do  so  by  a  court,  is  pur- 
sued by  the  corporation  at  its  peril.  If  it  afterwards  transpires 
that  the  outstanding  certificate  had  been  purchased  before  the  at- 
tachment or  execution  was  levied,  the  corporation  is  liable  in 
damages  to  such  purchaser  for  allowing  the  registry,^  but  not  un- 
less such  purchaser  gave  a  valuable  consideration  for  the  certif- 
icate, and  alleges  that  fact  in  his  pleading.^  Until  such  purchaser 
demands  a  registry  from  the  corporation,  it  may  safely  pay  divi- 
dends to  the  execution  purchaser.^ 

§  489.  Bule  in  Connecticut,  Maine,  New  nampsMre,  Ver- 
mont,  Indiana,    Illinois,   Wisconsin,    and    California. — The 

courts  of  these  States  all  hold  that  where  regulations  exist, 
requiring  a  transfer  of  stock  to  be  registered  on  the  corporate 
books  in  order  to  be  effectual,  an  attachment  or  execution  levied 
on  stock  standing  in  the  defendant  debtor's  name  will  cut  off  the 
rights  of  a  previous  purchaser  of  the  certificate  who  has  not  com- 
pleted his  transfer  by  registiy.*  Sometimes  these  regulations  re- 
quiring a  registry  are  contained  in  the  charter,  sometimes  only  in 
the  by-laws,  and  sometimes  are  merely  printed  on  the  face  of  the 
certificate  of  stock.^  Even  in  these  States,  however,  it  is  well  es- 
tablished that  if  the  person  who  levies  the  attachment  or  pur- 
chases at  the  execution  sale  has  notice  that  the  defendant  debtor 
had  transferred  his  certificate  before  the  attachment  or  execution 
was  levied,  the  purchaser  of  the  outstanding  certificate  may  have 


1  Smith  V.  American  Coal  Co..  7  Lans.  *  Oxford  Turnpike  Co.  v.  Bunnell,  6 
(N.  Y.)  31 7  (IS^S).  If  the  purchaser  at  Conn.  552  (1827);  Button  v.  Ccnn.  Bk., 
the  execution  sale  still  has  the  certificates,  1-3  Conn.  493  (1840),  where  the  provision 
the  purchaser  of  the  old  certificate  may  was  in  the  by-laws;  Skowhegan  Bk.  t>. 
brin<;  suit  against  him  and  the  corporation  Culler,  49  Me.  315  (1860);  Fiske  v.  Carr, 
to  compel  a  retransfer.  Rogers  v.  Stev-  20  Me.  301  (1841);  Pinkerton  v.  R.  R. 
ens,  8  N.  J.  Eq.  167  (1849).  In  a  suit  by  Co.,  42  N.  H.  424  (1861);  Warren  v.  Bran- 
a  purchaser  at  an  execution  sale  to  cut  off  don  Mfg.  Co.,  cited  in  52  Vt.  75  ;  State  o. 
the  rights  of  the  judgment-debtor,  the  First  Natl.  Bk.  of  J.,  89  Ind.  •'^02  (1883); 
corporation  is  an  indispensable  party,  Coleman  v.  Spencer.  5  Blackf.  (Ind.)  197 
since  it  alone  can  allow  a  transfer  on  the  (1839);  People's  Bk.  v.  Gridley,  91  111. 
books.  St.  Louis  &  San  F.  Ry.  Co.  i;.  467  (1879);  A'e  Murphy,  51  Wis.  519 
Wilson,  114  U.  S.  60  (1884).  See  also  (1881),  where  the  provision  was  by  stat- 
the  late  case  of  Hazard  v.  Natl.  Ex.  Bk.,  ute.  Also  under  a  statute.  Weston  v.  Bear 
26  Fed.  Rep.  94  (1886),  holding  the  cor-  River,  &c.,  Min.  Co..  5  Cal.  186  (185.j); 
poration  liable  in  damages  to  the  pur-  Nnghe  v.  Pacific  Wharf  Co.,  20  Cal.  529 
chaser  of  the  outstanding  certificate.  (1862).      If  the   unregistered    purch.aser 

2  Littell  V.  Scranton  Gas  A  Water  Co.,  buys  the  judgment  obtained  under  the 
42  Penn.  St.  500  (1862).  attachment,  the  latter  is  merged.    Strout 

3  Smith  V.  American  Coal  Co.,  supra.  v.  Natoma  Water  &   Min.  Co.,  9  Cal.  78 

4  See  note  5,  sub.  (1858). 

47f^ 


CH.  xxvn.] 


ATTACHMENT   AND   EXECUTION. 


[§490. 


his  remed3\  If  the  attaching  creditor  has  notice  before  the  at- 
tachment is  levied,  the  purchaser  may  obtain  a  pei-petual  injunc- 
tion against  the  attachment.'  If,  on  the  other  hand,  the  pur- 
chaser at  the  execution  sale  has  notice,  he  may  be  prevented  from 
obtaining  registry  and  claiming  the  stock.^  It  is  also  held  that 
where  the  unregistered  transferee  of  the  certificate  of  stock  has 
notified  the  corporation  thereof  and  demanded  registry,  which  is 
not  granted,  any  attachment  or  execution  levied  subsequently  to 
the  improper  refusal  by  the  corporation  to  register  does  not  take 
precedence  over  such  purchaser.^  Where  the  unregistered  pur- 
chaser is  cut  ofP  by  an  attachment,  he  cannot  compel  his  vendee 
to  pay  for  the  stock  which  is  made  valueless  by  the  attachment.^ 

§  490.  Bule  in  Massachusetts. — The  courts  of  Massachusetts 
were  the  first  to  lay  down  the  rule  which  places  an  attachment  or 
execution  levy  ahead  of  an  unregistered  purchaser  of  the  certif- 
icate of  stock.  The  evil  consequences  of  the  rule  however,  seem 
to  have  become  apparent  to  her  courts,  and  it  was  held  that  al- 
though the  unregistered  purchaser  was  not  protected  where  the 
charter  of  the  corporation  required  registry ,5  yet  where  only  the 
by-laws  or  the  certificate  itself  created  such  a  requirement,  the 
unregistered  purchaser  was  protected,  and  took  precedence  over 


1  Cheever  v.  Meyer,  52  Vt,  66  (1879); 
Scripture  v.  Francistown  Soapstone  Co., 
50  N.  II.  571  (1871);  Black  v.  Zacharie, 
3  How.  482  (1845). 

»  People  V.  Elmore,  35  Cal.  653  (1 868) ; 
Weston  V.  Bear  River,  <fec.,  Min.  Co.,  6 
Cal.  425  (1856) ;  Farmers  Natl.  Gold  Bk. 
V.  Wilson,  58  Cal.  600  (1881),  holding 
also  that  the  execution  sale  will  not  be 
enjoined  since  the  claimant  may  attend 
and  give  notice  of  his  claim.  Newberry 
V.  Detroit,  &c.,  Iron  Co.,  17  Mich.  141, 
158  (18(58),  per  Cooley,  J.  Where  the 
plaintiff  bought  for  itself  at  the  exe- 
cution sale,  and  had  notice,  it  is  liable  in 
lorl  to  the  unregistered  purchaser  of  the 
old  certificates.  Bridgewater  Iron  Co.  v. 
Lissberger,  116  U.  S.  8(1885).  But  Jones 
V.  Latham,  70  Ala.  164,  seems  to  hold 
that  if  the  execution  is  levied  without  no- 
tice of  an  unrecorded  transfer,  a  subse- 
quent notice  before  the  sale  to  the  pur- 
chaser at  the  sale  is  ineffectual,  and  does 
not  affect  the  latter. 

'^  Merchants  Natl.  Bk.  v.  Richards,  6 
Mo.  App.  454  (187;*);  affi'd,  72  Mo.  77; 
Colt  V.  Ive.s,  31   Conn.  25  (186i);  State 


Ins.  Co.  V.  Gennett,  2  Tenn.  Ch.  100 
(1874);  Plymouth  Bk.  v.  Bk.  of  Norfolk, 
27  Mass.  454  (1830);  Sargent  v.  Franklin 
Ins.  Co.,  25  Mass.  90  (1829).  Contra, 
Fiske  V.  Carr,  20  Me.  301  (1841).  But 
not  if  the  transferee  merely  sends  a  letter 
to  the  corporation  requesting  a  transfer, 
without  sending  the  evidences  of  his  title 
and  the  old  cerlificate.  Newall  v.  Willis- 
ton,  138  Mass.  240  (1885).  The  corpora- 
tion is  liable  in  damages  if  it  levies  the 
attachment  under  such  circumstances. 
Sargent  v.  Franklin,  &c.,  Co.,  supra. 
Where  registry  is  allowed,  it  cuts  off  a 
subsequent  attachment,  even  though  the 
transferee  has  not  formally  accepted  the 
stock,  as  required  by  statute.  Woodruff 
V.  Harris,  11  U.  C.  Q.  B.  490  (1854). 
*  Rock  V.  Nichols,  85  Mass.  342(1862), 
'  Fisher  v.  Essex  Bk.,  71  Mass.  373 
(1855);  Newall  v.  Williston,  138  Mass. 
240(1885);  Central  Natl.  Bk.r.  Williston, 
138  Mass.  244(1885);  Boyd  v.  Hockport 
Steam  Cotton  Mills,  73  Mass.  406  (1856); 
Blanchard  v.  Dcdham  Gas  Light  Co.,  78 
Mass.  213  (1858). 

477 


§  101-J 


ATTACHMENT   AND   EXECUTION. 


[CH.  XXVII. 


the  attachment  or  execution.^  Tlie  legislature  of  Massachusetts 
seems  to  have  had  a  still  clearer  perception  of  the  demands  of 
trade  and  of  the  interests  of  those  who  invest  in  certificates  of 
stock,  and,  in  1884,  enacted  a  statute  which  probably  will  be  con- 
strued to  make  an  attachment  or  execution  levied  on  stock  no 
more  effective  than  it  is  in  New  York  State.^ 

§  491.  Shares  of  stock  cannot  le  suhjected  to  the  payment  of 
the  stockholder's  debts  hij  the  process  of  garnishment— The  pro- 
cess of  garnishment  is  proper  only  where  a  debt  is  due  from  a 
third  person  to  the  defendant  debtor.  It  is  not  a  proper  remedy 
for  reaching  shares  of  stock  owned  by  the  debtor.^  The  corpora- 
tion owes  the  stockholder  no  debt,  and  by  no  fiction  of  law  can  it 
be  held  to  be  a  debtor  of  the  defendant  debtor.  Consequently, 
where  the  sheriff  levies  an  attachment,  not  according  to  the  pro- 
cedure governing  attachments,  but  according  to  the  procedure  of 
garnishment,  the  whole  proceeding  is  void,  and  a  subsequent 
transfer  of  the  stock  by  the  defendant  debtor  is  valid.* 


'  Sargent  v.  Essex  M.  Ry.  Co.,  26 
Mass.  202  (1829);  Boston  Music  Hall  v. 
Cory,  129  Mass.  435  (1880),  holding  that 
a  delay  of  four  years  was  not  fatal  to  the 
unregistered  purchaser's  rights. 

2  "  The  delivery  of  a  stock  certificate 
of  a  corporation  to  a  bona  fide  purchaser 
or  pledgee  for  value,  together  with  a 
written  transfer  of  the  same,  signed  by 
the  owner  of  the  certificate,  shall  be  a 
sufiicient  delivery  to  transfer  the  title  as 
against  all  parties ;  but  no  such  transfer 
shall  affect  the  right  of  the  corporation  to 
pay  any  dividend  due  upon  the  stock,  or 
to  treat  the  holder  of  record  as  the  holder 
in  fact,  until  such  transfer  is  recorded 
upon  the  books  of  the  corporation,  or  a 
new  certificate  is  issued  to  the  person  to 
whom  it  has  been  so  transferred."     Act 


of  May  9th,  1884.  The  enactment  of  a 
similar  statute  is  respectfully  recom- 
mended to  the  States  mentioned  in  §  489. 

3  Planters  &  M.  Bk.  v.  Leavens,  4  Ala. 
N.  S.  753  (1843);  Ross  v.  Ross,  25  Ga. 
297  (1858),  where  the  court  says:  "Is 
stock  in  this  railroad  such  a  debt  ('in- 
debtedness') of  the  railroad  to  the  stock- 
holder that  a  garnishing  creditor  of  the 
stockholder  can  enter  up  judgment  for  it 
against  the  railroad  ?  It  is  not ;  it  is  a 
debt  which  the  railroad  dares  not  pay, 
even  to  the  stockholder  himself.  The 
road  may  pay  him  dividends  on  it,  but 
that  is  all."  See  also  Foster  v.  Potter,  37 
Mo.  525. 

■*  Mooar  v.  Walker,  46  Iowa,  164 
(1877).  Cf.  Chesapeake  <k  0.  R.  R.  Co. 
V.  Paine,  29  Gratt.  (Va.)  502. 


478 


CHAPTER  XXVIII. 


AJMEND^IENTS  AND  REPEALS  OF  CHARTERS. 


§  492.  A  corporate  charter  is  a  contract 
between  three  parties,  the  State, 
the  corporation,  and  the  stock- 
holders. 

493.  The  contract  is  between  the  corpo- 

ration and  the  stockholders. 

494.  Charter  as  a  contract  between  the 

State  and  the  corporation. 

495.  Charter  as  a  contract  between  the 

State  and  the  stockholders. 

496.  Stockholders  may  prevent  a  re- 

peal of  the  charter,  unless  the 
right  is  reserved  by  the    State. 
49Y.  Charter  amendments  imposed  up- 
on the  stockholders. 


498.  Charter    amendments  offered   to 

the  stockholders. 

499.  Auxiliary  and  incidental  amend- 

ments are  constitutional,  though 
some  of  the  stockholders  dissent. 

500.  Material   amendments  offered  to 

the  stockholders  can  be   accept- 
ed only  by  an  unanimous   vote. 

501.  Amentfments  under  the  reserved 

power    of    the  State    to    alter, 
amend,  or  repeal  the  charter. 

502.  Dissenting  stockholder's   remedy 

against  an  illegal  amendment, 

503.  Assent  and  acquiescence  as  a  bar 

to  the  stockholder's  remedy. 


§  492.  A   corjiorate  cJiarter  is   a   contract   lyetiveen    three 
parties,  the  State,   the  corjwration,    and   tlie  stockholders. — 

The  cliarter  of  a  corporation  having  a  capital  stock,  is  in  reality 
a  c<jntract  between  three  parties,  and  forms  the  basis  of  three  dis- 
tinct contracts.^  The  charter  is  a  contract  between  the  State  and 
the  corporation  ;  second,  it  is  a  contract  between  the  corporation 
and  the  stockholders;  third,  it  is  a  contract  between  the  stock- 
holders and  the  State. 


§  493.  The  contract  is    hetiveen   the  corporation   and   the 
stocliholders. — That  the  charter  is  a  contract  between  the  corpo 
ration  :ind  the  stockholders  has  within   the  last  fifty  years  been 
firmly  established  and  is  now  unquestioned  law.      The  cases  of 


'  See  State  Bank  of  Ohio  v.  Knoop, 
IG  How.  369  (1853);  Northern  R.  R.  Co. 
V.  Miller,  10  liarb.  2Gu  (1851);  Cooley  on 
Constitutional  Liinitatir)ns,  5th  ed.,  p. 
337,  whire  tlio  learned  author  says: 
"Those  cliiirters  of  incorporation,  how- 
ever, which  are  granted,  not  as  a  part 
of  the  machinery  of  the  government, 
but  for  tbe  private  benefit  or  purposes 
of  the  corjjorators,  stand  upon  a  differ- 
ent  footing,    and    are   held    to    be   con- 


tracts between  the  legislature  and  the 
corporators,  having  for  their  considera- 
tion tlie  liabilities  and  duties  which  the 
corporators  assume  by  accej)ling  them; 
and  the  grant  of  the  franeliiso  can  no 
more  be  resumed  by  the  legislature,  or 
its  benefits  diminished  or  iiiii)aired  with- 
out the  consent  of  the  grantees,  than  any 
other  grant  of  property  or  valuable  thing, 
unless  the  right  to  do  so  Ja  reserved  in 
the  charter  itself." 

479 


§  494.]  AMENDMENTS   AND   REPEALS.  [CH.  XXVIII. 

Natuscli  V.  Irving^  in  England,  and  Livingston  v.  Lynch  "^  in  this 
country,  followed  by  a  long  line  of  supporting  decisions,  distinct- 
ly hold  that  the  charter  is  a  contract  prescribing  to  the  corpora- 
tion that  it  shall  not  attempt  to  materially  change,  extend,  alter, 
or  abandon  the  particular  business  which  that  charter  authorizes 
the  corporation  to  do.  Any  attempt  of  the  corporation  to  make 
such  a  change,  extension,  alteration,  or  abandonment  of  that  busi- 
ness, is  called  an  ultra  vires  act.  It  is  an  act  which  a  single 
stockholder  may  prevent  by  injunction  or  set  aside  by  a  suit  in 
eg^uity.  This  subject,  however,  is  fully  treated  in  another  part  of 
this  work.'^ 

§  494.  Charter  as  a  contract  between  the  State  and  the 
corporation. — As  between  the  State  and  the  corporation,  the  cor- 
porate charter  is  a  contract,  protected  by  that  provision  of  the 
United  States  Constitution,  which  prohibits  a  State  from  passing 
any  law  which  will  impair  the  obligation  of  a  contract.^  Hence, 
it  is  beyond  the  power  of  the  State  to  repeal  or  materially  annul 
such  a  corporate  charter,  unless  the  power  of  amendment  and 
repeal  has  been  expressly  reserved  by  the  State,  or  unless  all  the 
parties  to  the  contract  consent  to  the  change.  All  the  franchises, 
privileges,  and  express  and  implied  powers  necessary  and  essen- 
tial to  carrying  out  the  corporate  purposes,  are  protected  by  this 
contract.^  This  branch  of  the  law,  however,  is  not  within  the 
scope  of  this  work,  except  in  cases  where  the  corporation  neg- 

'  This  case,  decided  by  Lord  Eldon  tioned  or  to  require  support  by  other  au- 

in  1824,  IS  reported  in  Gow  oq  Partner-  thorities.     In    England,    the    uuwritteu 

ship,  398.  constitution  is  not  superior  to  the  powers 

^  4  Johns.  Ch.   573  (1820).     Thus  in  of  parliament,  and  consequently  the  rule 

Clearwater  v.  Meredith,  1    Wall,   25,  the  is  different.     In  that  country,  as  is  said 

court  says :  "  The  relation  between  the  by  Lord  Coke,  "  the  power  and  jurisdic- 

corporation  and  the  stockholders  is  one  tion  of  parliament  is    so   transcendental 

of  contract.     The    stockholder    subjects  and  absolute,  that  it  cannot  be  controlled 

his  interest  to  the  control  of  the  proper  or  confined  either  for  causes  or  purposes, 

authorities,  to  accomplish  the  object  of  within  any  bounds."     Stevens  i'.  Rutland 

the  organization,  but  he  does  not  agree  <fe  Burlington  R.  it.  Co.,  29  Vt.  545(1854); 

that  the  purpose  shall  be  changed  in  its  Thorpe  v.  Rutland    &  Burlington  R.  R. 

character  at  the  will  of  the  directors,  or  Co.,  27  Vt.  140  (1857);  Trustees  of  Dart- 

a  majority   of  the    stockholders,    even,  mouth  College  v.    Woodward,  4  Wheat. 

The  contract  cannot  be  changed  without  518,    643    (1819).       Consequently,     the 

the  consent  of  both  contracting  parties."  English  authorities  are  of  little    use   in 

^  See  Ch.  XL.  this  chapter. 

*  This  rule  of  law,  first  enunciated  '  st^te  Bk.  of  Ohio  v.  Knoop,  16  How. 
in  the  case  of  Trustees  of  Dartmouth  369(1853);  Thorpe  v.  Rutland  &  Bur- 
College  V.  Woodward,  4  Wheat.  518  lington  R.  R.  Co.,  27  Vt.  140  (1857),  per 
(1819),  by  Marshall,  Ch.  J.,  has  become  Redfield,  J.  The  latter  case  discusses  the 
too  thoroughly  established  to   be  ques-  nature  of  the  privilege  thus  protected. 

480 


CH.  XXVIII.]  AMENDMENTS   AND   REPEALS.  [§§  495,  496. 

lects  or  refuses  to  protect  itself  against  legislative  amendments  or 
repeals,  violating  the  charter  contract  between  the  corporation 
and  the  State.  In  such  cases,  the  stockholder  may  enjoin  or 
remedy  the  wrong  by  bringing  an  action  in  place  of  and 
on  behalf  of  the  corporation,  making  it  a  party  defendant, 
together  with  the  parties  who,  under  the  authority  of  the 
State,  have  violated  the  contract.^  A  stockholder's  action  to 
prevent  the  payment  of  a  tax  levied  upon  the  corporation,  in 
violation  of  a  statutory  exemption  from  taxation,  is  an  action  of 
this  character.^ 

• 
§  495.  Charter  as  a  contract  hetiveen  the  State  and  the 
stockholders. — As  between  the  State  and  the  stockholders  also, 
the  corporate  charter  is  a  contract  protected  by  the  United  States 
Constitution.''  In  consequence  thereof,  the  State  cannot  repeal 
or  materially  amend  the  charter,  except  by  the  unanimous  con- 
sent of  the  stockholders,  unless  the  power  of  repeal  or  amendment 
is  expressly  reserved  by  the  State  at  the  time  of  granting  the 
charter. 

§  406.  Stockholders  may  i)revent  a  repeal  of  the  charter, 
unless  the  right  is  reserved  by  the  State. — The  repeal  by  the 
State  of  a  charter,  before  the  expiration  of  the  time  it  was  to  ex- 
ist, or  the  repeal  at  any  time,  where  the  charter  is  perpetual,  is  an 
unconstitutional  breach  of  the  contract  between  the  State  and  the 
corporation  and  the  stockholders.*     Where,  however,  the  right  of 


*  Greenwood  v.  Freight  Co.,  105  U.  To  the  same  effect  see  Zabrislde  v.  Hack- 
S.  13  (1881).  The  charautcr  of  such  iin  ensack  cfc  N.  Y.  R.  R.  Co.,  18  N.  J.  Eq. 
action,  also  the  parties,  pleadings,  and  178  (1867);  Lothrop  v.  Stedman,  42 
rules  of  relief,  are  explained  in  Part  Conn.  583  (1875);  Stevens  v.  Rutland  A 
IV.  Burlington  H.  R.  Co.,  29  Vt.  545  (1854). 

*  Dodge  V.  Woolsey,  18  How.  331  "An  act  granting  corporate  privileges  to 
(1855);  State  Bk.  of  Oiiio  v.  Knoop,  16  a  body  of  men  is,  when  accepted,  a  con- 
How.  369  (1853).  See  also  Wilminglon  tract  between  the  State  and  the  corpo- 
R.  R,  ?;.  Reid,  13  Wall.  264  (1871);  Dela-  rators.  •  •  •  It  is  sustained  by  every- 
ware  R.  R.  Tax.  18  Wall.  206  (1873).  thing  that  we  are  bound  to  regard  as  au- 
See  Chapter  on  Taxation.  thority,"  by  the   couits,  by   the   opinion 

'"  A  charter  of  incorporation  grant-  of  the  legal   profession,  and  by  the  ac- 

ed  by  a  State  creates  a  contract  between  quieaccnce  of  the  people.     Erie"  A  North- 

the  State  ami  tiie  corporators,  which  the  east.  R.  R.  »;.  Casey,  26  I'a.  St.  287  (1856), 

State  cannot  violate."     This    has    been  per  Jeremiah  Black.  J. 
held   so   often  by  this  court  th;it  "it  is  ■*  Cret^nwood  v.  Freight   Co.,   105  U. 

supererogation  to  repc^at  it."     Wilming-  S.    13  (1881).     "A    grant    of  cor()orato 

ton  R.  R.  V.  Ueid,  13    Wall.   264    (1871).  privileires  for  aspeeilied  j)eriodcannot  be 

It"  has  been  the  settled  liw  of  this  court  resumed   by  tlu;  State  within  such  period. 

since     the     Dartmoulli     College     case."  If  the  cliartcr  be    wilhout    limitation    as 

Delaware  R.  R.  Tax,  18  Wall.  206  (1873).  to  time,  it  is  forever  irrepealubic."    Krie 

[311  481 


§  497.] 


AMENDMENTS   AND   REPEALS. 


[cu.  xxvm. 


repeal  is  reserved  by  the  legislature,  then  such  reservation  be- 
comes a  part  of  the  contract,  and  the  repeal  of  the  charter  rests 
in  the  discretion  of  the  legislature.^  Upon  a  repeal,  the  corpo- 
rate property  becomes  a  trust  fund,  to  be  applied  first  to  the  pay- 
ment of  the  debts  of  the  corporation,  and  tlie  balance  to  be  dis- 
tributed among  the  stockholders.^ 

§  497.  Charter  amendments  imposed  upon  the  stocMolders. — 

The  right  of  the  legislature  to  amend  a  charter  against  the  will 
of  the  stockholders  has  been  the  subject  of  much  litigation.  Such 
amendments  are  clearly  divisible  into  two  kinds.  The  first  are 
those  which,  by  their  terms,  are  absolute  and  compulsory,  and  do 
not  depend  for  their  existence  upon  the  action  or  willingness 
of  the  corporation  or  the  stockholders  to  accept  them.^     Of  such 


<fe  Northeast.  R.  R.  v.  Casey,  ubi  supra. 
The  legislature  caunot  repeal,  nor  ciui  it 
forfeit  a  charter.  Forfeiture  can  be  de- 
creed only  by  the  courts.  It  is  not  a  leg- 
islative function.  Allen  v.  Buchanan,  9 
Phil.  (Pa.)  283  (1873). 

^  Under  a  reserved  power  to  repeal  at 
the  pleasure  of  the  legislature,  the  courts 
cannot  question  the  necessity  nor  the 
legislative  motives  leading  to  a  repeal. 
Greenwood  v.  Freight  Co.,  105  U.  S.  13 
(1881)  ;  Lothrop  >'.  Stedman,  13  Blatchf. 
134  (1875).  See  Sinking  Fund  Cases,  99 
U.  S.  700.  720  (1878);  Northern  R. 
R.  Co.  V.  Miller,  10  Barb.  260  (1851).  If 
the  power  of  repeal  arises  only  upon  an 
abuse  of  franchise,  the  court  may  review 
the  question  whether  there  was  an  abuse. 
Erie  <fe  Northeast.  K.  R.  v.  Casey,  supra; 
Mayor,  ttc.  of  Baltimore  v.  Pittsburgh  <fc 
Connellsville  R.  R.  Co.,  1  Abb.U.  S.  Rep. 
9  (  1865);  Flint,  <fec.  Plank  Road  Co. 
V.  Woodhull,  25  Mich.  99.  Under  this 
reserved  power,  the  State  may  author- 
ize one  corporation  to  build  its  road 
on  a  route  which  a  prior  corporation 
has  designated,  but  not  acquired.  Re 
Cable  Ry.,  Supreme  Ct.,  N.  Y.  Daily 
Reg.,  March  27th,  1886.  A  general  stat- 
ute or  constitutional  provision  reserving 
the  right  to  repeal,  alter,  or  amend  char- 
ters, enters  into  all  charters  granted  sub- 
sequent thereto  as  much  as  if  actually  in- 
serted in  such  charters.  Re  Lee's  Bk.  of 
Buffalo,  21  N.  Y.  9  (1860);  Commission- 
ers, &c.  V.  Holyoke  Water  Power  Co., 
104  Mass.  446  (1870). 

'■^  Lothrop  V.  Stedman,  13  Blatchf.  134 
(1875);  McLaren  v.  Pennington,  1  Paige, 

482 


102  (1828),  by  statute;  Detroit  v.  Detroit 
&  Howell  Plank  Road  Co.,  43  Mich.  140 
(1880);  County  of  San  INlateo  v.  Southern 
Pacific  R.  R.  Co.,  8  Sawyer,  238,  per 
Field,  J.,  holding  tliat  "  tlie  property  of 
the  corporation  acquired  in  the  exercise  of 
its  functions  is  held  independently  of  such 
reserved  power,  and  the  State  can  only 
exercise  over  it  the  control  which  it  ex- 
ercises over  tlie  property  of  individuals 
engaged  in  similar  business,"  p.  279.  The 
reserved  power  may  affect  the  franchises, 
but  not  the  jiroperty  of  the  corporation. 
A  repeal  ot  the  franchise  of  a  railroad 
company  vests  in  the  people  of  the  State, 
not  only  the  franchise  to  be  a  corpora- 
tion, but  also  the  francliise  of  the  right  of 
way  acquired  by  the  railroad  company  by 
legislative  grant  or  under  the  powers  of 
eminent  doninin  delegated  to  it  by  the 
State.  The  road-bed  of  the  railroad  upon 
repeal  of  the  charter  reverts  to  tlie  State 
and  belongs  to  it.  Erie  &  North  East 
R.  R.  V.  Casey,  supra.  Cf.  New  York, 
<fec.,  R.  R.  Co.  V.  Parmalee,  1  Ohio  C.  C. 
Rep.  2.i9,  holding  that  the  right  of  way 
revests  in  the  owner  of  tiie  tee.  This 
question  is  involved  in  tlie  litigation,  now 
pending,  growing  out  of  the  repeal  of  the 
charter  of  the  Bmadway  Street  Railway 
Company  of  New  York  city. 

'  Such  amendments  are  unconstitu- 
tional and  void,  unless  made  under  a  re- 
served power  to  amend.  Tiie  case  of 
Cross  V.  Peach  Bottom  Ry.  Co.,  90  Pa.  St. 
392  (1879),  holds  that  "The  legislative 
reservation  is  in  the  nature  of  a  police 
power,  designed  for  the  protection  of  the 
public  welfare,  and  where  such  protection 


CH.   XXTIII.] 


AMENDMENTS   AND   REPEALS. 


[§  497. 


a  kind  are  amendments  increasing  the  liability  of  stockholders  on 
their  stock.  A  statute  passed  subsequent  to  the  granting  of  a 
charter  and  increasing  the  liability  of  a  stockholder  on  his  stock, 
is  unconstitutional  and  void,  unless  the  legislature  has  reserved 
the  right  to  alter  or  amend  the  charter.^  Under  such  a  reserva- 
tion the  statute  is  leo^al  and  bindina;.^ 


becomes  necessary,  the  law-making  power 
may  act  without  consulting  either  the  in- 
terests or  will  of  the  company  and  in 
such  case  it  may  well  be  that  not  only 
the  compan}-  but  its  stockholders  must 
submit.  .  .  The  reservation  .  . 
was  only  intended  to  enable  the  legis- 
lature to  act  without  the  consent  and 
against  the  will  of  the  corporation." 
Where  the  amendment  is  for  the  benefit 
and  at  the  suggestion  of  the  corporation, 
different  rules  are  held  to  apply. 

'  Thus  in  a  case  of  a  statute  authorizing 
the  taxation  of  stock  which  by  the  corpo- 
rate charter  is  exempt,  the  statute  is  un- 
constitutional. Gordon  v.  Appeal  Tax 
Court,  ;i  How.  133  {184o);  Farrington  v. 
Tennessee,  95  U.  S.  679  (1877).  See 
Chapter  on  Taxation. 

'■^  It  certainly  is  as  regards  corporate 
debts  already  incurred.  Commonwealth 
V.  Cochituite  lik..  8  Mass.  42  ;  Wheeler  v. 
Frontier  Bk.,  '2:-!  Me.  308.  And  has  been 
held  to  be  so  as  regards  future  corporate 
debts.  Ireland  v.  Palestine,  «fec..  Turnpike 
Co,,19  0.St.3t39(185<t).  C-witm,  Stanley  i». 
Stanley,  2(j  Me.  191  (1846);  Coffin  v.  Rich, 
4.5  Me.  507  (18r)8).  A  statute  imposing 
additional  liability  upon  the  shareholders 
cannot  be  repealed  so  as  to  affect  those 
who  were  corporate  creditors  previously 
to  the  repeal.  Hawthorne  v.  Calef,  2 
Wall.  10(1864):  Conant  t».  Van  Shaick, 
24  Barb.  87  (18.o7);  Norris  v.  Wrenschali, 
34  Md.  492  (1871);  Provident  Savings 
Institution  v.  Jackson  Place,  <fec.,  Co.,  52 
Mo.  552  (1873);  St.  Louis  R.  R.,  <fec.  Co. 
V.  Harbine,  2  Mo.  App.  134  ;  Central,  <fec. 
Mechanical  Association  v.  Alabama,  <fec. 
Insurance  Co.,  70  Ala.  120;  Woodruff  v. 
Trapiiall,  10  How.  190.  See  also  Story 
V.  Furman,  25  N.  Y.  214  (1862);  Roches 
ter  V.  Barnes,  26  Jiarb.  057  (IH58); 
Sinking  Fund  Cases,  99  U.  S.  700  (1878). 
Cf.  Jerman's  Admr.  v.  Benton,  79  Mo. 
148;  Wooilhiiuse  v.  Common  we  dih  Ins. 
Co.,  51  Pa.  St.  31)7  (1867).  And  it  is 
Slid  that  a  stocklioidi.-r  may  restrain 
by  a  i)ro|)er  proceeding  the  acceptance 
by  the  coipor.ition  of  an  unconditional 
amendment    to    the    chartir    by    which 


the  liability  of  the  shareholders  is  in- 
creased. Owen  V.  Purdy,  12  Ohio  St. 
73  (18S1):  Fry's  Exec.  v.  Lexington,  <fec, 
R.  R.  Co.,  2  Mete.  (Ky.),314.  C/.  Bailey 
V.  HoUister,  26  iN.  Y.  112  (1862);'  Thomp- 
son V.  Guion,  5  Jones'  Eq.  (N.  C.)  113; 
Mowrey  v.  Indianapolis,  <fec.  R.  R.  (^o.,  4 
Biss.  78 ;  Lauman  v.  Lebanon  Valley 
R.  R.  Co.,  30  Penn.  St.  42  ;  Hamilton,  (fee. 
Insurance  ('o.  v.  Hobart,  2  Gray,  543; 
Gardner  v.  Hamilton,  &c.  Insurance  Co., 
33  N.  Y.  421  (1865).  Frequently,  and 
now  almost  universally,  the  legislature 
has  a  reserved  power  to  alter,  amend,  or 
repeal  the  charters  of  corporations  granted 
by  it.  New  York  const,  of  1846,  art.  8, 
§§  1  <fe  2 ;  Matter  of  New  York  Elevated 
R.  R.  Co.,  70  N.  Y.  327  (1877);  Johnson 
V.  Hudson  River  R.  R.  Co.,  49  Id.  455 
(1872);  Bank  of  Chenango  v.  Brown,  26 
Id.  467(1863):  Ashuelot  R.  R.  Co.  v.  El- 
liot, 58  N.  H.  451,  454;  Taylor  on  Corpo- 
rations, g  496  et  seq.  Under  this  reserved 
power  the  legislature,  it  is  held,  may  im- 
pose a  statutory  liability,  in  addition  to 
thi;  liability  at  common  law,  upon  stock- 
holders after  they  have  been  incorpora- 
ted and  gone  into  business  under  a  char- 
ter which  does  not  impose  such  liability. 
The  exercise  of  this  power  by  the  legisla- 
ture, in  sufh  a  case,  is  held  to  be  only  a 
repeal  of  part  of  the  corporate  franchises. 
South  Bay  Meadow  Dam  Co.  v.  Gray,  30 
Me.  547  (1849).  Cf.  Close  v.  Glenwood 
Cemetery,  107  U.  S.  466  (1882).  So  also 
it  is  said  that  under  this  reserved  power 
the  legislature  may  impose  a  statutory  lia- 
bility for  the  future  debts  and  obliga- 
tions of  the  corporation.  Sherman  v. 
Stnith,  I  Black,  587  (1861);  Matter  of 
Lee's  Hank  of  Buffalo,  21  N.  Y.  9  (I860); 
Matter  of  the  Emi)ire  City  Bank,  18  Id. 
199  (1858).  Cf.  Bailey  v.  Ilollhster,  26 
N.  Y.  112  (1862);  Sinking  Fund  Cases,  99 
U.  S.  700  (1878);  Oldtown,  <fcc.  R.  11.  Co. 
»'.  Veazie,  39  Me.  571  ;  Green  v.  i'.iddle, 
8  Wlieaton,  1,  84  ;  (ianlner  v.  Hope  Ins. 
Co.,  9  R.  I.  194  (1869).  Such  increased 
liability  may  be  imposed  by  n  new  con- 
stitution of  the  State.  Jic  Reciprocity 
Bk.  22  N.  Y.  9(1860) ;  Jie  Empire  BIc,  18 

483 


§§  498, 499.] 


AMENDMENTS   AND   REPEALS. 


[CII.  XXVIII. 


§  498.  Charter  amendments  offered  to  the  stocMolders. — The 
second  class  of  am  en  dm  en  ts  to  a  charter,  tlie  amendments  which 
occur  most  frequently  and  give  rise  to  many  difficulties,  are  those 
wliich  allow  the  corporate  directors  or  a  majority  of  the  stock- 
holders in  corporate  meeting  assembled  to  engage  in  a  new  or 
different  or  more  extensive  or  more  contracted  business  than  that 
authorized  by  the  original  and  unamended  charter. 

§  499.  Auxiliary  and  incidental  amendments  are  constitu- 
tional, though  some  of  the  stoclcholders  dissent. — Aii  amend- 
ment made  to  a  corporate  charter  is  either  a  material  and  funda- 
mental change  from  the  original  plan,  or  it  is  an  auxiliary  and  in- 
cidental change,  consistent  with  the  carrying  out  of  the  original 
plan.^  The  latter  class  of  amendments  are  constitutional  and 
valid.  The  acceptance  of  auxiliary  amendments  may  be  within 
the  power  of  the  directors  or  it  may  rest  with  a  majority  of  the 
stockholders.^  An  amendment  may  be  said  to  be  auxiliary  and 
incidental  when  it  merely  grants  new  powers  or  authorizes  new 
methods  and  new  plans  for  the  purpose  of  carrying  out  the  origi- 
nal plan  and  effecting  the  real  object  of  that  plan.^     Whether  an 


N.  Y.  199  (1858);  /?e  Lee's  Bk. of  Buffalo, 
21  N.  Y.  9  (I860);  affi'(\,subnom.  Sheriiian 
n).  Smith,  1  Black,  587  (1861).  In  The 
Consolidated  Assoc'n  v.  Lord,  35  La.  Ann. 
425  (1883),  where  the  court  refused  to  up- 
hold an  amendment  which  imposed  fur- 
ther liability  on  the  stockholder,  the  court 
said  :  "The  horde  of  officeis — president, 
vice-president,  cashier,  receivers,  direc- 
tors— pass  before  us  in  this  record  in 
lengthened  procession,  laden  with  salaries 
and  plethoric  with  stipends,  and  the  lean 
and  slippered  stockholder,  gaunt  from 
forty  years  exhaustion,  at  last  holds  up 
his  hands  in  eager,  passionate  suppliance 
for  relief  from  this  insatiate,  ever-recur- 
ring hunger  for  more  contributions." 

Whenever  the  statute  imposing  the 
liability  is  penal  in  its  nature,  a  re- 
peal of  it,  even  so  as  to  affect  existing 
debts,  is  not  unconstitutional.  Breitung 
V.  Lindauer,  37  Mich.  217  ;  Union  Iron 
Co.  V.  Pierce,  4  Biss.  327 ;  Gregory  v. 
German  Bank,  3  Col.  332. 

'  The  general  principle  of  law  govern- 
ing this  branch  of  the  subject  is  well  ex 
pressed  in  Woodfork  v.  Union  Bk.,  3 
Coldw.  (Tenn  )  488  (1866).  "The  con- 
tract, or  charter,  after  acceptance,  is  in- 
violable be' ween  the  State  and  the  corpo- 
ration, as  it  is  also  between  the  corporation 

484 


and  stockholders.  Neither  the  one  nor 
the  other  can  disregard  its  obligations, 
or  alter  its  essential  franchises,  without 
the  unanimous  concurrence  of  the  stock- 
holders. ...  If  the  alterations  pro- 
posed in  the  charter  of  a  private  corpo- 
ration by  legislative  enactment  are  mere- 
ly auxiliary  and  not  fundamental,  they 
may  be  accepted  by  a  majority  of  the 
corporators ;  and  when  so  assented  to, 
they  are  binding  on  the  whole,  but  it 
is  otherwise  .  .  .  when  the  altera- 
tions are  fundamental,  radical,  and  vital. 
The  acceptance  must  then  be  unanimous." 

2  111.  River  R.  R.  Co.  v.  Zimmer,  20 
111.  65  (1858).  Ordinarily  the  acceptance 
cannot  be  by  the  directors.  Marlbomugh 
Mfg.  Co.  V.  Smith,  2  Conn.  579  ;  Brown 
V.  Fairmount  Mine  Co.,  10  Phil. 
32.  Cf.  Blatcbford  v.  Ross,  5  Abb.  Pr. 
(N.  S.j  434.  Contra,  Venner  v.  Atchison, 
<fec.,  R.  R.  Co.,  28  Fed.  Rep.  681  (1886). 
Where  the  amendment  is  not  fundamen- 
tal it  m;iy  be  accepted  by  a  majority. 
Buffalo  &  N.  Y.  City  R.  R.  Co.  v.  Dudley. 
14  N.  Y.  336  (1856);  Schenectady  &  Sar- 
atoga Plank  Road  Co.  v.  Thatcher,  11 
N.  Y.  102  (1854);  Dayton,  <fec.,  R.  R. 
Co.  V.  Hatch,  1  Disnev,  84  (1855);  Com'th 
V.  CuUum,  13  Penn.  St.  133.    And  see  sub. 

^  The  individual  motives  and  interests 


CH.   XXVIII.] 


AMENDMENTS   AND   REPEALS. 


[§  499. 


amendment  materially  changes  tlie  corporate  plans  or  not  is  a 
question  of  law  for  the  court  upon  facts  ascertained  by  the  jiny.^ 
Accordingly  each  case  is  to  be  decided  according  to  the  peculiar 
circumstances  of  that  case,  and  no  general  rules  can  be  laid  down 
which  will  apply  to  all  cases.^ 


of  a  stockholder  are  disre^ardecl.  What- 
ever is  for  the  beoefit  of  the  corporation 
is  conclusively  presumed  to  be  for  the 
benefit  of  each  stockholder.  A  change 
immaterial  to  the  corporation  is  imma- 
terial to  each  and  every  stockholder. 
Supervisors  of  Fulton  County  v.  Miss.  & 
Waba-h  R.  R.  Co.,  21  111.  338  (1859); 
Delaware  R.  R.  Co.  v.  Tharp,  1  Hous. 
(Del.)  149  (1856) ;  Irvine  v.  Turnpike  Co., 
2  Penn.  &  W.  466 ;  111.  Riv.  R.  R.  Co.  r. 
Zimraer,  20  111.  654  (1858);  Sprague  v. 
111.  River  R.  R.  Co.,  19  111.  1'74  ;  Banet  v. 
Alton  <fe  Sangamon  R.  R.  Co.,  13  111.  504 
(1851).  Cf.  Hester  v.  Memphis  &  Charles- 
ton  R.  R.  Co.,  32  Miss.  378  (1856);  Wit- 
ter V.  Miss.,  Ouachita  &  Red  River  R,  R. 
Co.,  20  Ark.  463  (1859);  The  cases  of 
Zabriskie  v.  Hackensack  &  N.  Y.  R.  R. 
Co.,  18  N.  J.  Eq.  178  (1867);  Dayton  & 
Cincinnati  R.  R.  Co.  v.  Hatch,  1  Disney, 
84 ;  and  Central  R.  R.  Co.  v.  Collins,  40 
Ga.  617,  repudiate  the  distinction  be- 
tween the  material  and  immaterial 
changes.  All  changes  are  held  to  be  equal- 
ly material. 

'  Winter  v.  Muscogee  R.  R.  Co.,  1 1  Ga. 
438  (1852);  Witter  i^.  Miss.,  Ouachita  <fe 
Red  River  R.  R.  Co.,  20  Ark.  463  (1859)  ; 
Memphis  Branch  R.  R.  Co.  v.  Sullivan, 
57  Ga.  240  (1876).  Cf.  Southern  Penn. 
Iron  &  R.  R.  Co.  v.  Stevens  Ex'r,  87  Pa. 
St.  190(1878). 

-  Certain  changes  in  the  route  of  a 
railroad  have  been  held  to  be  iramatfrial, 
W'illson  u.  Willfs  Valley  R.  R.  Co.,  33 
Ga.  466  (1863);  Johnson  v.  Pensacola  <fe 
Ga.  R.  R.  Co.,  9  Fla.  299  (I860)  ;  Peoria 
&  Oqnawka  R.  R.  Co.  v.  Eltin'i-,  17  111. 
429  (1856);  Banet  «.  Alton  <fe  S.'mjamoti 
R.  R.  Co.,  13  111.  5(14  (1851);  building 
branch  lines,  Peoria  &  Rock  Island  R.  R. 
Co.  V.  Preston,  35  Iowa,  115  (1872); 
Greeneville  &  Columbia  R.  R.  Co.  v. 
Coleman,  5  Rich.  Law(S.  C.),  118(1851); 
Peoria  &  Oquawka  R.  R.  Co.  v.  El  ting, 
17  111.  429(18.".6);  issuing  preferred 
stock,  Everliart  v.  West  Cluster  &  Phila. 
R.  R.  Co.,  28  Pa.  St.  339(1857);  Rutland 
.t  Burlington  R.  R.  Co.  v.  Thrall,  35  Vt, 
536(1863);  or  more  common  stock,  City 
of  Cov.  V.  Cov.  <t  Cin.  Bridge  Co.,  10 
Bush,  69  (1873);  extending  the  time  for 


completing  the  road,  Agri.  Branch  R.  R. 
Co.  V.  Winchester,  13  Allen.  29  (1866)  ; 
Poughkeepsie,  &c.  Co.  v.  GrifBn,  24  N.  Y. 
150  (1861),  Bailey  K  Hollister,  26  N.  Y'. 
112  (1862);  power  to  amend  being  re- 
served, Taggart  v.  Western  R.  R.  Co., 
24  Md.  563  (1866);  Danburv,  <fec.  R.  R. 
Co.  V.  Wilson,  22  Conn.  435  (1853);  con- 
solidations that  take  the  place  of  part  of 
the  line  as  laid  out,  Sprague  v.  111.  River 
R.  R.  Co.,  19  111.  174  (1857);  Hanna  ;■. 
Cin.  &  Fort  Wayne  R.  R.  Co.  20  lud.  30 
(1863);  change  of  corporate  name,  Bucks- 
port  (fe  Bangor  R.  R.  Co.  v.  Buck,  68  Me. 
81  (1878);  Clark  v.  Monongahela  Nav. 
Co.  10  Watts  (Tenn.),364  (1840)  ;  chang- 
ing the  terminus.  Pacific  R.  R.  v.  Ren— 
sliaw,  18  Mo.  210(1852);  Rossii.  Chicago, 
<fec.  R.  R.  Co.,  77  111.  134  ;  reduction  of 
capital  stock  and  shortening  of  the  road. 
Troy  cfe  Rutland  R.  R.  Co.  v.  Kerr,  17 
Barb.  581  (1854);  or  enlarging  tiie  capi- 
tal stock  and  extending  the  road,  sucl> 
clian^es  not  appearing  on  the  record  to 
be  detrimental,  Peoria  &  Oquawka  R.  R. 
Co.  V.  Elting,  17  111.  429  (1856);' Rice  v. 
Rock  Island  R.  R.  Co.  21  111.  93;  and 
minor  changes  in  general,  Union  Agri.  & 
Stock  Ass'n  v.  Mill,  31  Iowa,  95  (1870); 
also  extensive  changes.  111.  River  R.  R. 
Co.  V.  Zimmer,  20  III.  654  (1858);  such 
as  extending  the  road.  Cross  v.  Peach 
Bottom  Ry.  Co.,  90  Pa.  St.  392  (1879); 
purchasing  another  railroad,  Venner  v. 
Atchison, "etc.  R.  R.  Co.,  28  Fed.  Rep.  581 
(1886);  or  increasing  the  number  of  di- 
rectors. Mower  v.  Staples,  32  Minn.  284 
(1884).  See  also  Gray  v.  Coflin,  9  Cush. 
192  (1852);  Child  v.  Coflin,  17  Mass.  64 
(1820);  Lungley  v.  Little,  26  Me.  162 
(1846);  Covington  v.  Bridge  Co.,  10 
Bush,  69.  78  (1873)  ;  Payson  v.  Withers, 
5  Biss.  269  (1873);  Joy  j\  Jackson,  tfec. 
Co.,  11  Mich.  155  (1863).  See  also  Fry'a 
Ex'rs  V.  Lexington,  &c.  R.  R.  Co.,  2 
Mete.  (Ky.)  322;  Waring  v.  Mayor.  &c. 
of  Mobile,  24  Ala.  201  ;  iiank  ('.  Richard- 
son, 1  Me.  79  ;  Greenville,  etc.  R.  R,  Co. 
I'.  Johnson,  8  Baxt.  332;  State  v.  Ac- 
commodation Bk.  of  La.,  26  La.  Ann. 
288 ;  Fall  River  Iron  Works  v.  Old  Colony 
R.  R.  Co.,  5  Allen,  221;  Pacific,  &c.  R. 
R.  Co.  V.  Hughes,  22  Mo.  297. 

485 


§  500.] 


AMENDMENTS   AND   REPEALS. 


[CH.  XXVUI. 


§  500.  Material  amendments  offered  to  the  stoclcliolders  can 
he  accepted  only  by  an  unanimous  vote. — On  the  other  hand  a 
material  and  fundamental  change  in  the  charter  by  an  amend- 
ment to  that  charter  is  an  unconstitutional  violation  of  the  con- 
tract rights  of  any  stockholder  who  does  not  assent  to  such  an 
amendment.  Considerable  difficulty  is  experienced  in  determin- 
ing what  is  a  material  and  fundamental  change.  Each  case  is  de- 
cided upon  its  own  facts,  and  consequently  the  best  light  as  to 
the  spirit  of  what  constitutes  a  material  change  is  obtained  by  a 
study  of  the  facts  of  cases  which  have  been  decided.^ 


'  Under  the  circumstances  of  the 
cases,  it  has  been  held  a  material 
change  to  shorten  and  vary  the  route, 
Winter  V.  Muscogee  R.  R.  Co.,  11  Gn.  488 
(18.52):  to  vary  the  route,  Middlesex 
Turnpike  Corj  oration  v.  Locke,  8  Mass. 
208  (1811);  Id.  V.  Swan,  10  Mass.  384 
(1818);  Hester  v.  Memphis  cfe  Charleston 
R.  R.  Co.,  32  Miss.  378  (1856);  Witter  v. 
Miss.,  Ouachita  &  Red  River  R.  R.  Co  , 
20  Ark.  463  (1859);  Champion  v.  Mem- 
phis, (fee,  R.  R.  Co.,  35  Miss.  692;  Simp- 
son V.  Deuison,  10  Hare,  54;  changing 
a  terminus,  Manheim,  (fee, Co.  v.  Arndt,  31 
P.nn.  St.  317  (1858) ;  Marietta,  tfec.  R.  R. 
Co.  V.  Elliott,  10  O.  St.  67  ;  Middlesex,  &c., 
Co.  V.  Locke,  8  Mass.  267;  Id.  v.  Swan, 
Id.  385;  Thompson  v.  Giiion,  5  Jones' 
Ec[.  113  ;  permitting  a  railroad  to  go  in- 
to water  transportation  business,  Hart- 
ford &  New  Haven  R.  R.  Co.  v.  Croswell, 

5  Hill,  383  (1843),  a  leading  case;  Mari- 
etta &  Cin.  R.  R.  Co.  v.  Elliott,  10  O.  St. 
57  (1859);  shortening  the  line,  Bk.  v. 
City  of  Charlotte,  85  N.  C.  433  (1881); 
allowing  bnsiness  to  be  commenced  be- 
fore the  full  capital  stock  is  subscribed, 
Memphis  Branch  R.  R.  Co.  v.  Sullivan,  57 
Ga.  240  (1876);  dividing  the  line,  and 
forming  two  or  more  corporations,    Leed 

6  Evensburg  Turnpike  Road  Co.  v.  I'liil- 
lips,  2  Penr.  &  Watts  (Pa.),  184;  Super- 
visors of  Fulton  County  v.  Miss.  &  Wa- 
bash R.  R.  Co.,  21  111.  338  (1859);  Carl- 
isle V.  Terre  Haute  &  Richmond  R.  R. 
Co.,  6  Ind.  316  (1855);  making  the  char- 
ter perpetual,  and  increasing  power  to 
hold  property,  Prop,  of  the  Union  Lock 
<fe  Canals  z;.  "Towne,  1  N.  H.  44  (1817); 
allowing  a  life  insurance  company  to  in- 
sure against  fire  and  marine  loss,  Asli- 
ton  V.  Bur  bank,  2  Dill.  435  ;  extending 
the  line,  Stevens  v.  Rutland  &  Burling- 
ton R.  R.  Co.,  29  Vt.  545  (1855).  See 
also  Noesen  v.  Town  of  Port  Washington, 

486 


37  Wis.  168  (1875),  where  there  was  no 
amendment  authorizing  the  ],urcliase  of 
a  railroad  running  at  right  angles  to  the 
old,  but  a  release  was  upheld;  increas- 
ing the  par  value  of  the  stock,  Mahon  i'. 
Wood,  44  Cal.  462  (1872);  consolidating 
the  coiporation  with  another  corporation, 
111.  Grand  Trunk  R.  R.  Co.  v.  Cook,  29 
ill.  237  (1862);  McCray  v.  Junction  R.  R. 
Co.,  9  Ind.  358  (1857);  Shelbyville  & 
Hushville  Turnpike  Co.  v.  Barnes,  42  Ind. 
498  (1873);  Booe  v.  Junction  R.  R.  Co., 
10  Ind.  93  (1857);  New  Orleans,  Jackson, 
&  Great  Northern  R.  R.  Co.  v.  Harris,  27 
Miss.  517  (1854);  Clearwater  v.  Meredith, 
1  Wall.  25  (1863);  Kean  v.  Johnson,  1 
Stock.  (9  N.  J.  Eq.)  401  (1853):  Black  v. 
Del.  &  Raritan  Canal  Co.,  24  N.  J.  Eq.  455 
(1873);  criticised  inMowrey  v.  Ind.  &  Cin. 
R.  R  Co.,  4  Biss.  78.  Cf.  Lanman  v.  Leban- 
on Valley  R.  R.Co.,  30  Pa.  St.  42  (1858) ; 
Fry's  Executor  v.  Lexington,  Ac,  R.  R. 
Co.,  2  Mete.  (Ky.)  314  (1859),  the  court 
saying:  "Each  shareholder  in  an  incor- 
porate company  has  a  right  to  insist  on 
the  prosecution  of  the  particular  objects 
of  the  charter.  He  cannot  be  deprived 
of  his  rights  or  privileges  without  liis  as- 
sent. Such  alterations  of  the  charter  as 
are  necessary  to  carry  into  effect  its  main 
design  maybe  made  without  his  consent. 
But  an  altera' ion  which  materially'  and 
fundamentally  changes  the  responsibili- 
ties and  duties  of  the  company,  or  which 
superadds  an  entirely  new  enterprise  to 
that  which  was  originally  contemplated, 
may  be  resisted  by  the  stockholders,  un- 
less such  alterations  are  provided  for  in 
the  cliarter  itself,  or  in  the  general  laws 
of  the  State  in  ibrce  at  the  time  the  act  of 
incorporation  was  passed."  Until,  how- 
ever, the  corporation  accepts  such  amend- 
ment, the  stockholders  cannot  complain. 
To  same  effect,  Delaware,  tfec,  R.  R.  Co.  v. 
Irick,   23  N.  J.   L.   321   (1852).     See  in 


CH.  XXVIII.] 


AMENDMENTS    AND   REPEALS. 


[§501. 


§  501.  Amendments  under  the  reserved  power  of  the  State  to 
<ater,  amend,  or  reimd  the  charter.— The  extent  of  the  power 
of  the  legislature  to  amend  a  charter,  where  it  has  reserved 
that  power,  is  not  yet  fully  settled,  and  is  full  of  difficulties. 
There  is  a  strong  tendency  in  the  decisions,  and  a  tendency 
which  is  deserving  of  the  highest  commendation,  to  limit  the 
power  of  the  legislature  to  amend  a  charter  under  this  reserved 
power.  It  should  be  restricted  to  those  amendments  only  in 
which  the  State  has  a  public  interest.  Any  attempt  to  use  this 
power  of  amendment  for  the  purpose  of  authorizing  a  majority  of 


general,  Pearce  v.  Madison  R.  R.  Co.,  21 
How.  441  ;  Tutt'e  v.  Mich.  Air  Line  Co., 
S5  Midi.  247;  New  Jersey,   «fec.,   R.   R. 
Co.  V.  Strait,  35  N.  J.  L.  322  ;  Sprague  v. 
111.  R.  K.  Co.,  19  111.  174;  Comth.  v.  Cul- 
lom,  13  Penn.  St.  13H  (1850).     In  all  these 
cases  neither  a  mar.datnry  statute,  nor  a 
vote  of  the  directors,  nor  a  majority  of 
the  stockholders,  can  compel  a  dissent- 
ing stockholder  to  accept  the  change.    It 
would   be   unconstitutional.     The   stock- 
liolder  may  say :  "  I   have  agreed  to  be- 
come intewsted  in  a  riiilroaJ  company, 
and  have  contracted  in  view  of  the  profits 
to  be  expected  and  the  perils  and   losses 
incident  to  that  description  of  business; 
but  i  liave  not  agreed  that  those  to  be  in- 
trusted with  the  capital  1  contribute  shall 
have  power  to  use  it  in  a  business  (f  a 
different   character,    and   attended   with 
hazards  of  a  different  descripiion."   Mari- 
etta, (fee,  I{.  R.  Co.  V.  Elliott,  10  O.  St.  57 
{1859).     The  legislature    cannot,   in    the 
amendment  itself,  authorize  the  majority 
to   bind  the  minority  herein.     New  Or- 
leans, tfec,  R.  R.  Co.  V.  Harris,   27   Miss. 
517.     On  the  right  of  a  dissenting  stock- 
holder   in    i^eneral,    see    also    Goodin    u. 
Evans,  18  0.  St.  150,  160(1808);  Railway 
Co.  V.  Allerton.  18  Wall.  233.  235;  Print- 
ing House  V.  Trustees,   104  U.  S.  711; 
Brown  v.  Fnirmount  Min.  Co.,  10  Phila. 
32;   Roberts' Appeal,   92  Penn.   St.  4(i7; 
Buffalo,  Ac,  H.  K.  Co.  v.  Potter,  18  Barb. 
21  ;  lloey  v.  Henderson,  32  La.  Ann.  1069; 
Wari'.g  V.  Mayor,  <fec.,  of  Mobile,  24  Ala. 
701 ;  Old  Town,  <fec.,  R.  R.  Co.  v.  Veazie, 
39  Me.  571 ;  Miss.,  <fec.  R.  R.  Co.  v.  Cross, 
20  Ark.  443;  (Jlinch  v.  Financial  Co..  L. 
R.  4  Ch.  117;  I)ouj;an's  Case.  L.  R.  8  Ch. 
540;  Barrett  v.  Alton,  Ac,  li.  It.  Co.,  U 
111.  504  ;   Peoria,  &.(-.,  li.  H.  Co.  v.  Kiting, 
17  111.  429  ;   111.,  Ac,  R.  R  Co.  v.  Zimmer, 
20   Id.  054 ;    Rice    r.   Rock   Island   R.    R. 
€o..  21    Id.  93;  Ross  v.  C.  B.  A  Q.  R.  1{. 


Co.,  77  Id.  134;  Pacific,  Ac,  R.  R.  Co.  v. 
Renshaw,  18  Mo.  210;  Id.  v.  Hughes,  22 
Id.  297.  See  also  Gray  v.  Monongahela 
Nav.  Co.,  2  Watts  &  S.  156;  Delaware  R. 
R.  Co.  V.  'Iharp,  I  Houst,  174;  Martin  v. 
Pensacola  R.  R.  Co.,  8  Fla.  381 ;  Dayton. 
Ac,  R.  R.  Co.  V.  Hatch,  1  Disney,  84  ; 
Currie  v.  Mut.  Ass.  eoc,  4  Hen.  A  M.  315; 
Covington  v.  Covington,  Ac,  R.  R.  Co., 
10  Bush,  09 ;  Zabriskie  v.  Cleveland,  Ac, 
R.  R.  Co.,  23  How.  381;  Cincinnati,  Ac  . 
R.  R.  Co.  V.  Cole,  29  O.  St.  126;  St. 
Mary's  Church,  7  Serg.  A  R.  517;  Ver- 
mont, Ac,  R.  R.  Co.  V.  Vermont,  Ac,  R. 
R.  Co.,  34  Vt.  2,  50,  51 ;  Owen  v.  Purdy, 
12  O.  St.  73 ;  Lyons  v.  Orange,  Ac.,  R.  R. 
Co.,  18  Md.  32;  111.  Riv.  R.  R.  Co.  v. 
Beers,  27  111.  185;  Hope  Ins.  Co.  v.  Beck- 
man,  47  Mo.  93;  Id.  v.  Koellcr,  47  Id. 
129;  Wetumpka  A  Coosa  R.  R.  Co.  v. 
Bingham,  5  Ala.  657  ;  Palfrey  v.  Paulding, 
7  La.  Ann.  363;  State  v.  Sibley,  25  Minn. 
387  ;  Bangor,  Ac,  R.  R.  Co.  v.  Smith,  47 
Mc  34;  Sheilds  v.  Ohio,  26  O.  St.  80; 
s.  c,  95  U.  S.  319;  State  v.  Maine,  Ac, 
R.  R.  Co.,  06  Me.  488;  s.  c,  93  U.  S.  499; 
New  Jersey  v.  Yard,  95  Id.  113;  s.  o., 
roritra,  37  N.  J.  L.  228:  Smead  v.  Indiana- 
polis, Ac,  R.  R.  Co.,  11  Ind.  104;  Sum- 
rail  {'.  Mut,  Ins.  Co.,  40  Mo.  27;  Kenton 
Co.  Court  V.  Bank  Lick  Turnp.  Co.,  10 
Bush,  525;  Regents  v.  Williams,  9  Gill 
A  J.  365  ;  s.  c,  31  Am.  Dec  72  ;  St.  John's 
('(,]lege  V.  Purnell.  Ac.  23  Md.  029  ; 
White  r.  Syracuse  R.  R.  Co.,  14  Barb. 
500;  Schen'ectadv,  Ac,  Plank  R.  Co.  v. 
Thatcher,  11  N.  Y.  102;  Calcy  ?'.  Phila- 
delphia, Ac,  R.  R.  Co.,  80  Penn.  St.  30:? 
(1870).  See  also  Burlinston,  Ac,  R.  R. 
(Jo.  V.  While,  5  Iowa,  409  (1K57);  South 
Georgia,  Ac,  R.  R.  Co.  v.  Ayrcs,  56  Ga. 
230  (1876),  where,  however,  a  sale  of  the 
road  was  made  without  legislative  author- 
ity. 


487 


§  501.] 


AMENDMENTS   AND   REPEALS. 


[cH.  xxvni. 


the  stockholders  to  force  upon  the  minority  a  material  change  in 
the  enterprise,  is  contrary  to  law  and  the  spirit  of  justice.  Under 
such  reserved  power  the  legislature  has  the  same  rights  to  amend 
the  charter  that  it  would  have  had  in  case  the  Dartmouth  College 
case  had  decided  that  charters  were  not  contracts.^  The  power  to 
make  amendments  and  to  repeal  and  alter  charters  has  been  re- 
served in  most  of  the  States  of  the  Union.^  It  is  clearly  estab- 
lished that  the  legislature  cannot,  under  this  reserved  power, 
amend  the  charter  so  as  to  change  the  whole  character  of  the  en- 
terprise and  compel  the  corporation  to  proceed  under  the  amended 
charter.^  An  amendment  under  the  reserved  power  cannot 
change  the  character  of  the  enterprise,  nor  take  away  rights 
already  acquired  under  the  charter.  It  must  not  be  foreign  to 
the  purposes  and  objects  of  the  original  charter.^ 


'  County  of  San  Mateo  v.  Southern 
Pacific  R.  R.  Co.  8  Sawyer,  238,  279 
(1882);  Detroit  v.  Detro'it  &  Howell 
Plank  Road  Co.,  43  Mich.  140  (1880). 

■^  Constitution  of  Ala.  XIII,  1  ;  Ark. 
V,  48;  Cal.  IV,  31;  1879,  XII,  1;  Col., 
1876,  XV,  3;  Del.  II,  17;  Iowa,  VIII,  12; 
Kan.  Xll,  1;  Me.  Laws  of  1831;  Mass. 
St.  1830,  ch.  81,  R.  S.  ch.  44,  §  23,  Gen. 
St.  ch.  68,  §  41 ;  Md.  Ill,  48.  par.  2  ;  Mich. 
XV,  1,  8;  Mo.  VIII,  14;  N.  J.  Amepd. 
IV,  7,  par.  11,  cl.  11;  N.  Y.  VIII,  1,  R. 
S.  pt.  L  ch.  XVIII,  Title  3,  §  8;  N.  Car. 
VIII,  1;  Neb.,  1875,  XI;  Nev.  VIII,  1; 
0.  XVIII,  2  ;  Or.  XI,  2  ;  Penn.  XVI,  10  ; 
S.  Car.  XII,  1;  Tenn.  XL  8;  Tex.,  1875, 
XII,  6,7;  Wis.  XL  1. 

^  In  Pennsylvania  it  is  held  that  the 
reserved  power,  when  used  so  as  to  make 
an  amendment  compulsory  on  the  corpo- 
ration, "  is  in  the  nature  of  a  police  pow- 
er, designed  for  the  protection  of  the  pub- 
lic welfare."  Cross  v.  Peach  Bottom  Ry. 
Co.,  90  Pa.  St.  392  (1879).  "  The  power 
of  amendment  was  never  reserved  with 
reference  to  any  question  between  the 
corporation  and  its  stock  subscribers,  but 
solely  with  reference  to  questions  between 
the  corporation  and  the  State,  where  the 
latter  desired  to  make  compulsory  amend- 
ments against  the  will  of  the  former." 
Tlie  corporation  cannot  be  compelled  to 
proceed.  All  the  State  "  can  do  is  to 
gnmt  it  the  power,  and  then  it  is  for  the 
corporation  to  accept  it  or  Udt,  as  it 
pleases."  Kenosha,  Rockford  &  Rock 
Island  R.  R.  Co.  v.  Marsh,  17  Wis.  13 
(1862);  Troy  &  Rutland  R.  R.  Co.  v. 
Kerr,  17  Barb.  B81  (1854).     In   the  City 

488 


of  Kuoxville  v.  Railroad  Co.,  22  Fed.  Rep. 
758  (1884),  the  court  says:  "It  was  not 
competent  for  the  legislature  to  do  more 
in  this  respect  than  to  waive  the  public 
rights  It  could  not  divest  or  impair  the 
rights  of  the  shareholders,  as  between 
themselves,  as  guaranteed  by  the  com- 
pany's charter,  without  their  consent.  It 
was  upon  the  faith  of  the  stipulations 
contained  in  said  charter  that  the  share- 
holders subscribed  to  the  capital  stock, 
and  thereby  made  themselves  members 
of  the  corporation."  In  the  case  also  of 
Orr  V.  Bracken  County,  <fec.,  81  Ky.  59S 
(1884),  an  amendment  imder  the  reserved 
power,  chiingine;  the  method  of  voting, 
was  decided  to  be  of  no  effect  until  the 
stockholders  accepted  it.  The  court  said : 
"  The  right  to  amend  the  charter  may  be 
expressl}^  reserved,  but  that  right  does 
not  confer  the  favor  of  taking  from  the 
corporators  the  control  of  the  corporate 
pioperty."  Query,  whether  a  mandatory 
consolidation  would  be  legal.  M^wrey 
V.  Ind.  &  Cin.  R.  R.  Co.,  4  Biss.  78  (18(36). 
When  legal,  a  mandatory  change  does 
not  require  acceptance  by  the  stockhold- 
ers. Zabriskie  v.  Hackensack  &  N.  Y.  R. 
R.  Co.,  18  N.J.  Eq.  178  (1867).  But  when 
the  mandatory  amendment  goes  beyond 
the  legal  limits,  it  must  be  accepted  by 
the  corporation  as  though  it  were  made 
optional  with  the  corporation.  Kenosha, 
Rockford  &  Rock  Island  R.  R.  Co.  ». 
Marsh,  17  Wis.  13  (1863). 

*  This  power  has  its  limits.  "It  can 
repeal  or  suspend  the  charter,  it  can  alter 
or  modify  it,  it  can  take  away  the  char- 
ter, but  it  cannot  impose  a  new  one  and 


en.  xxviiT.] 


AMENDMENTS   AND   REPEALS. 


[§501. 


It  may,  however,  go  to  any  extent  in  authorizing  tlie  corporation 
itself,  by  an  unanimous  vote  of  the  stockholders,  to  make  funda- 
mental changes.  The  latest  and  best  view  taken  of  this  reserved 
power  of  the  State,  is  that  under  it  a  fundamental  amendment  to 
the  charter  does  not  authorize  a  majority  of  the  stockholders  to 
accept  the  amendment  and  proceed,  but  that  unanimous  consent 
of  the  stockholders  is  necessary.^ 


oblige  tlie  stockholders  to  accept  it.  .  . 
.  The  power  to  alter  and  modify  does 
not  give  power  to  make  any  substantial 
additions  to  the  work."  Zabriskie  v. 
Hackensack  &  N.  Y.  R.  R.  Co.,  18  N.  J. 
Eq.  178  (1867).  "  The  power  of  alteration 
and  amendment  is  not  without  limit;  the 
alterations  must  be  reasonable;  they 
must  be  made  in  good  faith,  and  be 
consistent  with  the  scope  and  object  of 
the  act  of  incorporation.  Sheer  oppres- 
sion and  wrong  cannot  be  inflicted  under 
the  guise  of  amendment  or  alteration." 
Shields  v.  Ohio.  95  U.  S.  325  (1877); 
Spring  Valley  Water  Works  v.  Bd.  of 
Supervisors  of  San  Francisco,  61  Cal.  3 
(1881).  The  amendment  must  "  not  de- 
feat or  sitbsequently  impair  the  object  of 
the  grant,  or  any  rights  vested  under  it." 
Close  V.  Glenwood  Cemetery,  107  U.  S. 
466  (1882).  See  also  Miller  v.  State,  15 
Wall.  478  (1872);  Mayor,  <fec.,  of  Wor- 
cester V.  Norwich  &  Worcester  R.  R.  Co., 
li)9  Mass.  103  (1871).  The  motives  of 
the  legislators  cannot  be  inquired  into. 
Northern  R.  R.  Co.  v.  Miller,  Id  Eaib. 
260  (1851);  Matter  of  Elevated  R.  R.  Co., 
70N.  Y.  ;i27,  851  (18*77). 

'  Mills  V.  Central  R.  R.  Co.,  41  N.  J. 
Eq.  5  (1886),  where  a  statute  subsequent 
to  the  charter,  authorized  the  consolida- 
tion of  railroad  coiiipanies.  The  court 
said:  "The  provision  in  that  act,  that  it 
shall  be  lawlul  to  lease  or  consolidate,  is 
merely  a  legislative  authorization,  a  con- 
cession on  the  part  of  the  legislature,  of 
the  power  to  do  that  which  could  not 
lawfully  be  done  without  such  authority. 
It  is  not  an  enactujent,  that  the  directors 
may,  without  the  consent  of  the  stock- 
holders of  the  companj',  lease,  consolidate, 
or  merge.  Nor  is  it  in  effect  an  enact- 
ment, that  they  may  with  the  consent  of 
the  majority  of  the  stockholders  do  so. 
But  the  statute  is  merely  an  enabling  act, 
a  law  intended  to  <;ive,  once  for  nil,  a 
general  legislative  authority  to  lease,  con- 
solidate, or  mersre.  The  l.-gislature  did 
not  intend  to  affect  the  rights  of  stock- 


holders, iyiler  sese,  and  the  act  does  not 
do  so,  either  expressly  or  by  implication. 
.  .  After  shareholders  had  entered 
into  a  contract  among  themselves,  under 
legislative  sanction,  and  expended  their 
money  in  the  execution  of  the  plan  mutu- 
ally agreed  upon,  the  plan  could  not,  even 
by  virtue  of  legislative  enactment,  be 
radically  changed  by  the  majority  alone, 
and  dissentient  stockholders  be  compelled 
to  engage  in  a  new  and  totally  difierent 
undertaking,  because  such  action  would 
impair  the  obligation  of  the  dissenting 
stockholders'  contract  with  their  associ- 
ates and  the  State."  The  court  said 
also,  that  under  its  reserved  power  to 
amend  a  charter,  the  State  cannot  give 
"  a  power  to  one  part  of  the  corporators 
as  against  the  other,  which  they  did  not 
have  before."  It  has  been  held,  however, 
that  under  its  reserved  power,  the  legis- 
lature may  authorize  a  road  to  lease  an- 
other. Durfee  v.  Old  Colony  &  Fall 
River  R.  R.  Co.,  87  Mass.  230  (1862).  A 
consolidation  thereunder  has  been  held 
legal.  Bishop  v.  Brainerd,  28  Conn.  289 
(1859);  also  not  legal,  Kenosha,  Rockford, 
&  Rock  Island  R.  R.  Co.  v.  Marsh,  17 
W'is.  13  (1862);  Mowrey  v.  Ind.  <t  Tin. 
R.  R.  Co.,  4  Biss.  78  (1866);  authorizing 
one  railroad  to  subscribe  for  stdck  in  an- 
other railroad  has  been  held  legal, White 
V.  Syracuse  &  Utica  R.  1!.  Co.,  14  Barb. 
559  (1853);  also  borrowing  money  and 
building  branches,  Northern  K.  R.  Co.  v. 
Miller,  10 Barb.  260(1851);  also  reducing 
capital  stock,  Joslyn  v.  Pacific  Mail 
Steamship  Co..  12  Abb.  Pr.  K.  (N.  S.) 
329  (1872).  See  also  WHiite  Hall  <fe 
Plattsburgh  It.  R.  Co.  r.  Myers,  16 
Abb.  Pr!  (N.  S.)  34  (1872);  Stale  v. 
Accommodation  Bk.  of  La.,  26  Ln. 
Ann.  288  (1874);  Kenosha,  lioikford 
&  Rock  Island  R.  R.  Co.  v.  Marsh.  17 
Wis.  13  (1863).  The  extension  of  the 
line  from  six  to  seventeen  miles,  was  held 
to  require  an  unanimous  aci'eptanco  in 
Zabriskie  v.  IlackenMicl:  &  N.  Y.  K.  K. 
Co.,  18  N.J.  Kq.  178(1867). 

489 


^§502,503.]  AMENDMENTS    AND   REPEALS. 


[CH.  XXVIII. 


§  502.  Dissenting   stockholder'' s  remedy  against  an  illegal 

amendment. Where  an  unauthorized  and  illegal  amendment  has 

been  accepted  by  a  corporation,  and  is  about  to  be  acted  upon, 
a  stockholder  has  two  remedies.  If  he  has  not  paid  his  subscrip- 
tion, he  may  consider  himself  released  from  his  liability  to  pay 
the  subscription,  or  he  may  begin  suit  in  equity  to  obtain  an  in- 
junction against  any  action  by  the  corporation  under  the  amend- 
ment.^ If  the  stockholder  has  already  paid  his  subscription,  then 
his  only  remedy  is  an  injunction.^  In  Pennsylvania  it  has  been 
held  that  the  stockholder  may  have  an  injunction  herein,  but  only 
until  the  corporation  shall  have  purchased  his  interest  in  the  cor- 
poration.^ This  decision,  however,  has  been  doubted,  and  hardly 
seems  consistent  with  well  established  principles,  protecting  per- 
sons in  their  rights  to  retain  their  property,  except  as  taken  from 
them  under  the  power  of  eminent  domain.* 

§  503.  Assent  and  acquiescence  as  a  lar  to  the  stockholder'' s 
remedy.— A  stockholder  may  be  estopped  from  objecting  to  an 
amendment,  by  bis  express  or  implied  acquiescence  therein. 
Any  acts  indicating  an  acceptance  by  bim  of  the  amendment 


1  Tliis  rule  is  recognized  and  applied 
in  most  of  the  cases  of  this  ch.ipter.     See 
also  Clearwater  v.  Meredith,  1  Wall.  25, 
holding  that  the  stockholder  was  released, 
and  saying :   "  Clearwater  could  have  pre- 
vented" th?s  consolidation,  had  he  chosen 
to   do  so."      Nugent  v.   Supervisors,    19 
Wall.  241  (1873) ;  Champion  v.  Memphis, 
<fec.,  R.  R.  Co.,  35  Miss.  692  (18.!)8).     In 
England    cases    generally   arise,    releas- 
ing   the  subscriber,  when  the  memoran- 
dum of  association  vary  from   the   pro- 
spectus:  Stewart's  Case,  L.  R.,  1  Ch.  574 
(1866);  Webster's  Case,  L.  R.,  2  Eq.  741 
(1866);  Ship's  Case,  2  De  G.,  J.  &  S.  544 
(1865);  Dawes  I'.  Ship,  L.  H.,  3  H.  of  L.  343 
(1868).      Cf.  Nixon  v.  Brownlaw,  3  H.  & 
N.  686  (1858);   Norman  v.  Mitchell,  5  De 
G.,  M.  &  G.  648  (1854).     See  also  Dorris 
V.  Sweeney,  60  N.  Y.  463  (1875).     After 
a  winding  up  has  commenced,  there  can 
be  no  release  herein.     Oakes  v.  Turquand 
L.  R.,  2  H.  L.  325  (1867).     In  opposition 
to  this  rule  of  law,  there  are  some  decis- 
ions holding  that   the    subscribers'  only 
remedy  is  an  injunction.    Were  it  not  that 
the  great  weight  of  authority  holds  other- 
wise, this  view  would  be  commended  as 
the  only  logical  result  of  the  law.     There 

490 


is  no  reason  why  a  stockholder  who  has 
not  paid  his  subscription,  should  be  bet- 
ter off  than  he  who  has  met  that  obliga- 
tion. See  §  187,  also  Hays  v.  Ottawa, 
&c.,  R.  R.  Co.,  61  111.  422  (1871);  Pacific 
R.  R.  V.  Hughes,  22  Mo.  291  (1855);  also 
Martin  v.  Pensacola  R.  R.  Co.,  8  Fla.  389 ; 
Ware  v.  Grand,  &c..  Ry.  Co.,  2  Russ.  & 
M.  470.  The  plea  of  release,  must  allege 
acceptance  by  the  corporation,  and  in- 
jury to  the  defendant  sued  on  his  sub- 
scription, Hawkins  v.  Miss.  &  Tenn.  R. 
R.  Co.,  35  Miss.  688  (1858). 

-  This  remedy  also  is  supported  by  a 
large  number  of  the  cases  in  this  chapter 
See  Stevens  v.  Rutland  &  BurliDi;ton  R. 
R.  Co.,  29  Vt.  545  (1855);  Black  v.  Del. 
&  Raritan  Canal  Co.,  24  N.  J.  Eq.  455 
(1873);  Mowrey  v.  Ind.  &  Cin.  K.  R.  Co., 
4  Biss.  78(1866). 

^  Laumau  v.  Lebanon  Valley  R.  R. 
Co.,  30  Pa.  St.  42  (1858);  approved  in 
Slate  J).  Bailey,  16  Ind.  46  (1861).  Cf. 
Ship  V.  Crosskill,  L.  R.,  10  Eq.  73  ( 1870); 
Stewart  v.  Austin,  L.  R.,  3  Eq.  299  (1866), 
holding  that  the  recovery  back  cannot  be 
in  a  court  of  equity. 

4  Mowrev  v.  Ind.  &  Cin.  R.  R.  Co.,  4 
Biss.  78(1866). 


CH,  XXVITI.] 


AMENDMENTS   AND   REPEALS. 


[§  503. 


bind  him  and  bar  his  suit.^  Acquiescence  may  sometimes  grow 
out  of  his  silence,  under  circumstances  that  called  on  him  to  dis- 
sent, if  he  so  intended.^  His  assent,  however,  is  not  to  be  pre- 
sumed, but  must  be  proven.^ 


'  Bedford  R.  R.  Co.  v.  Bowser,  48  Pa. 
St.  29  (1804).  Long  delay  may  consti- 
tute a  ratitication  herein.  Gifford  v.  New 
Jersey  R.  R.  Co.,  10  N.  J.  Eq.  171  (1554). 
See  in  general,  Memphis,  &c.,  R.  11.  Co. 
V.  Sullivan,  57  Ga.  24i);  Houston  v.  Jef- 
ferson College,  63  Penn.  St.  428 ;  Dan- 
bury,  <fec.,  R.  R.  Co.  V.  Wilson,  22  Conn. 
435  ;  Vermont,  (fee.,  R.  R.  Co.  v.  Vermont 
Cent.  R.  R.  Co.,  34  Vt.  2 ;  Hay  worth  v. 
Junction  R.  R.  Co.,  13  Ind.  348  (1859); 
Mills  V.  Central  R.  R.  Co.,  41  N.  J.  Eq.  1 
(1886);  Zabriskiet;.  Hacken?ack,  <fec.,R.  R. 
Co.,  18  N.  J.  Eq.  178;  Ex  parte  Booker, 
18  Ark.  338;  Upton  v.  Jackson,  1  Flipp. 
C.  C.  413  ;  Goodin  v.  Evans,  18  O.  St.  150. 


If  the  stockholder  subscribed  after  the 
amendment  was  made,  he  cannot  com- 
plain. Eppes  V.  Miss.,  drc.  R.  R.  Co.,  35 
Ala.  (N.  S.)  54  (1859);  McChire  v.  Peo- 
ple's Freight  Co.,  90  Pa.  St.  269  (1879). 

'^  Commonwealth  v.  Culien,  13  Pa.  St. 
133  (1850);  Martin  v.  Pensacola  &  Ga.  R. 
R.  Co.,  8  Fla.  370  (1869) ;  Owen  v.  Purdy, 
12  0.  St.  73  (1861).  C7on</-a,  Hamilton 
Mutual  Ins.  Co.  v.  Hobart,  2  Gray,  543 
(1854). 

3  March  v.  Eastern  R.  R.  Co.,  43  N. 
H.  515  (1862);  Prop.,  Ac,  Union  Lock  <fe 
Canals  v.  Towne,  1  N.  H.  44  (1817);  Ire- 
land V.  Palestine,  <fec.,  Turnpike  Co.,  19 
O.  St.  369  (1869). 


491 


CHAPTEE  XXIX. 


JOINT-STOCK  COMPANIES. 


504.  Definitions. 

606.  Statutory  joint-stock  companies. 

506.  Joint-stock  companies  may  arise 

by  implication  of  law. 

507.  How  a  person  becomes  a  member. 

— Transfers. 


508.  Liability  of  members  to  creditors 

and  to  the  company. 

509.  Actions     by     members 

officers  and  the  company. 

510.  Dissolution. 


against 


§  504.  Definitions.— Joint-stock  companies.— k.  joint-stock 
company  may  be  defined  to  be  an  association  of  persons  for  the  pur- 
pose of  business,  having  a  capital  stock  divided  into  shares,  and 
governed  by  articles  of  association  which  prescribe  its  objects, 
organization,  and  procedure,  and  the  rights  and  liabilities  of  the 
members,  except  that  the  articles  cannot  release  the  members 
from  their  liability  as  partners  to  the  creditors  of  the  company.^ 


'  In   Hedge  &   Home's     Appeal,    63 
Pa.  ?t.  273  (1869),  it  is  defined  to  be  "  a 
partnership     whereof     the      capital      is 
divided  or   agreed  to    be    divided    into 
shares,  and  so  as  to  be  transferable  with- 
out the  express  consent  of  all  the    copart- 
ners."    In  the  statutes  of  Massachusetts 
the  words  "joint-stock  company"  are  used 
to  mean  a  corporation  organized  under 
the  general  incoi-poration  act  of  the  State. 
Atty.  Gen.    v.   Mercantile   Ins.  Co.,   121 
Mass.  524  (1877),  but  this  is  not  an  ac- 
curate use  of  the  term.     "  The  articles  of 
association    of  an    unincorporated  joint- 
stock  company  bear  the  same  relation  to 
it,  that  the  charter  bears  to  an  incorporat- 
ed company.     They   regulate  the  duties 
of  the  officers,  and  the  duties  and  obliga- 
tions of  the  members  of  such  a  company 
among    themselves;      they    specify    the 
capital,  limit;,  the  duration,  and  define  the 
business  of  the  company."     Bray  v.Ynv- 
well,   81  N.  Y,   600  (1880),  per  Earl,  J. 
See  also  White  v.  Brownell,  4  Daly,  162, 
193.      In  Robbins  v.  Butler,  24  111.  387, 
426,    432    (1866),    it    is    said   that  joint- 
stock  companies  "  have  none  of  the  rights 
and  immunities  of    ...     a    regularly 
incorporated  company.    These  stock  com- 
panies are  nothing   more  than  partner- 
ships, and  every  member  of  the  company 

492 


is  liable  for  the  debts  of  the  concern,  no 
matter  what  the  private  arrangements 
among  themselves  may  be."  To  the  same 
effect  see  Moore  v.  Brink,  4  Hun,  402 
(1875);  Skinner  ».  Dayton,  19  Johns.  513 
(1822);  Wells  v.  Gates,  18  Barb.  554 
(1854);  Keasley  v.  Codd,  2  Carr.  &  P. 
408  (1826).  "  The  term  joint-stock  com- 
pany appears  to  have  originated  in  Eng- 
land, in  comparatively  recent  times. 
Joint-stock  companies  may  be  said  to  be 
partnerships,  or  individuals  associated  for 
some  specified  purpose  under  a  designated 
name  or  description,  to  which,  by  some 
general  or  special  statute,  when  they  have 
been  formed  or  composed  in  a  specified 
manner,  some  of  the  powers  or  proper 
attributes  of  a  corporation  have  been 
given."  Dayton,  (fee,  R.  R.  Co.  v.  Hatch, 
1  Disney  Cin.  Super.  Ct.  84,  90(1855); 
Factors,  tfec.  Insurance  Co.  v.  Hrrbor, 
<fec..  Co.,  37  La.  Ann.  233.  239  (1885), 
speaks  of  a  joint-stock  company  as  "  a 
nondescript  organization,  composed  of 
the  owners  of  certificates  showing  the 
l^roportion  of  their  respective  interest  in 
its  assets  and  lialiility  for  its  obligations, 
and  who  are  co-owners  or  proprietors  in 
common.  As  no  one  is  bound  to  own 
property  in  indivision,  it  follows  that 
such  owners  who  wisl;  a  division  have  a 


CH.  XXIX.] 


JOINT-STOCK   COMPANIES. 


[§  504. 


A  joint-stock  company  lies  midway  between  a  corporation  and  a 
copartnership.  It  is,  however,  to  be  distinguished  from  them,^ 
and  also  from  clubs,^  from  social,  benevolent,^  and  mutual  aid* 
organizations,  and  from  associations  formed  for  business  pur- 
poses, but  without  a  capital  stock.^  A  joint-stock  company, 
although  it  exercises  the  power  to  issue  stock,  the  same  as  a  cor- 
poration, yet  when  organized  for  the  purpose  of  transacting  any 
lawful  business,  is  itself  a  lawful  mode  of  carrying  on  business.^ 


rio-ht  to  have  that  property  sold,  and 
after  a  liquidation  of  the  affairs  of  the 
concern  to  have  the  residue  distributed 
ratably  among  themselves."  At  common 
law  a  partnership  may  do  business  under 
any  name  that  it  chooses.  See  §  233. 
As  to  the  effect  of  a  deed,  sjrant,  or  be- 
quest of  real  estate  to  an  unincorporated 
association,  see  Webb  v.  Weatherhead,  17 
How.  576  (18.54);  Gerard's  Titles  to  Real 
Estate,  p. 490;  Owens  v.  Missionary  Soc.  of 
the  M.  E.  Church,  14  N.  Y.  380;  Washburn 
on  Real  Prop.  vol.  HI,  p.  264  (4th  ed.); 
Holmes  v.  Mead.  62  N.  Y.  332  ;  Goesele 
V.  Bumler,  5  McLean,  223  (1851);  Ger- 
man Land  Association  v.  Scholler,  10 
Minn.  331  (1865);  Peabody  v.  Eastern 
Metliodist  Society  in  Lynn,  87  Mass.  540 
(1857);  Towar  v.  Hale,  46  Barb.  361 
(1866);  Dart  on  Vendors  <fe  Purchasers, 
vol.  1,  p.  21  (5th  ed.);  Chapin  v.  First, 
«fec.,  Soc,  74  Mass.  582  (1857). 

'  It  differs  from  a  corporation  in  that  a 
joint-stock  company  has  no  limited  liabil- 
ity as  rej^ards  its  stockholders  ;  'it  cannot 
sue  or  be  sued  in  the  name  of  the  associa- 
tion ;  and  it  has  no  seal.  It  differs  from 
a  copartnership  in  that  it  is  not  dis- 
solved by  a  transfer  of  stock ;  and  each 
member  has  not  the  same  powers  of 
transacting  business  and  disposing  of  the 
assets  as  in  a  partrn'rship.  Sec  Cox  v. 
Bodfish,  35  Me.  3o2  (1853). 

-  Park  V.  Spiiulding,  10  Hun,  128  ; 
Ridgoly  V.  Dobson,  3  Watts  &  S.  118; 
Loiibat  r.  Le  Roy,  40  Hun,  546  ;  Flemyng 
V.  Hector,  2  Mees.  &  W.  172  (1836); 
lie  St.  James  Club,  2  De  G.,  M.  &  G.  383 
(1852)  ;  Ewing  v.  Midlock,  5  Port.  (Ala.) 
82  (1837);  Todd  v.  Kmly,  8  M.  &  VV. 
505  ;  Raynell  v.  Lewis,  15  M.  <fe  W.  517; 
Wood  «.' Finch,  2  F.  &  F.  447;  Cross  i^. 
Williams,  10  W.  II.  302;  Cockerel  V. 
Auoornpo,  5  W.  R.  633  ;  Koehlcr  v.  Brown, 
31  How.  235;  WnUer  v.  Thomas,  42 
How.  337;  lloi)iiikin8on  ;;.  Marqui.?  of 
Exeter,  16  W.  R.  266;  (iardner  r.  Fru- 
natte,  19  W.  R.  256. 


spenfield  v.  Skinner,  11  Vt.  296 
(1839);  Beaumont  y.  Meredith,  3  Ves.  & 
B.  180  (1814).  See  also  Thomas  v. 
Ellmaker,  1  Parsons  Sel.  Eq.  Cases,  98 
(1844).  Or  Masonic  Lodges.  See  Ash  v. 
Guie,  97  Penn.  St.  493  (1881). 

•*  Lafandi'.  Deems,  81  N.  Y.  507  (1880); 
Frits  V.  Muck,  62  How.  Pr.  69  (1881); 
Pipe  V,  Batenian,  1  Iowa,  369(1855).  (Jf. 
Thomas  v.  Ellmaker,  1  Parsons  Sel.  Eq. 
Cases,  98  (1844);  Olery  v.  Brown,  51 
How.  Pr.  92  (1875). 

'=  Such  as  Stock  Exchanges.  See  "White 
V.  Brownell,  4  Daly,  162;  Clute  v.  Love- 
land,  California,  (1885);  Leech  v.  Harris, 
2  Brews.  571  (1869);  Slate  ?'.  Chamber 
of  Com.  20  Wis.  63  (1865).  For  improv- 
ing a  water-power.  Trov  Iron  &  Nail 
Factory  v.  Corning,  45  Barb.  231  (1864). 
For  building  a  school-house.  Marston  v. 
Durgin,  54  N.  H.  347  (1874).  For  pro- 
tecting business  interests.  Caldicott  v. 
Griffiths,  8  Ex.  898  (1853).  See  also 
Tenuey  v.  New  Eng.  Protection  Union,  37 
Vt.  64(1864);  Abels  v.  McKean,  18  N. 
J.  Eq.  462  ;  Henry  v.  Jackson,  37  Vt.  431 
(1865);  Frost  v.  Walker,  60  Me.  468 
(1865;. 

*  Townsend  v.  Goewey,  19  Wend.  423. 
In  England,  a  joint-stock  company,  or- 
ganized without  reference  to  any  statute, 
has  been  hold  to  be  an  usurpation  and 
contempt  of  the  royal  prerogative.  Duvor- 
gier  V.  Fellows,  ■  5  Bing^  248  (1828); 
Blundell  v.  Winsor,  8  Sim.  601  (1837). 
In  the  former  case  the  court  said  : 
"  Persons  who,  without  the  sanction 
of  the  legislature,  presume  to  act  as  a 
corporation,  are  guilty  of  a  contempt 
of  the  King,  by  usurping  on  his  pre- 
rogative. .  .  .  It  concerns  the 
public  that  bodies,  composed  of  a  great 
number  of  persons  with  large  disixi-'nblc 
capitals,  should  not  be  formed  withmit 
the  authority  of  the  Crown,  and  subject 
to  such  rcguhdions  as  the  King  in  his 
wisdom  iiiighl  di^em  necossiiry  for  the  pub- 
lic safety."     And  again.  '•  The  scheme  in 

4*.)3 


§  505.] 


JOINT-STOCK   COMPANIES. 


[CH.  XXIX. 


A  "  car  trust  association,"  or  "  car  trust,"  as  usually  organized  in 
this  country,  is  in  the  nature  of  a  joint-stock  company.^ 

§  505.  Statutory  joint  stock  companies. — There  is  an  essen- 
tial  difference   between  a  joint-stock    company,  as  it  exists  at 


which  the  parties  to  this  action  were  en- 
gaged was  one  of  those  bubbles  by  which, 
to  the  disgrace  of  the  present  age,  a  few 
projectois  have  obtained  the  luoney  of  a 
great  number  of  ignorant  and  creduhais 
persons  to  the  ruin  of  those  dupes  and 
their  families,  and  by  wliich  a  passion  for 
gambling  has  been  excited,  that  has  been 
most  injurious  to  commerce  and   to  the 
morals  of  the  people."     But  the  modern 
view  does  not  sustain  this,  and  Pollock  on 
Contracts.  222,  clearly  states  that  "  unin- 
corporated companies,  with  transferable 
shares,  are  not  unlawful  at  common  law." 
'  In  an  able  address  by  Mr.  Francis 
Kawle,  before  the  American  Bar  Associa- 
tion in  1885,  on  the  subject  of"  Car  Trust 
Securities,"  the  following  clear  statement 
of  the  character  of  a  "  Car  Trust  Associa- 
tion," or  a  "Car  Trust,"  is  made:  "The 
articles  of  association  fix  the  amount  of 
tlie  capital  stock,  and  provide  that  those 
persons  who  sign   the  articles  of  associa- 
tion, and  any  others  that  may  join  it,  or 
hold  certificates  of  its  stock,  shall  con- 
stitute its  membership ;  that  neither  the 
death,  insolvencj',  or  bankruptcy   of  any 
stockholder,  nor  the  transfer  of  shares, 
nor  the  admission  of  new  members  into  the 
association,  shall  work  its    dissolution; 
that  when  a  member  ceases  to  be  a  stock- 
holder, he  ceases  to  be  a  member  of  the 
association,  and   shall  not  afterwards  be 
liable  on  any  contract,  and  any  person 
purchasing  a  share,  shall  thereby  become 
a  member  of  the  association;  that  only 
the  prof)erty  of  the  association  shall  be 
liable   for  its  debts,  and  all  its  contracts 
shall   contain  a  provision   that  only  its 
funds  and  property  shall  be  liable  for  its 
debts,  and  that  no  member  of  the  board 
of  managers,  nor  any  stockholder,  shall  be 
so  liable,  personally  ;  that  its  entire  busi- 
ness shall  be  tiansacted,  and  all  contracts 
shall  be   made,    only    by   the    board    of 
managers,  who  are  chosen  from  the  stock- 
holders and  named  in  the  arlicles,  with 
a  provision  for  filling   vacancies  in  the 
board,  and  for  removing  any  of  its  mem- 
bers at  a   meeting   of  the    stockholders 
called   for  that  purpose ;  that  upon  pay- 
ment of  the  stock  subscribed,  the  stock- 
holder shall  receiver  a  certificate  of  his 
ownership ;  that  the  rolling  stock,  when 

494 


built,  shall  be  delivered  to  a  trustee  named 
in  the  articles,  and  that  this  trustee  shall 
have  jiower  to  contract  foi-  the  associa- 
tion with  (usually)  a  special  railroad  com- 
pany to  furnish  it  with  rolling  stock 
upon  certain  specified  terms. 

"  The  board  of  managers  of  the  as- 
sociation tlien  purcliase  the  rolling  stock, 
and  arrange  to  furnish  it  to  the  railroad 
company  through  the  medium  of  a  ♦rus- 
tee.  The  latter  takes  the  legal  title  to 
the  property,  executes  tlie  contract  with 
the  railroad  compau}%  receives  and  holds 
the  company's  obligation  to  pay  for  it, 
issues  certificates  to  the  persons  entitled, 
usually  in  sums  of  a  thousand  dollars 
each,  receives  the  periodical  payments 
under  the  contract,  and  pays  tlie  amounts 
of  principal  and  interest  due  to  the  certif- 
icate holders  until  the  rolling  stock  has 
been  fully  paid  for,  when  it  becomes  the 
property  of  the  railroad  company  under 
the  terms  of  the  contract. 

"  Formerly  it  was  the  practice  to  pay 
off  the  principal  of  the  certificates  by  suc- 
cessive drawings,  but  now  it  has  become 
more  common  to  execute  the  certificates 
in  series  with  a  fixed  maturity  for  each, 
usually  running  from  one  to  ten  years." 

A  car  trust  company,  wherein  the  sub- 
scribers were  to  have  certificates  repre- 
senting tlieir  interest,  and  the  rolling 
stock  owned  by  the  company  was  to  be 
rented  at  a  certain  rental,  which  was  to 
go  to  the  subscribers  until  their  subscrip- 
tions were  repaid,  and  tiien  the  rolling 
stock  was  to  belong  to  the  lessee,  is  a 
joint-stock  company,  a  mere  voluntary 
association,  llicker  v.  American  Loan  & 
Trust  Co.,  140  Mass.  346  (1885).  The 
recent  issue  of  Cotton  Oil  Trust  Certifi- 
cates seems  to  be  of  a  somewhat  similar 
nature,  except  that  it  is  not  generally  sup- 
posed tiiat  they  are  extinguished  by  subse- 
quent pnyment.  Some  of  the  operations  of 
the  Standard  Oil  Company  are  also  said  to 
be  upon  the  same  plan.  A  somewhat  simi- 
lar device  was  sustained  in  Griffith  v.  Jew- 
ett,  15  Week.  Law  Bull.  419,  where  many 
stockholders  transferred  their  stock  in 
trust  to  certain  trustees  and  received 
trust  certificates,  therefor,  the  trustees 
having  the  sole  power  to  vote  and  retain 
the  stock  itself. 


CH, 


XXIX.] 


JOINT-STOCK  COMPANIES. 


[§  50b'. 


common  law,  and  a  joint-stock  company  Laving  extensive  statu- 
tory powers  conferred  upon  it  by  tlie  State  within  which  it  is 
organized.  The  latter  kind  of  joint-stock  companies  are  found 
in  Eno-land  and  in  the  State  of  New  York.  To  such  an  extent 
have  these  statutory  powers  been  conferred  on  joint-stock  com- 
panies that  they  dift'er  from  corporations  only  in  not  having  a 
seal,  and  in  the  members  not  being  exempt  from  liability  as  part- 
ners for  the  debts  of  the  company.  Accordingly,  joint-stock 
companies,  both  those  of  England  and  of  New  York,  have  been 
held  to  be  corporations,  although  expressly  declared  by  statute 
not  to  have  that  character.^ 

t 

§  50G.  Joint-stock  coinpanies  may  arise  hj  imjMcation  of 
law. — Joint-stock  companies  are  generally  formed  by  the  mutual 
agreement  and  direct  intent  of  the  parties.  They  may,  however, 
arise  by  implication  of  law.  Thus,  an  ineffectual  attempt  at  an 
incorporation  may  make  the  parties  members,  not  of  a  corpora- 


'  For  New  York  Statutes  herein,  see 
Sess.  Laws  1854,  oh.  245;  Sess.  Laws 
1867,  eh.  289;  Sess.  Lhws  1868,  cli.  290; 
Sess.  Laws  1881,  eh.  599;  Sess.  Laws  1858, 
ch.  172.  See  Thomas  v.  Dakin.  22 
Wend.  9;  Warner  v.  Beers,  23  Wend. 
103  ;  Parmly  v.  Tenth  Ward  Bk  3  Edw. 
395;  People?;.  Watertown,  1  Hill,  616; 
Bk.  of  M'atertown  v.  Watirtown,  25 
Wend.  686  ;  ^\  illoughby  v.  Comstock,  3 
Hill,  389  ;  Leaviit  v.  Yates,  4  Edw.  134; 
Leavitt  v.  Tyler,  1  Sandf.  Ch.  207 ;  Peo- 
ple V.  Niagara,  4  Hill,  20;  Boisgerard  v. 
New  York  Banking  Co.,  2  Sandf.  Ch. 
231  ;  Matter  of  Bank  of  Dansville,  6 
Hill,  370;  Gifford  v.  Livingston,  2  Len. 
380;  Case  v.  Mechanics'  Banking  Assoc, 
1  Sandf.  693  ;  Leavitt  v.  Blatihford,  17 
N.  Y.  521;  6  Barb.  9;  Culvers.  Sanford, 
8  Barb.  225  ;  Gillett  v.  Moody,  3  N.  Y. 
478 ;  Talmage  v.  Pell,  7  N.  Y.  ;i28  ;  Tracy 
t>.  Tidmage,  IS  Barb.  406;  Gillett  v. 
Phillips,  13  N.  Y.  114;  Falconer  v. 
Campbell,  2  McLean,  195.  Ihe  English 
jointstock  ccmpany  is  much  the  same. 
"  The  company  has  a  name  as  an  associa- 
tion, maintaining  the  identity  of  the  body 
through  all  chanires  of  its  members; 
its  property  is  divided  into  transferable 
shares,  and  it  has  confeir<'d  upon  it  the 
legal  capacity  to  sue  and  be  sued  in  the 
name  of  one  of  its  ofllicers,  and  such  a 
suit  •  ■  •  may  be  brought  by  or 
against  a  member,  as  well  as  a  thiicl  per- 
son."     It  is    a  corporation  though  the 


English  statute  declares  it  is  not.  Oliver 
V.  Liverjjool  <fe  Lpndon  Life  &  Fire  Ins. 
Co.,  100  Mass.  531  (1868);  affi'd  sub  nom. 
Liverpool  Ins.  Co.  v.  Mass.,  10  Wall.  566 
(1870).  So  also  with  the  New  York 
jointstock  companies.  Fargo  v.  Louis- 
Nille,  New  Albany  &  Chicago  Ry.  Co.,  6 
Fed.  Rep.  787  (188 1);  Sanford  ?■.  Bd.  of 
Supervisors  of  N.  Y.,  15  How.  Pr.  172 
(1^58);  Waterbury  ?'.  Merchants'  L'^nion 
E.x.  Co.,  50  Barb.  157  (1867).  As  regards 
the  liability  of  the  members  for  the 
debts  of  the  company,  it  is  held  to  be  a 
copartnership.  Boston  <fe  Albany  R.  R. 
Co.  V.  Pearson,  128  Mass.  445  (1880); 
Oliver  v.  Liverpool  <fe  London  Life  «fe  Fire 
Ins.  Co.,  uLi  sufira.  The  ri'fusal  of  the 
legi-slature  to  call  them  corporations  is 
important  as  cutting  off  the  exemption 
of  the  members  from  liability  to  credit- 
ors, an  exemption  which,  at  common  law, 
belongs  to  all  corporations.  Joint-stock 
companies  in  England  have  always  been 
largely  statutory.  See  Xan  Sandau  v. 
Moore,  1  Russ.  391  [*441]  (1826).  Ac- 
corilin;;ly,  in  this  chapter,  the  English 
decisions  have  not  been  particularly  re- 
lied on.  They  are,  however,  authority 
on  the  other  parts  of  this  woik,  and  are 
found  throughout  it.  In  the  State  of  New 
York,  the  English  deci-sions  on  these  eoin- 
jjanies  are  doubtless  good  authority, 
since  they  exist  under  statutes  which  are 
much  alike. 


495 


^§  507,  508.] 


JOINT-STOCK  COMPANIES. 


[CH.  XXIX. 


tion,  but  of  a  joint-stock  compauy.^  In  like  maimer,  after  the 
charter  of  a  corporation  expires  and  the  parties  continue  to  do 
business,  thev  do  so  as  a  joint-stock  company .^ 

§  507.  How  a  ])erson  becomes  a  member— Transfers. — A 
person  becomes  a  member  of  a  joint-stock  company  by  any  act 
which  indicates  an  intent  to  become  a  member  on  his  part,  and 
a  consent  or  acquiescence  therein  by  the  company  itself.^  He 
may  also  become  a  member  by  a  transfer  made  to  him  of  another 
member's  interest,  unless  the  articles  of  association  restrict  the 
right  of  transfer.* 

§  508.  Liability  of  members  to  creditors  and  to  tlie  com- 
2)any. — A  joint-stock  company  is,  in  regard  to  the  liability  of  its 
members  to  creditors  of  the  company,  a  partnership;^  its  mem- 
bers are  liable  as  partners  ;  ^  and  the  ordinary  rules  of  partnership 


1  Re  Mendenhall,  9  Bankr.  Reg.  497 ; 
Whipple  V.  Parker,  29  Midi.  369,  380 
(1874),  and  gee  Chapter  XIIT.  Cf.  Fos- 
ter V.  Prav,  29  Northwest  Rep.  155  (Minn. 
1886). 

-  Nat.  Bk.  of  Watertown  v.  London, 
45  N.  Y.  410  (1871). 

3  The  formalities  need  be  no  greater 
than  in  forming  an  ordinary  partnership. 
No  subscription  in  writing  is  necessary. 
Nat.  Bk.  V.  Van  Derwerker,  74  N.  Y.  234 
(1878);  Pettis  v.  Atkins,  60  111.  454 
(1871).  It  is  not  necessary  that  certifi- 
cates of  the  stock  be  issued  in  order  to 
constitute  membership.  Dennis  v.  Ken- 
nedy, 19  Barb.  517  (1854);  Boston  &  Al- 
bany R.  R.  Co.  V.  Pearson.  128  Mass.  445 
(1880).  Evidence  of  subscription  and 
payment  of  an  assessment  is  sufficient. 
Frost  V.  Walker,  60  Me.  468  (1872).  But 
not  of  subscription  without  any  partici- 
pation. Hedge  &  Home's  Appeal,  63  Pa. 
St,  273  (1869). 

■*  Transfer  of  the  certificate  of  stock 
has  such  effect,  although  not  registered 
in  the  stock  book.  Butterfield  v.  ]!e:irds- 
ley,  28  Mich.  412  (1874).  Transfer  may 
be  before  the  certificates  are  issued. 
Butterfield  v.  Spencer,  1  Bosw.  1  (1856). 
But  if  the  articles  of  association  prohib- 
it transfer,  the  transferee  takes  only  the 
right  to  profits,  not  as  a  partner,  but  as 
an  assignee.  Harper  v.  Raymond,  3 
Bosw.  2'9  (1858).  A  transfer  does  not 
carry  dividends  already  declared.  Har- 
per V.  Raymond,  ubi  svpra.  If  a  transfer 
is  improperly  allowed,  the  company  is  li- 

496 


V. 


able    to   the    party    injured.     Cohen 
Gwynn,  4  Md.  Ch.  357  (1848). 

^  Kelliigg  Bridge  Co.  v.  United  States, 
15  Ct.  of  (Jl.  111. 

«  Westcott  V.  Fargo,  61  N.  Y.  542 
(1875);  Witherhead  V."  Allen,  3  Keyes, 
662  ;  Cross  v.  Jackson,  5  Hill,  478  (1843); 
Skinner  v.  Davton,  19  Johns.  513  (1822); 
Wells  V.  Gate's,  18  Barb.  554  (1854); 
Boston  (fe  Albany  R.  R.  Co.  v.  Pearson, 
128  Mass.  445  (1880| ;  Taft  v.  Ward,  106 
Mass.  518  (1871);  Id.  Ill  Mass.  518 
(1873);  Bodwell  v.  Eastman,  106  Mass. 
525  (1871);  Tappan  r.  Bailey,  45  Mass. 
529  (1842);  Cutter  v.  Estate  "^of  Thomas, 
25  Vt.  73  (1852);  Frost  v.  Walkei-,  60 
Me.  468  (1872) ;  Kramer  v.  Arthurs,  7 
Pa.  St,  165  (1847);  see  also  §  504. 
Contra,  Irvine  v.  Forbes,  11  Baib.  587 
(1852);  Livingston  v.  Lynch,  4  Johns. 
Ch.  673  (1820),  overruled  as  dicla  by 
Townsend  v.  Goewey,  19  Wend.  423 
(1838);  Ridenour  ■».  Mayo,  40  O.  St.  9 
(1883).  In  Frost  v.  Walker,  60  Me.  468 
(1872),  the  court  said:  "An  unincorpo- 
rated joint-stock  company  is  a  mere  part- 
nership, and  each  member  is  personally 
liable  for  all  its  debts.  It  is  important 
for  1  he  public  to  know,  that  if  persons 
connect  themselves  with  a  company  of 
this  description,  they  are  every  one  of 
them  liable  to  pay  the  demands  upon  it." 
A  member  who  transfers  his  interest  is 
nevertheless  liable  for  precedent  debts  of 
the  association.  Morgan's  Case,  1  De  G. 
&  Sm.  750  (1849).  The  officers  who  en- 
ter into  a  contract  for  the  company  are 


CH, 


XXIX.] 


JOINT-STOCK   COMPANIES. 


[§  508. 


exist  between  the  members  themselves,^  including  the  right  to 
contribution  as  between  themselves,^  and  also  between  a  member 
and  third  persons.^  The  member's  subscription  may  be  enforced 
by  a  suit  at  law.^  The  rights  and  liabilities  of  a  member  depend 
upon  the  law  of  the  place  of  domicile  of  the  company  itself,^ 
The  rules  applicable  to  stockholders  in  corporations  are,  by  anal- 
ogy, applied  to  members  in  these  companies,  especially  as  regards 
their  defenses  to  subscriptions,"  and  meetings  of  the  company  ' 


liable  thereon  personally.  "  It  is  imma- 
terial whether  they  be  so  held  because 
they  held  themselves  out  as  agents  for  a 
principal  that  had  no  existence,  or  on 
the  ground  that  they  must,  under  the  con- 
tract, be  regarded  as  principals,  for  the 
simple  reason  that  there  is  no  other  prin- 
cipal in  existence."  Lewis  v.  Tilton,  64 
Iowa,  220  (1884);  Fredenhail  v.  Taylor, 
26  Wis.  286  (1870).  In  enforcing  the 
liability  of  members  of  a  joint-stock 
company,  if  the  parties  are  very  numer- 
ous or  unknown,  they  need  not  all  be 
joined  as  delendants.  Mandeville  v.  Riggs, 

2  Pet.  482  (1829),  rev'g  Ri^gs  v.  Swann, 

3  Cr.  183.  See  also  Phipps  u.  Jones,  20 
Penn.  St.  260;  Dennis  v.  Kennedy,  19 
Barb.  51 Y  ;  Wood  v.  Draper,  24  Barb. 
187;  Smith?;.  Lockwood,  1  Code  Rep 
N.  S.  319  ;  Biruunghani  v.  Gallagher,  112 
Mass.  190;  Snow  v.  Wheeler,  113  Mass. 
179:  Pipe  v.  Bateman,  1  Iowa,  369;  Mar- 
shall V.  Loveless,  Cam.  &  N.  217  ;  Lloyd 
V.  Loaring,  6  Ves.  773 ;  Deems  v.  Al- 
bany, <kc  Line,  14  Blatch.  474.  In  re- 
gard to  the  efforts  of  such  unincorpora- 
ted associations  to  save  themselves  from 
liability  as  partners  by  provisions  limit- 
ing their  liability  inserted  in  all  contracts 
made  with  tliird  persons,  Chancellor  Kent 
says  (Kent's  Com.  Vol.  Ill,  p.  27):  "It 
is,  however,  the  judicial  language  in  some 
of  the  cases  that  the  members  of  a  i)ri- 
vate  association  may  limit  tlieir  personal 
respotif-ibility,  if  there  bo  an  explicit 
stipulation  to  that  effect  made  with  the 
party  with  whom  they  contract,  and  clear- 
ly understood  by  liim  at  the  time,  lint 
stipulations  of  that  kind  are  looked  up- 
on unfavorably,  iis  being  contrary  lo  tiie 
gener;d  policy  of  the  law,  and  it  would 
require  a  direct  previous  notice  of  the  in- 
tended limitation  to  the  party  dealin"- 
with  the  company  and  his  clear  under- 
standing of  the  terms  of  the  limitation." 
See  also  Shelford  on  Joint  Stock  ('onipan- 
ies,  pp.  3,  4.  The  supposition  or  belief 
of  the  members,  that  tlicy  are  not  liable 
beyond  the  par  value  of  their  slock,  does 


not  protect  them  from  liability.  Farnum 
V.  Patch,  60  N.  H.  294,  and'  see  §  233, 
note.  The  liability  cannot  be  limited  b}' 
a  provision  in  the  articles  of  association, 
and  a  mere  reference  to  them  in  the  con- 
tracts made.  Hess  v.  Werts,  4  S.  <fe  R. 
(Penn.)  356  (1818).  See  also  Davis  v. 
Beverly,  2  Cr.  35.  Cf.  Mandeville  v. 
Riggs,  2  Pet.  482.  As  regards  the  prac- 
tice in  bringing  actions  against  members 
of  an  unincorporated  association,  see 
Kneeland  on  Attachments,  Ch.  XVI. 

'  Bullard  v.  Kinney,  10  Cal.  60  (1858). 

^  Morrissey  v.  Weed,  12  Hun,  491  ; 
Skinner  v.  Dayton,  19  .lohns.  513  (1822). 

^  His  interest  cannot  be  reached  by 
execution.  Kramer  v.  Arthurs,  7  Pa  St. 
165  (1847).  Acquiescence  in  the  deal- 
ings of  other  members  with  third  per- 
sons binds  a  member.  Penn.  Ins.  Co.  v. 
Murphy,  5  Minn.  36  (186u);  Wells  v. 
Yates,  18  Barb.  554  (1854).  For  the  lia- 
bility as  affected  by  the  transfer  of  stock, 
seeJSmith  v.  Virgin,  33  Me.  148  (1851). 

•*  If  the  subscription  runs  to  the  trus- 
tees personally,  they  may  sue  theieon. 
Otherwise  all  must  join  as  plaintiffs. 
Cross  V.  Jackson,  5  Hill,  478  (1843). 
Townsend  v.  Goewey,  19  Wend.  423 
(1838).  It  seems  that  a  subscrij)tion  to 
a  voluntary  association  is  enforceable  bj' 
a  corporation  which  took  the  place  of  the 
proposed  voluntary  association,  where 
the  subscriber  knew  of  the  change  of 
I)lan  and  did  not  object.  City  Sav.  Bk. 
V.  Whittle,  63  N.  II.'  587  (1885). 

'■  Cutler  V.  Estate  of  Thomas,  26  Vt. 
73  (1852). 

•>  That  the  full  capital  stock  must  bo 
subscribed,  before  any  subscription  is 
collectible,  see  Bray  v.  Farwell,  81  N.  Y. 
600  (1880).  Con/ral\p\mu  v.  Bailey,  45 
Mass.  629(1842);  Boston  <fe  Albany  1!. 
R.  Co.  V.  Pearson,  128  Mass.  445  (1S80); 
Pitchford  V.  Davis,  5  Mees.  A  W.  2  (1839). 
Forfeiture  of  slock  releases  the  member 
only  as  to  subsequent  debts.  Skiiuicr  v. 
Dayton,  19  Johns.  613  (1822). 

'  Notice  of  the  time  and   place  must 


[32J 


497 


§§  509,  510.] 


JOINT-STOCK  COMPANIES. 


[CH.  XXIX. 


§  509.  Actions  hy  members  against  officers  and  the  com- 
])any. — The  meinbers  may  bring  an  action  to  remedy  the  fraud/ 
tiltra  vires  acts,^  and  negligence^  of  the  trustees.  In  ISiew  York, 
a  member  may,  by  statute,  sue  tlie  company,  in  the  same  manner 
that  a  stockholder  in  a  corporation  may  sue  the  corporation.* 

§  510.  Dissolution.— y^here  the  term  of  existence  of  a  joint- 
stock  company  is  fixed  by  its  articles  of  association,  it  cannot  be 
dissolved  at  the  instance  of  a  member,  before  the  expiration  of 
that  time.^  It  may  be  dissolved  where  the  enterprise  becomes 
wholly  impracticable  or  its  attainment  impossible,  but  not  because 
of  the  misconduct  of  its  officers.^  Upon  dissolution  the  trustees 
of  the  company  are  bound  to  convert  the  property  into  cash  and 
•distribute  it.'^  In  proceedings  for  a  dissolution,  all  the  members 
need  not  be  made  parties.^ 


be  given.  Irvine  v.  Forbes,  11  Barb.  58Y 
>i(1852).  The  members  cannot  act,  except 
in  meeting  assembled.  The  majority, 
however,  do  not  rule.  All  must  concur. 
Livingston  v.  Lynch,  4  Johns.  Ch.  573 
i(1820);  Irvine  v.  Forbes,  nbi  supra. 
Contra,  Waterbury  v.  Merchants'  Union 
Ex.  Co.  50  Barb.  157  (1867). 

'  The  other  members  are  not  proper 
parties.  Boody  v.  Drew,  46  How.  Pr.  459 
(1874).  An  officer  may  be  enjoined,  but 
not  removed.  The  suit  must  not  be  in 
the  interest  of  a  rival  company.  Water- 
bury  V.  Merchants'  Union  Ex.  Co.,  50 
Barb.  157  (1867).  Trustees  receiving 
gifts  are  liable  therefor  to  tlie  company. 
In  re  Fry,  4  Phil.  Rep.  1 29  ( 1 860).  Can- 
not sell  to  the  company.  Robbius  v.  But- 
ler, 24  111.  387  (I860).  Treasurer  may 
be  compelled  to  pay  over  funds  belonging 
to  the  company.  Sharp  v.  Warren,  6 
Price,  131  (1818).  The  trustees  are  liable 
in  tort  for  theii'  frauds  on  the  company. 
Dennis  v.  Kennedy,  19  Barb.  517  (1854). 

'■^  A  member  cannot  be  compelled  to 
accept  the  stock  of  another  company,  for 
his  interest,  a  consolidation  of  the  two 
having  been  made.  Frothiiigham  v.  Bar- 
ney, 13  Hun,  866.  But  he  may  not  be 
able  to  prevent  the  consolidation. 
McVicker  v.  Ross,  55  Barb.  247  (1869). 
An  ultra  viren  act  may  be  enjoined. 
Abels  «.  McKean,  18  N.J.  Eq.  462  (1867). 
The  members  need  not  make  good  to  the 
officers,  debts  paid  by  the  latter,  growing 
■out  oi  ultra  vires -Acis.  Crum's  Appeal,  66 
Pa.    St.   474    (1878).     But    the    officers 

498 


themselves  are  liable  to  third  persons, 
Sullivan  v.  Campbell,  2  Wall.  271  (1829), 
and  possibly  the  members.  Id.  If  a 
n^ember  has  not  participated  or  ac- 
quiesced in  the  ultra  Tires  act,  he  is  not 
liable  thereon.  Roberts' Apjieal,  92  Penn. 
St.  407  (1880).  Cf.  Van  Aernam  v.  Blei- 
stein,  102  N.  Y.  355  (1886). 

3  In  Re  Fry,  4  Phil.  Rep.  129   (I860). 

4  Code  of  Civil  Procedure,  ^1919; 
Westcott  V.  Fargo,  61  N.  Y.  542  (1874); 
Saltsman  v.  Shults,  14  Hun,  256.  At 
common  law  the  name  is  not  recognized, 
and  the  suit  would  fail.  Habicht  v.  Pem- 
berton,  4  Sandf.  657  (1851);  Pipe  v. 
Bateman,  1  Iowa,  369  (1855);  Ewiug  v. 
Medlock,  5  Port.  (Ala.)  82  (1837); 
Schnddt  v.  Gunlher,  5  Daly,  452  (1874). 


Virgin,   33    Me.   148 


^  See   Smith  v. 
(1851). 

*  Waterbury  v.  Mercantile  Union  Ex. 
Co.,  50  Barb.  157  (1867). 

''  Frothingham  v.  Barney,  13  Hun, 
366;  Butterfield  v.  Beardsley,  28  Mich. 
412  (1874).  Upon  the  expiration  of  the 
time  for  which  the  company  was  organ- 
ized, it  becomes  dissolved,  and  the  asseta 
must  be  distributed  if  any  one  of  the 
members  insists  thereon.  Mann  v.  But- 
ler, 2  Barb.  Ch.  362(1847). 

*  Such  as  non-residents  who  cannot 
be  reached.  Angell  v.  Lawton,  76  N.  Y. 
540  (1879).  The  complainant  may  bring 
the  proceeding  in  behalf  of  himself  and 
others  having  a  ccmimon  interest  with 
him.  Mann  v.  Butler,  2  Barb.  Ch.  .362 
(1847). 


CHAPTER    XXX. 

STOCKHOLDERS'    RIGHT    TO    INSPECT    THE    BOOKS    OP    THE 

CORPORATION. 


Common  law  action  for  damages 


§  511.  Common  law  rights. 

512.  ~ 
for  refusal 

513.  Mandamus  is  the  preferable  reme- 

dy. 

514.  Not  granted  as  a  matter  of  course. 

515.  When   it   will    and    will    not   be 
granted. 


516.  Allegations  and  form  of  writ. 

517.  Right  to  inspect  minutes  of  meet- 
ings of  directors. 

518.  Statutes  giving  right  of  inspection. 

519.  Orders  to  corporation  to  allow  in- 
spection. 

520.  Subpcena  duces  tecum  to  the  corpo- 
ration. 


§  511.  Common  law  rights. — The  stockholders  of  a  corpora- 
tion had,  at  common  law,  a  right  to  examine,  at  any  reasonable 
time,  any  one  or  all  of  the  books  and  records  of  the  corporation.^ 
This  rule  grew  out  of  an  analogous  rule  applicable  to  public  cor- 
porations and  to  ordinary  copartnerships,  the  books  of  which,  by 
well  established  law,  are  always  open  to  the  inspection  of  mem- 
bers.^ 

§  512.  Common  Imv  action  for  damages  for  refusal. — The 
legal  right  of  a  stockholder  of  a  corporation  to  examine  the  corpo- 
rate books  is  a  right  which  gives  hinr  a  cause  of  action  at  law  for 
damages  against  the  corporate  officers  if  they  refuse  to  allow  the 
inspection.^     The  plaintiff  is  entitled  to  nominal  damages,  and  to 


'  Stockholders  "  have  the  right,  at 
common  law,  to  examine  and  inspect  all 
the  book.s  and  riicords  of  the  corporation, 
at  all  seasonable  times,  and  to  be  thereby 
informed  of  the  condition  of  the  corpora- 
tion and  its  property."  Per  lledficld,  .(., 
in  Lewis  v.  Braiiierd,  5:$  Vt.  519  (1881). 
In  the  case  of  Ci)mmonweidtli  v.  I'hanix 
Iron  Co.,  105  Pa.  St.  Ill  (1884),  the 
court  said:  "In  the  absence  of  agree- 
ment, every  shareholder  has  tiie  right 
to  inspect  the  acc(junt3,  a  right  sub- 
ject to  the  necessities  of  the  company, 
yet  existing."  Also,  "The  doctrine  of 
the  law  is  tliat  the  books  and  papers  of 
the  corporation,  though  of  necessity  kept 
in  some  one  haml,  arc  tlio  common  pr<)p- 
erty  of  all  the  stockholders."     The  right 


exists,  although  "  its  exercise  be  incon- 
venient to  the  bookkeepers  and  managers 
of  tlie  partnership  business."  In  the 
case  of  Iluylar  v.  Cragin  Cattle  Co,, 
40  N.  J.  Eq.  392  (1885),  the  court 
said:  "  Stockholders  are  entitled  to  in- 
spect the  books  of  the  company  for 
proper  purposes  at  proper  times,  and 
they  are  entitled  to  suclx  inspection 
thougli  their  only  object  is  to  ascer- 
tain whether  tlieir  uff.drs  have  been 
properly  conducted  by  the  directors  or 
m:inagers.  Such  a  right  is  necessary  to 
their  ])rotection." 

■^  Commonwealth  v.  Phoenix  Iron  Co., 
supra. 

3  Lewis  V.  Brainerd,53  Vt.  510  (1881). 

499 


§§  513,  514.]        INSPECTION   OF   CORPORATE   BOOKS.  [cH.  XXX. 

such  further  damages  as  he  may  prove.  He  need  not  allege  or 
prove  any  special  reason  or  purpose  of  his  desire  and  request  to 
examine  the  books.^ 

§  513.  Mandamus  is  the  preferaMe  remedy. — But  an  action 
for  damages  is  generally  totally  inadequate  as  a  remedy.^  The 
stockholder  wishes  to  inspect  the  corporate  books,  and  does  not 
wish  damages  or  a  law  suit.  Accordingly,  in  certain  cases,  upon 
the  application  of  a  stockholder  who  has  been  denied  the 
privilege  of  examining  the  corporate  records,  it  has  been  the 
practice  of  the  courts  to  issue  a  mandamus  to  the  corporate 
officers,  commanding  them  to  allow  a  specified  stockholder  to  ex- 
amine the  books  of  the  corporation.^ 

§  514.  Not  granted  as  a  matter  of  course. — The  writ  of  man- 
damus, however,  does  not  issue  herein  as  a  matter  of  course.  It 
is  an  extraordinary  remedy,  to  be  invoked  only  upon  special  occa- 
sions. The  courts  do  not  grant  the  7nandamus  until  it  has  taken 
into  careful  consideration  all  the  facts  and  circumstances  of  the 
case.  The  condition  and  character  of  the  books,  the  reasons  for 
refusal  by  the  corporation,  the  specific  purpose  of  the  stockholder 
in  demanding  inspection,  the  general  reasonableness  of  the  re- 
quest, and  the  effect  on  the  orderly  transaction  of  the  corporate 
business  in  case  it  is  granted,  are  all  considered  in  granting  or  re- 
fusing the  writ.  It  is  granted  only  in  furtherance  of  essential 
justice.^ 

'  Lewis  t;.  Brainerd,  53  Vt.  510  (1881).  otherwise."     Commonwealth   v.    Phoenix 

^   In  Cockburn  v.  Union   Bk.,  13  La.  Iron  Co.,mj>ra;  s.  c.  6  At).  Rep.  75  (1886), 

Ann.  289  (1858),  the  court  said  a  suit  for  explaining  the  method  of  procedure,  and 

damages  "  might  last  for  a  long  time,  and  holding  that  the  applicant  need  not  apply 

petitioner  suffer  great  loss  by  being  de-  to  a  court  of  equity.  The  old  rule  that  wiaw- 

barred    from    an   examination  "    of    the  damns  will  issue  only  for  a  public  purpose 

books.     "  He  does  not  ask  for  damages,  is  no  longer  a  rule  of  law,  so  as  to  prevent 

but  for  the  exercise  of  a  right.     If  he  has  its  use  herein.     Commonwealth,  &c.,  su- 

the  right,  he  ought  to  have  the  exercise  pra,  questioning  King  v.  Bk.  of  Eng.,  2  B. 

of  it  as  soon  as  possible;  for  the  depriva-  «fe  Aid.  620  (1819);  and  King  v.  London, 

tion  of  his  right  cannot,  perhaps,  be  accu-  &c.,  Co.,  5  B.  <fe  Aid.  899  (1822).     See  also 

rately  estimated  in  damages.     It  may  be  King  v.   Clear,  4  Barn.  &  Cr.  899(1825). 

many  years   before   the   amount  of  the  *  "  The  application  is  addressed  to  the 

damage  can  be  known."  sound  discretion  of  the  court."     The  rea- 

3  "  It  would  seem,  from  the  weight  of  sons  for  granting  it  "  should  be  clear  and 

authority  and  in  reason,  tliat  a  sharehold-  cogent.    ...   To  hold  that  every  person 

er  is  entitled  to  mandamus  to  compel  the  who  shows  himself  to  be  a  h(ilder  of  stock 

custos   of   corporate  documents  to  allow  is  at  liberty  to  demand  an  examination  of 

him  an  inspection  and  copies  of  them,  at  the  transfer  books,  when,  and  as  often  as 

reasonable  times,  for  a  specified  and  prop-  he  pleases,  and  if  refused,  to  apply  for  a 

er  purpose,  upon  showing  a  refusal  on  the  writ  of  mandamtis  to  enforce  an  absolute 

part  of   the  ctisios  to  allow  it,  and    not  right,  would  be  to  establish  a  rule  highly 

500 


CH.  XXX.] 


INSPECTION  OF  CORPORATE  BOOKS. 


[§  515. 


§  515.  When  it  will  and  ivill  not  he  granted. — It  will  not  be 
granted  to  gratify  ciiriosit}-,  nor  to  aid  the  stock  market  specula- 
tions of  the  stockholders.^  Either  some  property  rights  of  the 
stockholder  must  be  involved,  or  some  controversy  exist,  or  some 
specific  and  valuable  interest  be  in  question,  to  settle  which  an 
inspection  of  the  corporate  records  becomes  necessary.^     It  is 


prejudicial  to  the  interests  of  all  corpora- 
tions and  their  stockholders.  .  .  .  The 
power  of  the  court  should  be  exercised 
in  such  cases  with  j^reat  discrimination 
and  care."  People  v.  Lake  Shore  <L  M.  S. 
R.  R.  Co.,  11  Hun,  1  (1877);  afR'd,  sub 
notn.  Jie  Sage,  70  N.  Y.  220  (1877).  See 
also  People  ex  rel.  Field  v.  Northern  Pac. 
R.  R.  Co.,  50  N.  Y.  Super.  Ct.  456  (1884); 
s.  c,  18  Fed.  Rep.  471.  "Discretion 
in  these  matters  should  be  exercised 
in  a  reasonable  manner,  and  subject  to 
precedent."  Reg.  v.  Wilts.  &  Berks.  Ca- 
nal NaT.,  29  L.  T.  922  (1874). 

'  The  writ  will  not  be  "  granted  to 
enable  a  corporator  to  gratify  idle  curi- 
osity." People  V.  Walker,  9  Mich.  328 
(1861).  "The  interests  of  all  the  corpo- 
rators require  that  the  writ  shall  not  go 
at  the  caprice  of  the  curious  or  suspi- 
cious." Commonwealth  v.  PhcEuix  Iron 
Co.,  supra.  "  Courts  should  euard 
against  all  attempts  by  combinalioufi  lo 
use  its  writ  of  mandamus  to  accomplish 
their  personal  or  speculative  ends."  Peo- 
ple V.  Lake  Shore  &  M.  S.  R.  R.  Co.,  su- 
pra. "  Nor  will  the  court  grant  "  a  mere 
wrecking  petition  to  ruin  a  going  con- 
cern." In  re  West  Devon,  <fec..  Mine,  L. 
R.  27  Ch,  D.  106  (1884). 

^  Thus,  where  there  had  been  no  divi- 
dends for  nine  years,  and  the  officers 
were  partners  in  a  computing  concern, 
and  refused  to  allow  inspection,  it  was 
granted  in  order  to  enalile  tlie  applicant 
to  ascertain  wiii-ther  the  real  facts  justi- 
fied an  action  for  fraud  on  the  part  of  the 
officers.  Commonwealth  v.  PlKcnix  Iron 
Co.,  supra.  Granted  also  to  allow  ajipli- 
cant  to  ascertain  whether  a  by-law  exist- 
ed entitling  him  to  an  office  by  promo- 
tion. Reg.  V.  The  Saddh  rs'  Co.,  10  W. 
R.  77(186i).  Mismanagement  and  intent 
to  bring  suit  need  not  be  alleged.  "  Of- 
tentimes frauds  are  discoverable  only  by 
examination  of  the  books  bj-  an  expert 
accountant."  Iliiyler  v.  Cragin  Cattle 
Co.,  supra.  It  is  gr-anted  alsrj  to  a  stock- 
lioldcr  who  has  a  -uit  or  controversy  with 
a  parly  other  than  the  corjjoralion  ilself. 
Mayor  of  Southampton  v.  (i raves,  8  T.  R. 


590  (1800);  Rex  v.  Newcastle,  2  Strange, 
1223  (1737).  It  has  been  granted  to  en- 
able a  stockholder  to  see  the  discount 
book,  although  there  is  no  suit  between 
him  and  the  corporation,  and  no  intent 
to  bring  one.  Cockburn  v.  Union  Bk.,  13 
La.  Ann.  289  (1858).  At  an  early  day, 
however,  it  was  held  that  "  the  members 
have  no  right,  on  speculative  grounds,  to 
call  for  an  examination  of  the  books  and 
muniments  in  order  to  see  if,  by  possibil- 
ity, the  company's  aifairs  may  be  better 
administered  than  they  think  they  are  at 
present.  If  they  have  any  complaint  to 
make,  some  suit  should  be  instituted, 
some  definite  matter  charged,  ...  or 
there  should  be  some  })articular  matter  in 
dispute  between  members,  or  between  the 
corporation  and  individuals  in  it;  there 
must  be  some  controversy,  some  specific 
purpose,  in  respect  of  which  the  examina- 
tion becomes  necessary."  King  v.  The 
Merchant  Tailors'  Co.,  2  Barn.  <fe  Ad.  115 
(1832).  The  applicant  must  allege  the 
extent  of  his  interest,  also  wherein  his 
object  of  inspection  is  just  and  useful. 
Hatch  V.  City  Bk.  of  New  Orl.,  1  Rob. 
(La.i  470  (1842).  The  case  of  State  v. 
Bienville  Oil  Works,  28  La.  Ann.  204 
(1870),  states  that  the  two  preceding 
cases  "  failed  through  want  of  precision 
and  definiteness  in  stating  sopie  well  de- 
fined purpose,  some  reasonable  cause, 
and  showing  that  the)'  had  some  interest 
in  the  matter."  A  charter  provision  that 
the  corporate  powers  "shall  bo  exercised 
by  a  board  of  directors,"  is  immaterial 
herein.  Id.  Where  a  reduetion  of  capi- 
tal stock  is  contemplated,  a  large  stock- 
holder has  a  right  to  inspection  to  ascer- 
tain whether  the  business  is  being  "  pru- 
deirtly  ami  jirotitahly  "  earr'ied  on.  Id. 
Not  granted  to  allow  appliearU,  a  direc- 
tor', to  inspect  and  make  errtries.  Rosen- 
field  V.  Einstein,  40  N.  J.  L.  479  (1884). 
(Jencral  purpose  of  ascertaining  "  the 
condition  of  the  eonrjiany  "  held  insuffi- 
cient. Pople  V.  Widkci-,  9  Mich.  ;j28 
(18t'>l ).  The  stoekholder  riiaytirke  memo- 
randa or  a  list  (jf  tire  stockholders.  Com- 
monwealth V.  Phoenix   Iron  Co.,  105  Pa. 

r)Oi 


§§  516,  517.]      INSPECTION  OF  CORPORATE  BOOKS. 


[CH.  XXX. 


doubtful  even  whether  it  would  issue  in  order  to  enable  the  appli- 
cant to  ascertain  who  are  stockholders,  with  a  view  to  canvassing 
their  votes  for  an  election.^ 

§  516.  Allegations  and  form  of  writ. — The  writ  should  run 
to  the  person  or  officer  who  has  control  of  the  records,^  The 
stockholder  may  make  the  inspection  through  an  agent,  and  may 
have  the  aid  of  an  interpreter,  attorney,  or  expert.^  The  request 
to  inspect  the  books,  for  refusal  of  which  the  ma^idamus  is  asked, 
must  be  alleged  to  have  been  made  at  a  proper  time  and  place, 
and  of  the  proper  person,  and  to  have  been  refused.^  The  appli- 
cation should  also  state  what  information  the  applicant  needs, 
and  what  books  of  the  corporation  he  wishes  to  inspect.^ 

§  517.  Riglit  to  inspect  minutes  of  meetings  of  directors. — It 
would  take  a  very  strong  case  to  induce  a  court  to  issue  a  man- 
damus commanding  the  coi-porate  officers  to  allow  a  stockholder 
to  inspect  the  minutes  of  the  meetings  of  the  directors.^  The 
success  of  the  corporate  enterprise  depends  frequently  upon  the 
secrecy  of  the  plans  of  the  directors.     In  connection  with  litiga- 


St,  111  (1884);  Cotheal  v.  Brower,  5  N. 
T.  562(1851);  affi'g  Brower  v.  Cotheal, 
10  Barb.  216  (1850). 

'  Mandamus  was£^ranted  to  a  stockhold- 
er who  wished  to  persuade  other  stock- 
holders not  to  appeal  a  suit  in  which  he 
was  interested  adversely  to  the  corpora- 
tion, tlie  defeated  party.  Reg.  v.  Wilts.  & 
Burks.  Canal  Nav.,29  L.T.922  (1 874 1.  See 
also  State  v.  Lake  Shore  &  M.  S.  R.  R. 
Co.,  11  Hiui,  1  (1877). 

'  "  The  writ  shall  be  directed  to  him 
who  is  to  do  the  thing  required  to  be 
done."  A  director  may  demand  inspec- 
tion though  hostile  to  the  corporation. 
People  i;.  Throop,  12  Wend.  181  (1834). 

3  May  inspect  through  his  duly  au- 
thorized agent.  State  v.  Bienville  Oil 
Works  Co.,  28  La.  Ann.  204  (1876).  See 
also  §  619,  n.  2. 

*  The  stockholder  must  first  apply  to 
the  proper  corporate  officer  having  au- 
thority to  grant  inspection.  King:  v. 
Prop,  of  the  Wilts.  &  Burks.  Canal  Nav., 
3  Ad.  &  El.  477  (1835).  And  must  state 
to  him  the  reason  why  he  desires  itspec- 
tion.  Id.  Also  King  v.  Clear,  4  Barn. 
&  Cr.  899  (1825);  People  v.  Walker,  9 
Mich.  328  (1861). 

6  Morgan's  Case,  L.  R.  28  Ch.  D.  620 

502 


(1884).  This  case  also  states  that  in  Eng- 
land it  is  customary  for  many  banking 
companies  to  insert  in  their  constitutions 
a  provision  forbidding  the  inspection  of 
customers'  accounts  by  shareholders  or 
creditors. 

^  "  It  is  highly  proper  that  an  inspec- 
tion of  the  books  containing  the  proceed- 
ings of  tlie  directors  should  be  obtained 
on  special  occasions  and  for  special  pur- 
poses; .  .  .  but  the  proposed  d;iily 
and  hourly  inspection  and  publication  of 
all  their  proceedings  would  be  tanta- 
mount to  admitting  the  presence  of  stran- 
gers at  all  their  meetings,  and  would 
probably  ere  long,  be  found  very  preju- 
dicial to  the  shareholders."  Queen  v. 
Mariquita  Mining  Co.,  1  Ell.  &  Ell.  289 
(1858).  "A  private  stockholder  of  an 
incorporated  company  has  no  right  to 
have  access  to  the  minutes  of  the  pro- 
ceedings of  the  directors  unless  that  right 
is  expressly  given  by  the  charter,  and 
consequently  and  of  necessity  he  must 
remain  ignorant  of  their  action  until  tliey 
choose  to  make  that  action  known."  Ala. 
&  Fla.  R.  R.  Co.  V.  Rowley,  9  Fla.  n08, 
514  (1861).  See  also  Lindley  on  Partn.^ 
4th  ed.,  8ii9. 


CH.  XXX.]  INSPECTION  OF   CORPORATE   BOOKS.        [§§  518,  519. 


tions,  the  rule,  of  course,  is  different ;  but,  aside  from  this,  it 
seems  that  a  stockholder  is  not  entitled  to  a  mandamus  to  allow 
him  to  inspect  the  minutes  of  the  directors'  meetings.     The  same 
rule  would  seem  to  apply  to  miscellaneous  questions  asked  of, 
the  directors  at  stockholders'  meetings. 

§  518.  Statutes  giving  right  of  insi)ection. — The  right  to  in- 
spect corporate  records  is  frequently  given  to  stockholders  by 
statutory  provisions.  Sometimes  this  statutory  right  extends 
only  to  the  corporate  transfer  book.^  Sometimes  it  includes  all 
corporate  records.'^  Frequently  the  charter  itself  states  that  the 
stockholder  shall  have  certain  rights  of  inspection.  In  England 
the  Companies  Act  regulates  specifically  the  stockholders'  right 
of  inspection,  and  provides  for  a  committee  of  investigation  in 
behalf  of  the  stockholders  whenever  an  investigation  is  desired  by 
them.^ 

§  519.  Orders  to  corporation  to  alloiv  inspection. — An  inspec- 
tion of  corporate  records  is  often  desired  in  connection  with  an 
action  which  is  pending  in  the  courts,  and  it  has  been  the  practice 
of  the  courts  to  grant  applications  for  this  purpose.^    The  order  to 


'  In  New  York,  see  1  R.  S.  ch.  XVIII, 
title  4,  §  1 ,  applying  to  all  corporations. 
Construed  in  Cotlieal  v.  Brower,  5  N.  Y. 
562  (ISol);  People  v.  Pacific  Mail  Steam- 
ship Co.,  50  Barb.  280  (1867);  1  R.  S. 
ch.  XVIII,  title  2,  g  45,  for  moneyed  cor- 
porations; Laws,  1842,  ch.  165,  for  trans- 
fer agents  in  this  State  of  foreign  corpora- 
tions ;  construed  in  People  v.  Lake  Shore 
&  M.  S.  R.  R.  Co.,  11  Hun,  1  (1877); 
People,  ex  rel.  Field  v.  Northern  Pacific 
R.  R.  Co.,  50  N.  Y.  Super.  Ct.  K.  456 
(18M4);  8.  c,  18  Fed.  Rep.  471;  Laws 
of  1848,  §  25,  for  manufacturing  cor- 
porations for  New  Jersey.  See  Revision 
of  1877,  p.  183,  §  36;  Huylar  v.  Cragin 
Cattle  Co.,  40  N.  J.  Eq.392  (1885) ;  Ind.R. 
S.  (1881),  §<  3010-3011.  A  delay  of  one 
day  in  allowing;  the  insi)ectioii,  owing  to 
tlie  absence  of  the  fierson  having  clinrge 
of  them,  does  not  cause  the  penalty  to  at- 
tach. Kelsey  v.  Pfandler,  Ac,  Co.,  24  N. 
Y.  Week.  Dig.  205  (1886). 

''  Rev.  Stat,  of  (Jhio  (1880),  §  3312; 
California,  Civil  Code,  {jj^  377,  378  ;  Penal 
Code,  565;  R.  I.  Pub.  Stat.  ch.  153,  i;  21, 
<fe  ch.  158,  S<  24  (1882);  Midi.  (ien.  Stat. 
iij  3173,  for  banks.  See  also  Colorado 
ben.  Stat..  1882.  i^  249;  Mo.  R.  S.,  1879, 
g§  720,  721 ;  Vt.  R.  Laws,  1880,  gg  3294- 


3295;  Mass.,  1860,  ch.  68,  §  10;  IlL  R. 
S.,  1874,  ch.  32,  §  13.  The  pleading  in 
a  cause  of  action  arising  under  a  statute 
herein  must  clearly  bring  the  case  within 
the  statute.  Lewis  v.  Braiiienl,  53  Vt. 
510(1881).  That  the  officer  had  notice 
of  plaintiff's  stockholdership  must  bo  al- 
leged. Williams  v.  College  Corner  & 
Richmond  Gravel  Road  Co.,  45  Ind.  170 
(1873).  The  purpose  of  the  inspection 
need  not  be  stated  to  the  officer.  Lewis 
?r.  Brainerd,  53  Vt.  510  (1881).  (/. 
Queen  v.  Undertakers  of  the  (Jrand  Canal, 
1  Ir.  L.  R.  337.  Mandutnus  lies  to  en- 
force the  statutory  right  of  inspection. 
People  V.  Pacific  Mail  Steamship  (-o..  50 
Barb.  280  (1801 ).  The  common  law  right 
of  inspection  remains,  although  a  S[)ecial 
stiitutory  right  is  also  given.  People  v. 
Lake  Sliore  <fe  M.  S.  K.  R.  ('o.,  supra. 

3  25  ik  20  Vict.  c.  89,  Table  A,  No.  78, 
and  Nos.  60  &,  86. 

*  "  In  the  case  of  existing  actions  these 
motions  seem  to  have  been  first  inti-o- 
duced  with  respect  to  court  rules."  The 
evidence  sought  must  be  directly  mateii- 
al  to  th'3  cause.  Hex  >'.  Newcasth',  2 
Stranixe,  1223  (17.!7);  Rex  v.  Babb,  3 
Term  R.,  579  (1790).  See  also  Walburn 
V.  lugiiby,  1  Myl.  &  K.  61   (1832),  wliero 

503 


§  520.] 


INSPECTIOJf   OF   CORPORATE   BOOKS. 


[CH.  XXX. 


allow  an  inspection  may  be  made  at  any  stage  of  the  action.  A 
stockholder  has  this  right  to  aid  him  in  suits  with  strangers,  and  his 
right  herein  is  more  extensive  than  the  rights  of  the  other  party  to 
the  action.^  The  right  also  exists  in  suits  by  or  against  the  corpora- 
tion itself.-  It  will  not  be  allowed,  however,  for  the  purpose  of 
fishino-  out  a  defense.^  In  iS'ew  York  this  right  of  inspection  by 
order  is  regulated  by  statute.* 

§  520.  Sulpcena  duces  tecum  to  the  corjwration.—The  right 
of  a  stockliolder  to  compel  a  corporation  to  produce  in  court  the 
corporate  records  has  been  the  subject  of  some  controversy.  It 
has  been  held  that  a  subpmna  duces  tecum  will  not  always  lie 
herein,  but  that  an  order  to  the  corporation  to  allow  an  inspection 
is  the  proper  remedy.^  This  right,  also,  in  New  York,  is  regulat- 
ed by  the  Code  of  Civil  Procedure." 


the  order  was  to  a  third  person  haviDg 
charge  of  the  books.  "  The  courts  of 
common  law  may  also  make  an  order  for 
the  inspection  of  writings  in  the  posses- 
sion of  one  party  to  a  suit  in  favor  of  the 
other."  Greenleafs  Ev.,  vol.  I,  §  559. 
An  article  of  the  company  taking  away 
the  right  of  inspection  does  not  prevent 
a  ruleissuing  requiring  its  allowance  in 
pendinsc  litigation.  Hall  v.  Connell,  3 
Younge  &  Col.  707  (1840).  The  rule  ap- 
plies to  joint-stock  companies.  Woods 
V.  De  riy;aniere,  1  Rob.  681.  In  the  Fed- 
eral courts  the  right  is  statutory.  1  U. 
S.  Stat,  at  Large,  82. 

1  Strangers  have  no  more  right  to  de- 
mand inspection  of  the  books  of  a  corpo- 
ration, during  litigation,  in  which  the 
corporation  is  not  interested,  than  they 
have  to  demand  a  similar  right  of  any 
other  person.  Mayor  of  Southampton  v. 
Graves,  8  T.  R.  590^(1800),  overruling  ear- 
lier cases.  See  also  Opdyke  v.  Marble,  44 
Barb.  64  (1864);  Morgan  v.  Morgan,  16 
Abb.  Pr.  N.  S.  291  (1874). 

■^  Kino-  <v.  Travannion,  2  Chittj-,  366 
(1818);  Swansea  Vale  Ry.  Co.  v.  Budd, 
L.  R.  2  Kq.  Cas.  274  (1866).  The  affida- 
vit  to  obtain  the  order  must  show  that 
the  information  sought  is  essential.  Im- 
perial  Gas   Co.   V.   Clarke,   7  Bing.   95. 


The  officers  may  be  orally  examined  by 
the  court  with  reference  to  where  the 
books  are.  Lacharme  v.  Quartz  Rock 
Mariposa  Gold  Min.  Co.,  1  Hurl.  &  Colt. 
134  (1862).  They  may  be  required  to 
make  affidavits.  Ranger  v.  Great,  <fec., 
R.  R.  Co.,  4  De  G.  &  J.  74  (1859);  Re 
Barton,  31  L.  J.  Q.  B.  62  (1861).  Such 
inspections  may  be  through  agents. 
Bonnarcht  v.  Taylor,  1  J.  <fc  H.  383 
(1861);  Draper  v.  Manchester,  <tc.,  R.  R. 
Co.,  7  Jur.  K  S.,  pt.  I,  86  (1861).  But 
see  In  re  West  Devon,  Ac,  Mine,  L.  R. 
27  Ch.  D.  106  (1884). 

3  Birmingham,  Bristol  &  Thames 
Junction  Ry.  Co.  v.  White,  1  Q.  B.  282. 
See  also  Credit  Co.  v.  Webster,  53  L.  T. 
Rep.  419  (1885). 

■*  Code  of  Civil  Proc,  §§  803-809  See 
Boormau  v.  Atlantic  &  Pacific  R.  R.  Co., 
78  N.  Y.  599  (1879) ;  Ervin  v.  Oregon  Ry. 
<fe  Nav.  Co.,  22  Hun,  566  (1880) ;  Johnson 
V.  Consol.  Silv.  Min.  Co.,  2  Abb.  Pr.  N.  S. 
413  ;  Walker  v.  Granite  Bk.,  19  Abb.  Ill; 
Thompson  v.  Erie  Ry.  Co.,  9  Abb.  N.  S. 
230. 

5  La  Farge  v.  La  Farge  Fire  Ins.  Co., 
14  How.  Pr.  26  (1857);  Cent.  Natl.  Bk. 
V.  White,  37  N.  Y.  Super.  Ct.  297  (1874). 

^  Code  of  Ci^-il  Proc,  §§  868,  869. 


504 


CHAPTER 


LIENS    OF    THE    CORPORATION    ON    STOCK    FOR    THE   STOCK- 
HOLDER'S DEBTS  TO  THE  CORPORATION. 


521.  No  lien  at  common  law. 

522-24.  A  lien  may  be  created  by 
statute,  by  charter,  or  by  by- 
law. 

525.  What    phrases    in    charters     or 

statutes  will  or  will  not  authorize 
the  corporation  to  create  or  en- 
force a  lien  on  stock. 

526.  The  lien,  when  established,  covers 

all  the  stockholders'  shares  and 
dividends. 

527.  The  lien  protects  the  corporation 


as  to  all  the  debts  due  to  it  from 
the  shareholders. 

528.  No  lien  for  the  debts  of  an  unre- 

corded transferee. 

529.  The  lien  can  be  enforced  for  the 

benefit  of  the  corporation  onlj', 

530.  Methods  of  enforcing  the  lien. 

531.  The  corporation   may  waive    its 
lien. 

532.  The  lien  as  affected  by  transfers 

and  notice. 

533.  The  lien  on  national  bank  stock. 


§  521.  No  lien  at  common  laiv. — Corporations,  both  in  this 
country  and  in  England,  frequently  possess  and  exercise  a  lien  on 
a  shareholder's  stock  for  debts  due  from  that  shareholder  to  the 
corporation,  and  the  reports  abound  in  cases  which  define  and 
illustrate  the  principles  of  law  which  govern  the  lien.  In  this 
chapter  it  is  proposed  to  consider  the  origin  of  the  lien ;  the  ex- 
tent to  which  it  may  be  exercised  and  enforced  ;  the  waiver  of  it 
by  the  corporation  ;  and  its  effect  generally  upon  the  transfer  of 
shares.  It  is  clear  that  at  the  common  law  a  corporation  has  no 
lien  upon  the  shares  of  its  stockholders  for  debts  due  from  them 
to  the  company.^     Tlie  policy  of  the  common  law,  especially  of 


'  Massachu.sett8  Iron  Co.  v.  Hooper,  7 
Cush.  183  (1851);  Bates  v.  New  York  In- 
surance Co.,  3  Johns.  Cas.  238  (1802); 
Steamship  Dock  Co.  v.  Heron's  Admx., 
62  Penn.  St.  280  (1866);  Merchant's 
Bank  v.  Shouse,  102  Id.  488(188X);  Fitz- 
hu;^h  V.  Bank  of  Shepherdsville,  3  Mon- 
roe, 12H  (1825);  Williams  v.  Lowe,  4 
Neb.  382,  398  (1870);  Dana  v.  Brown,  1 
J.  .J.  Marsh.  304  (1829);  Heart  !-.  State 
Bank,  2  Dev.  Eq.  (N.  C.)  HI  (1831); 
Farmers,  <fec.  Bank  i'.  Wasson,  48  Iowa, 
330  (1878) ;  People  v.  Crockett,  9  Cal.  112 
(1858)  ;  Sargent  j;.  Franklin  In.suranct; 
i:o.,  8  Pick.  90(1829);  Ncale  v.  Jiuiney,  2 
Cranch  C.  C.  188(1819);  McMurricli  v. 
Bond  Head  Harbour  Co.,  9  U.  C.  Q.  B. 


333  (18521  Cf.  Weston's  Case,  L.  R.  4 
Chan.  20  (1868).  The  earliest  reported 
case  in  which  the  question  of  the  lien  of 
the  corporation  upon  the  stock  of  a  share- 
holder is  considered  seems  to  bo  Gibson, 
assignee  of  Kvans  )■.  Hudson's  Bav  Com- 
pany, MS.  Ifep.  Michael,  12  Goo.  I  (1726); 
7  Viner's  Abridgment  (2d  London  cd.), 
125.  In  this  case  the  Chancellor  ex- 
pressly declined,  after  liearing  the  argu- 
ment, to  decide  whether  a  liy-law  creat- 
ing such  a  lien  was  valid,  but  expressed 
tlic  o|)inion  lliat  it  was  not.  Tin'  report 
is  a  poor  one,  but  it  can  be  gathered  from 
it  tiiat  the  juilgis  did  not  donl.t  that,  in 
the  absence  of  the  by-law,  tlure  was  no 
lien  at  conmion  law.     So  also  in  the  case 

505 


§  522.] 


CORPORATE   LIEN   ON   STOCK. 


[CH.  XXXI. 


the  earlier  common  law,  was  to  discountenance  secret  liens,  upon 
the  ground  that  they  hindered  trade  and  restricted  the  safe  and 
speedy  transfer  of  property.  It  was  upon  this  theory  that  the 
courts  refused  to  enforce  a  lien  upon  shares  against  a  hona  fide 
purchaser  of  stock  in  a  corporation, 

§  522.  A  lien  may  he  created  iy  statute,  hy  charter,  or  l)y 
hy-laiv. — Such  a  lien  as  this  in  favor  of  the  corporation  may  be 
created  by  statute,^  by  charter,^  and  the  weight  of  authority  holds 


of  shares  in  the  Provincial  Bank  of  Ire- 
land, Pinkett  v.  Wright,  2  Hare's  Chan. 
120  (1842),  it  was  held,  having  reterence 
to  the  deed  of  association,  that  the  bank, 
in  order  to  establish  its  right  to  a  lien  of 
the  shares  of  a  stockholder  for  a  debt  due 
from  that  shareholder  to  the  bank,  must 
show  a  special  contract  to  that  effect  and 
that,  in  the  absence  of  such  a  contract, 
the  bank,  in  dealing  with  its  stockh(ilder, 
was  in  no  better  position  than  in  dealing 
with  a  stranger.  In  Byrne  v.  Union  Bank 
of  Louisiana,  9  Rob.  (La.)  433  (1845),  it 
was  held,  in  case  of  a  refusal  by  the  bank 
to  transfer  the  stock  of  a  shareholder  who 
had  sold  it  and  applied  for  the  transfer  to 
his  vendee,  upon  the  ground  that  the 
shareholder  was  largely  indebted  to  the 
bank,  that  the  bank  was  liable  in  dam- 
ages, and  that,  where  the  stock  had  de- 
pVeeiated  since  the  request  for  the  trans- 
fer had  been  made,  the  measure  of  dam- 
age is  the  difference  between  its  value  at 
that  time  and  at  the  time  of  the  trial,  s. 
p.,  Hussey  v.  Manufacturers  &  Mechanics 
Bank,  10  Pick.  416  (1830,  Shaw,  C.  J.); 
Byron  v.  Carter,  22  La.  Ann,  98  (1870). 
In  Bank  of  Holly  Springs  v.  Pinson,  58 
Miss.  421  (1880),  it  seems  that  the  bank 
had  enacted  a  by-law  to  the  effect  that 
"  the  stock  of  this  company  shall  be  as- 
signable only  on  the  books  of  the  com- 
pany, and  no  transfer  of  any  stock  shall 
be  made  by  any  stockholder  who  shall  be 
indebted  to  the  company,  and  certificates 
of  stock  shall  contain  upon  them  notice 
of  this  provision."  Certificates  of  stock 
having  been  repeatedly  issued  which  did 
not  contain  any  such  notice  it  was  held 
that,  as  to  the  holder  of  a  certificate  not 
having  upon  its  face  notice  of  the  by-law, 
the  bank  could  assert  no  lien  upon  the 
stock,  and  that,  as  to  all  persons  not  mem- 
bers of  the  corporation,  the  uniform  issue 
of  certificates  not  having  the  notice  must 
be  regarded  a  repeal  of' the  by-law,  or  as 
he  making  of  a  new  by-law  repealing 
hat  providing  for  the  lien.    In  Vansands 

506 


V.  Middlesex  County  Bank,  26  Conn.  144 
(1857),  where  neither  the  charter  of  the 
bank  nor  the  by-laws  contained  any  pro- 
vision which  authorized  the  assertion  of  a 
lien,  but  where  the  certificates  were  is- 
sued to  each  shareholder,  making  the 
stock  transferable,  "  subject,  neverthe- 
less, to  his  indebtedness  and  liability  at 
the  bank,  according  to  the  charter  and  by- 
laws of  said  bank,"  it  was  held  that  the 
provision  in  the  certificate  with  regard  to 
the  lien  was  binding  on  the  shareholder 
by  his  acceptance  of  the  certificate,  and 
that  such  an  acceptance  was  equivalent  to 
an  agreement  that  the  stock  should  be 
subject  to  the  lien.  In  New  York  the 
rule  that  there  is  no  lien  at  common  law, 
is  applied  to  banking  corporations.  Bank 
of  Attica  V.  Manufacturers,  <fec.  Bank,  20 
N.  Y.  501  (1869),  and  to  corporations 
formed  under  the  general  manufacturing 
companies  act.  Driscoll  v.  West  Bradley, 
(fee.  iManfg.  Co.,  59  Id.  96  (1874). 

'  Pittsburg,  &Q.  R.  R.  Co.  v.  Clarke,  29 
Penn.  St.  146  (1857);  First  National 
Bank  v.  Hartford,  <fec.  Ins.  Co.,  45  Conn. 
22(1877);  Presbyterian  Congregations. 
Carlisle  Bank,  5  Penn.  St.  345  (1847); 
Rogers  v.  Huntington  Bank,  12  Serg.  & 
R.  77  (1824);  National  Bank  «;.  Watson- 
town  Bank,  105  U.  S.  217  (1881).  In 
New  York  a  statute  gives  railwaj'  corpo- 
rations a  lien  upon  the  stock  for  the 
amount  of  the  unpaid  calls.  New  York 
Session  Laws.  1881,  chap.  468,  §  12. 

^  Bradford  Banking  Co.  v.  Biiggs,  .L 
R.  81  Chan.  Div.  19  (1885);  s.  c,  58  L. 
T.  Rep.  (N.  S.)  846;  reversing  s.  c,  L.  R. 
29  Chan.  Div.  149  (1885);  Union  Bank 
of  Georgetown  v.  Laird,  2  Wheat.  390 
(1817);  Stebbins  ?'.  Phoenix  Fire  Ins.-Co., 
3  Paige,  350  (1832);  Reese  v.  Bank  of 
Commerce,  14  Md.  271  (1859);  Brent  r;. 
Bank  of  Washington,  10  Peters,  596 
(1836)  ;  Crerman  Seciu'ity  Bank?'.  Jeffer- 
son, 10  Bush,  326  (1874)  ;  Arnold  v.  Suf- 
folk Bank,  27  Barb.  424  (1857);  Leggett 
V.   Bank   of    Sing    Sing,    24   N.  Y.    283 


CH.  XXXI.] 


CORPORATE   LIEN   OX   STOCK. 


[§  522. 


that  it  may  be  created  by  a  by-law.^  With  respect  to  the  right 
of  a  corporation  to  enact  a  by-law  creating  such  a  lien,  it  may  be 
said  that  in  the  greater  number  of  jurisdictions  it  is  unquestion- 
ably held  that  such  a  by-law  is  valid  and  binding  upon  all  persons 
who  buy  or  transfer  the  shares,  and  this  is  the  older  rule  both  here 
and  in  EngLand,  as  the  citation  of  autiiority  shows.  There  is, 
nevertheless,  strong  authority  for  the  rule  that  such  a  by-law  can- 
not create  a  lien  on  the  stock  so  as  to  bind  a  ho7ia  fide  purchaser, 
or  other  person  into  whose  hands  the  shares  may  come,  to  whom 
actual  knowledge  of  the  by-law  cannot  be  imputed. 

Such    is   the    rule    in    JSTew   Tork,^    Louisiana,^    Massacliu- 


(1862);  Bank  of  Utica  v.  Smalley,  2 
Cowen,  7*70  il824);  Farmers  Bank  of 
Maryland  v.  Iglehart,  6  Gill,  60  (1847); 
Bolimer  v.  City  Bank  of  Richmond,  77 
Va.  445  (1883);  Hodges  v.  Planters 
Bank,  7  Gill  &.  J.  306,  310  (1835);  Sabin 
V.  Bank  of  Woodstock,  21  Vt.  353  (1849); 
Cross  V.  Phenix  Bank,  1  R.  I.  39(1840). 
Where  the  charter  of  a  bank  provides 
that  "  no  part  of  the  capital  stock  shall  be 
Bold  or  transferred  except  by  execution 
or  distress,  or  by  administrators  or  ex- 
ecutors, until  the  whole  amount  thereof 
shall  have  been  paid  in,"  a  contract  to 
transfer  shares  in  the  bank,  not  falling 
■within  the  exception,  made  and  to  be  car- 
ried into  execution  when  but  fifty  per 
cent,  has  been  paid  in,  is  illegal  and  void. 
Merrill  v.  Cole,  15  Me.  428(1839).  Cf. 
Cohn  V.  Bank  of  St.  Joseph,  70  Mo.  262 
(1879). 

>  Knight  V.  Old  National  Bank.  3 
Clifford,  429  (1871);  McDowell  v.  Bank 
of  Wilmington  <fe  Brandvwine.  1  Ilarr. 
(Del.)  27(1832);  Bank  of  Holly  Springs 
V.  I'inson,  58  Mi<8.  421  (1880);'st.  Louis 
Perpetual  Insurance  Co.  v.  Goodfellow,  9 
Mo.  149(1845);  .Mechanics  Bank  n.  Mer- 
chants Bank,  45  Mo.  513(1870);  Spurlock 
V.  Pacific  R.  K.  Co.,  61  Mo.  319  (1875); 
In  re  Bachman,  12  Nat.  Bank.  Reg.  228 
(]87-'>l;  People  v.  Crockett,  9  Cal.  112 
(1858);  Pendergast  ?;.  Bank  of  Stockton, 
2  Sawyer,  108  (1871);  Lock  wood  v.  Me- 
chanics National  Bank,  9  R,  I.  308  (18n9); 
Cunningham  v.  Alabamn,  <fec.  Trust  Co. 
4  Ala.  (N.  S.)  652  (1848);  Gcyer  v. 
Wcflfern  Insurance  Co.,  3  Pitlsb.  41 
(1867);  In  re  Dunkerson,  4  Biss.  227 
(1868);  Young  i'.Vougii,23  N.  J.  Kq.  325 
(1873);  Brent  v.  Bank  of  Washington,  10 
Peters.  696,615(1836);  Child  v.  Hud- 
son's Bay  Co.,  2  P.  Wms.  207(1723); 
Planters,  Ac.  Ins.  Co.  v.  Selma  Savings 


Bank,  63  Ala.  585  (1879).  C/".  Heart  » 
State  Bank,  2  Dev.  (Eq.)  N.  C.  Ill  (1831)j 
Farmers,  &c.  Hank  v.  Wasson,  48  Iowa, 
336,  340(1878).  In  Tuttle  v.  Walton,  1 
Ga.  43  (1846),  it  was  said  that  as  between 
the  corporators  themselves  such  a  by-law 
will  be  held  valid. 

"  DriscoU  V.  West  Bradley,  ic.  Co., 
59  N.  Y.  96  (1874);  Bank  of  Attica  v. 
Manufacturers  Bank.  20  Id.  501  (1859). 
In  the  Matter  of  the  Long  Island  R.  R. 
Co.,  19  Wend.  37  (1837);  Rosenback  v. 
Salt  Spring  National  Bank,  53  Barb.  495 
(1868);  Conklin  r.  Second  National  Bank, 
Id.  512  (1868);  s.  c,  affi'd,  45  N.  Y.  655 
(1871).  In  the  case  last  cited  it  was  held 
that  not  even  where  the  certificate  of 
stock  contained  a  provision  that  the  stock 
was  not  transferable  until  all  the  liabili- 
ties of  the  stockholder  to  the  bank  wei'e 
paid,  did  the  bank  acquire  a  lien  upon  tlie 
shares  for  the  subsequent  indebtedness 
of  the  shareowner.  And  all  the  New 
York  tlecisions  proceed  upon  the  broad 
ground  that  the  policy  of  the  law  is  to 
protect  a  bona  fide  vendee  of  shares  nf 
stock  against  secret  or  equitable  claims 
thereto  on  behalf  of  one  who  has  induced 
the  vendor  with  the  bulicin  of  ownership; 
that  accordingly  a  lien  can  be  created  by 
a  by-law,  only  when  there  is  an  express 
warrant  of  authority  in  the  chnrter  or  by 
statute  ;  and  that  a  power  in  the  coijiora- 
tion  to  abridge  the  right  of  transfer  by 
such  a  by-law  will  not  be  inferred  from  a 
statutory  j)rovision,  unless  it  cannot 
otherwise  have  efficacy,  and  unless  it 
present  so  strong  a  probability  of  inten- 
tion that  Lhe  contmrv  cannot  be  sup- 
posed. Cf.  Leirgett  V.  1-iank  of  Sin^  Sing, 
24  N.  Y."  283  (1862);  McCready  v.  Rum- 
say,  6  Duer,  674  (1857);  Arnold  v.  Suf- 
folk Bank,  57  Barl).  424. 

■■  Biyou   V.    Carter,   22     La.    Ann.    98 

507 


§  523.]  CORPOiiATE   LIEN   ON   STOCK.  [CH.  XXXI. 

setts/  Alabama,^  Pennsylvania,^  California/  and  possibly  in  some 
other  States.^ 

It  is  also  the  rule  declared  by  the  Supreme  Court  of  the 
United  States  in  cases  that  involve  the  right  of  the  national 
banks  to  enact  such  by-laws.^  Upon  the  whole,  it  may  be  said, 
that  the  question  whether  a  corporation  may,  by  by-law,  cre- 
ate a  lien  in  its  own  favor  upon  the  shares  of  its  stockholders, 
for  debts  due  by  them  to  the  corporation,  is  not  settled.  In  the 
greater  number  of  jurisdictions,  such  a  by-law  is  sustained  as 
valid.  In  several  of  the  State  courts,  however,  whose  judgments 
are  entitled  to  the  highest  consideration,  and  by  the  Supreme 
Court  of  the  United  States,  upon  grounds  which  accord  best 
with  a  broad  public  policy,  these  by-laws  are  held  invalid  as 
against  a  hona  fide  purchaser  for  value  and  without  notice. 

§  523.  In  Pennsylvania  it  is  the  statutory  rule,  that  the  trans- 
fer of  shares  of  stock  in  a  i-ailway  corporation,  can  be  made  only 
upon  payment  of  any  indebtedness  that  may  exist  on  the  part 
of  the  shareholders  who  seek  to  transfer,  unless  the  lien  is  waived 
by  the  corporation.''^  And  there  are  similar  statutes  in  many 
other  States.^     In  New  Hampshire,  Hens  upon   shares  are   for- 


(1870);     Petot   v.  Johnson,  38    Id.    1286  it  would  not  be  unless  notice  of  the  by- 

(1881).     Cf.  New  Orleans  National  Bank-  law  were  brought  home  to  a  purchaser  of 

iiig  Association    v.    Wiltz,  4  Woods,    43  stockbefcire  the  purchase."   Cy\  Merchants 

(1881) ;  s.  c,  10  Fed.  Rep.  330.  Bank  v.  Shouse,  102  Penn.  St.  488. 

1  In  Nesmith  v.  Washington  Bnnk,  6  *  Anglo-Californian  Bank  v.  Grangers 

Pick.  324  (1828),  the  court  doubted  wheth-  Bank  of  California,  63  Cal.  359. 

era  by-law  could  under  any  circumstances  ^  Carroll  ti.  Mullanphy  Savings  Bank, 

create  a  lien  on  the  shares  as  against  the  8   Mo.   App.  249  (1880);  Evansville  Na- 

creditors  of  the  shareowner,  but  do  not  tional  Bank  v.  Metropolitan  Natl.  Bank, 

decide  the  point.     In  Sargent  v.  Franklin  2  Biss.  527  (1871);   Lee  v.  Citizens  Natl. 

Insurance  Co.,  8  Pick.  90  (1829),  there  is  Bank,  2  Cin.  Super.  Ct.  298  (1872).     Cf. 

&  somewhat  decided  ground  taken  against  Neale  v.  Januey,  2  Cranch  C.C.  188  (1819). 

the  validity  of  any  by-law  which  tends  to  *  Bank   v.   Lanier,     11    Wallace,    369 

limit  the  free  transfer  of  shares.     In  Ply-  (1870);    Bullard    v.    Bank,    18    Id.    589 

mouth  Bank  v.  Bank  of  Norfolk,  10  Pick.  (1873).      Those    cases,    therefore,  which 

454  (1830),  Chief  Justice  Shaw  seems  to  have  held  that  such  a  by-law,  enacted  by 

doubt  the  validity  of  a  by-law  giving  the  the  national  banks,  is  valid  and  enforce- 

bank  a  lien  on  its  own  stock.  able  against  a  bona  fide  purchaser  of  the 

■^  Planters,  «fec.  Mutual  Ins.   Co.  v.  Sel-  share,  must    be  regarded   as   overruled, 

ma  Savings  Bank,  63  Ala.  585  (1879).  Vide  §  525,  infra. 

3  In  Steamship  Dock  Co.  v.  Heron's  '  Pittsburgh,  Ac,  R.  R.  Co.  v.  Clarke, 
Admx.,  52  Penn.  St.  280  (1866),  Thomp-  29  Penn.  St.  146  (1857):  Rogers  v.  Hunt- 
son,  J.,  says:  "  Whether  a  mere  by-law  ington  Bank,  12  Serg.  <fe  R.  77  (1824). 
would  be  sufficient  to  create  a  lien  on  Cf.  Everhart  v.  West  Chester  R.  R.  Co., 
stock  for  a  general  balance  due  the  com-  28  Penn.  St.  339  (1857). 
pany  in  case  of  trading,  manufacturing,  **  Ryder  v.  Alton,  <fec.,  R.  R.  Co.,  13 
or  other  corporations  not  engaged  in  loan-  111.  516  (1851) ;  AUeu  v.  Montgomery  R. 
ing  money,  seems  not  only  to  be  doubted,  R.  Co.,  11  Ala.  437,451  (1847);  Gaff  r. 
but  generally  denied.     Certainly  I  think  Flesher,  33  Ohio  St.  107  (1877). 

508 


CH.  XXXI.] 


CORPORATE   LIEN  ON   STOCK. 


[§  528. 


bidden  by  statute.^  When  a  h'en  is  expressly  given  to  the  cor- 
poration by  its  charter  or  by  statute,  all  persons  dealing  with  the 
corporation  are  affected  by  it,  and  must  take  notice  of  it.^  A  statu- 
tory lien  need  not  be  set  out  in  the  certificate  in  order  to  bind  the 
parties  to  a  transfer.^  And  where  the  lien  is  not  authorized  by 
the  charter  or  by  statute,  the  mere  declaration  of  its  existence  in 
the  certificate  will  not  avail  against  a  bona  fide  purchaser/  In 
general,  however,  it  is  the  rule  that  all  persons  must  take  notice 
of  a  lien  given  to  the  corporation  by  charter,  or  articles  of  asso- 
ciation, or  statute,  while  a  lien  given  by  by-law  must  have  been 
actually  brought  to  the  notice  of  the  party  sought  to  be  charged 
by  it.®  A  clause  in  a  charter,  declaring  that  debts  due  from  the 
stockholders  must  be  paid  before  a  transfer  will  be  allowed,  is 
sufficient  to  create  a  lien  on  the  stock,  without  other  action  on 
the  part  of  the  corporation.''  And  so,  also,  a  power  conferred  by 
the  charter  upon  the  directors,  to  refuse  a  transfer  so  long  as  the 
shareholder  who  wishes  to  transfer  is  indebted  to  the  corpora- 
tion, when  exercised  by  the  corporate  management,  supports  the 
lien.' 

It  has  been  held  that  a  lien  may  be  created  by  special  agree- 
ment among  the  shareholders.^  And  even  that  a  inere  usage  of 
a  corporation  not  to  transfer  shares  while  the  owner  is  indebted 
to  the  corporation,  is  sufficient  to  create  a  lien  on  stock,  valid 


»  By  the  statute  of  1849,  Laws  of  N. 
H.,  chap.  860,  §  2,  it  is  enacted  that  "  the 
free  sale  of  shares  in  the  stock  of  any  cor- 
poration in  this  State  by  the  owners  there- 
of, shall  not  be  in  any  way  or  manner  re- 
Btrictid  by  tiie  by-laws  of  such  corpora- 
tion, and  all  such  by-laws  heretofore  or 
hereafter  made,  sliall  be  deemed  and 
taken  to  be  absolutely  void."  Cf.  Hill 
V.  Pine  River  Bank,  46  N.  H.  300,  3u9 
(1864). 

''  Bishop »'.  (Jlobe  Company,  13.'j  Mass. 
132(1883);  Union  Hank  of  Georgetown  d. 
Laird,  2  Wheat.  390  (1817);  Bohmer  v. 
City  Bank  of  Richmond,  77  Va.  445 
(1883);  Downer's  Admr.  v.  Zanc^villo 
Bank,  Wrifrht  (Ohio),  477  (1833);  Grant 
V.  Mecliiinics  Hank,  15  Serg.  &  K.  140 
(1826);  St.  Louis  Perpetual'  Life  Insur- 
ance Co.  V.  Goodlellow,  9  Mo.  149  (1845); 
Bank  of  Utica  v.  Smaller,  2  Cowen,  770 
(1824);  Rogers  i'.  Huntington  Bank,  12 
Serg.  &  R.  77  (1824);  Sewall  v.  Lan- 
caster Bank,  17  Id.  285  (1828).    Cf.  Steb- 


bins  V.  Pliffinix,  <fec.,  Insurance  Co.,  3 
Paige,  350  (1832). 

^  McCready  v.  Rumsey,  6  Duer,  594 
(1857).  Cf.  Hoffman  Steam  Coal  Co.  v. 
Cumberland  Coal  &  Iron  Co.,  16  Md.  456. 

■•  Conklin  v.  Second  National  Bank,  46 
N.  Y.  655  (1871).  But  in  Vansands  v. 
Middlesex  County  Bank,  26  Coim.  144 
(1857),  it  is  helil  that  a  statement  on  the 
face  of  the  certificate  of  stock,  that  it  is 
issued  subject  to  all  debts  due  from  the 
owners  to  the  corporation,  will  bind  a 
transferee,  as  a  qualiiieation  or  restric- 
tion of  the  transferrer's  title,  and  that,  too, 
nUhough  no  charter  provision  or  by-law 
authorizes  such  a  lien  on  the  slock. 

'  Morawetz  on  Corp.  (2d  edition), 
§  203,  and  cases  cited. 

*  Farmers'  I'.ank  of  ]\Iaryland  Case,  2 
gland's  Chan.  394  (1830). 

^  Arnold  V.  Suffolk  Bank,  27  Barb. 
424  (1857). 

•*  Vansands  V.  Middlesex  County  Bank, 
26  Conn.  144  (1857). 

509 


§  524.] 


CORPORATE   LIEN  ON  STOCK. 


[CH.  XXXI. 


"between  the  corporation  and  its  shareholders,  and  one  which  will 
certainly  bind  a  shareholder  who  borrows  money  with  knowl- 
edge of  it,-^ 

§  524.  It  is  a  salntury  rule,  that  a  lien  created  by  by-law  can 
bind  only  those  who  take  the  stock  with  notice  of  the  by-law. 
This  is  because  by-laws  do  not  of  themselves  impart  or  convey 
notice.*     So,  too,   a  by-law  enacted  subsequently  to  a  transfer, 


'  Wain's  Assi<i;nees  v.  Bank  of  North 
America,  8  Serg.  &  R.  73,  88  (1822) ;  s.  c. 
11  Am.  Dec.  575.  In  the  opinion  in  this 
case,  at  pag-e  88,  it  is  vigorously  said : 

"  Was  this  regulation  of  the  bank, 
this  usage  to  retain,  this  course  of  dealing 
between  the  bank  and  her  customers,  un- 
questionably known  as  it  was  to  Mr. 
Wain,  binding  on  him  V  That  such  a  by- 
law was  within  the  power  of  the  bank,  a 
by  law  imposing  this  restriction,  giving 
the  power,  is  decided  in  Child  v.  Hudson's 
Bay  Company,  2  P.  Wms.  2f»7.  The 
agreement  of  the  stockholders  would  be 
equally  binding  on  them,  and  all  who 
stcand  in  their  shoes,  as  a  by-law.  By- 
laws bind,  because  the  members  of  the 
corporation,  either  individually,  or  by 
those  who  represent  them,  are  supposed 
to  give  their  assent  to  them.  A  course 
of  dealing,  a  usage,  an  understanding,  a 
contract  express  or  implied,  is  the  lien 
of  the  parties  and  a  law  to  them,  provided 
they  are  not  repugnant  to  the  charter  or 
the  laws  of  the  land.  This  is  contrary  to 
neither.  If  the  restrictive  clause  had 
been  inserted  in  the  Act  of  Incorporation, 
as  it  is  in  the  charters  of  the  Philadelphia 
Bank,  Farmers'  &  Mechanics'  Bank,  and 
Union  Bank  of  Georgetown,  according  to 
the  decisions  of  the  Supreme  Court  of 
the  United  States,  in  The  Union  Bank  v. 
Laird,  '  no  person  could  acquire  a  real 
right  to  any  share,  except  under  a  legal 
transfer,  according  to  the  rules  of  the 
bank,  under  the  Act  of  Incorporation,  of 
which  he  is  bound  to  take  notice.'  The 
understood  notice  to  Mr.  Wain,  his  con- 
tinuing to  deal  with  the  bank,  with  full 
knowledge  of  this  term  and  condition,  is 
equally  binding  on  him,  and  the  present 
plaintiffs,  as  if  it  were  a  written  regula- 
tion, a  by-law,  a  provision  in  the  charter, 
or  clause  inserted  in  the  very  certificate 
of  stock.  The  bank  had  an  undonbted 
right  to  say  to  any  stockholder, '  We  dis- 
count your'  note;  but  remember,  until  it 
is  paid,  we  shall  hold  your  stock  in  secu- 
rity.  You  shall  not  be  permitted  to  trans- 

510 


fer  it  until  you  pay  us.'  There  is  nothing 
unfair  in  tliis.  Tlie  terms  are  known  and 
are  accepted  as  between  the  parties  to 
the  present  agreement,  the  stockholder 
and  the  bank.  This  amounts  to  an  )iy- 
pothecation,  a  pledge  of  the  stock.  How 
it  would  have  been  in  a  controversy  be- 
tween a  bona  fide  purchaser  for  valuable 
consideration  and  without  notice,  who 
pays  his  money  to  the  stockholder  on  the 
faith  of  the  certificate,  intrusted  with  the 
symbol  of  the  property,  the  constructive 
legal  possession,  the  title-deed,  on  its  face 
an  instrument  transferable  and  assignable, 
I  do  not  give  any  opinion.  It  is  a  very 
different  question."  Cf.  Vansands  v. 
Middlesex  Co.  Bank,  26  Conn.  144  (1857). 
So  in  Bryon  v.  Carter,  22  La.  Ann.  98 
(1870),  it  "is  held  that  a  by-law  creating 
a  lien,  wliile  it  may  be  valid  as  between 
the  parties,  if  it  be  brought  to  their  knowl- 
edge, is  not  binding  on  the  judgment- 
creditors  of  the  shareholders. 

'^  DriscoU  V.  West  Bradley,  <fec.,  Co., 
59  N.  Y.  96,  109  (1874);  Bank  of  Holly 
Springs  ?f.  Pinson,  58  Miss.  421  (1880j; 
Anglo  -  Californiau  Bank  v.  Grangers' 
Bank  of  California,  63  Cal.  359.  <f. 
Adley  v.  Whitstable  Co.,  17  Vesey,  316; 
Slee  V.  Bloom,  19  Johns.  456.  A  by-law 
of  the  New  York  Cotton  Exchange  pro- 
vides that  certificates  of  membership  may 
be  transferred  only  from  member  to  mem- 
ber, but  that  no  certificate  shall  be  "so 
transferred  until  a  notice  of  the  intention 
to  make  such  transfer,  subscribed  by  the 
member  owning  the  certificate,  shall  have 
been  posted  upon  the  bulletin  of  the  ex- 
change for  ten  days,  and  until  all  claims 
against  such  member  which  may  be  pre- 
sented within  said  ten  days  by  other  mem- 
bers of  the  exchange,  shall  be  settled,  or 
while  any  annual  "dues  or  assessments 
levied  on  such  membership  shall  remain 
unpaid."  By-laws  N.  Y.  Cotton  Ex- 
change, §  5.  This  by-law  gives  a.  lien 
upon  the  seat  of  every  member  in  the 
exchange,  not  only  to  tiie  exchange  itself 
but  to  every  other  member  thereof,   to 


CH.  XXXI.]  CORPORATE   LIEN   OX   STOCK.  [§  525. 

although  the  transfer  has  not  been  recorded  on  the  corporate 
books,  cannot  affect  the  rights  of  the  parties  as  to  that  transfer. 
The  by-law  operates  as  a  notice,  and  in  order  to  be  a  notice,  it 
must  exist  prior  both  to  the  transfer  and  the  registry.^  By-laws 
creating  liens  on  stock  have  been,  however,  held  valid  and  en- 
forceable as  against  the  assignees  in  bankruptcy  or  in  insolvency.^ 

§  525.  What  phrases  in  charters  or  statutes  ivill  or  ivill 
not  authorize  the  corporation  to  create  or  enforce  a  lien  on 
stocli. — The  question  sometimes  arises  wliether  or  not  the  cor- 
poration has  authority,  reference  being  had  to  the  language  of 
the  charter  or  the  statute  under  which  the  corporation  acts,  to 
enact  a  by-law  creating  a  lien  upon  its  stock  in  favor  of  the  cor- 
poration for  debts  due  it  by  the  shareholders.  Accordingly  there 
is  found  a  line  of  cases  which  hold  that,  where  the  directors  are 
authorized  to  make  "  regulations  "  as  to  transfers,  they  may  make 
a  by-law  creating  a  lien.^  So  also  where  shares  are  made,  by 
statute,  transferable  "  in  such  manner  as  the  by-laws  may 
direct,"  as  in  the  Louisiana  Banking  A.ct  of  1855,  it  is  held  that  a 
by-law  may  create  a  lien,  provided  that  it  does  not,  in  effect, 
amount  to  a  prohibition  upon  transfers.*  And  where  the  charter 
of  a  bank  made  provisions  for  the  transfer  of  stock  "  according  to 
such  rules  as  may,  conformably  to  law,  be  established  in  that  be- 
half by  the  president  and  directors,"  a  by-law,  giving  the  bank 
a  lien  on  the  stock  of  any  shareholder  indebted  to  it,  was  sus- 
tained by  the  Supreme  Court  of  the  United  States.^  It  has  also 
been  held  that  a  corporation  organized  under  a  statute  which 
authorizes  it  to  make  by-laws  for  "  the  management  of  its  prop- 
erty, the  regulation  of  its  affairs,"  and  "'the  transfer  of  its  stock," 


secure  the  payment  of  any  debt,  the  holder  8   Serg.   &   R.    73   (1822);    s.c.  11    Am. 

may  owe  either  to  tlie  exchange  or  any  Dec.     575 ;    Vansands  v.   Middlesex  Co. 

member  of  it.     In  People  ex  rd.  Krohn  v.  Bank,  26  Conn.  144  (1857).     /"■  re  Bii;e- 

Miller,  Treas.,  39   Hun,   557  (1886),  Mr.  low,    1    Nat.   Bank.   Reg.    632   and    667 

Justice  Daniels  holds  the   by-law  valid  (1868). 

and   enforceable,   and  considers  at  some  *•  Cunningham  v.  Alabama,  Ac,  Trust 

length,  in  general,  the  validity  and  effect  Co..  4  Ala.  (N.  S.)  652  (1843);   Spurlock, 

of  su'h  by-laws,  regulating  the  sale  and  7>.  Pacific  R.  U.   Co.,  61   Mo.   3l'.»  (1875); 

transfer  of  seats,  oi-   mcTiibership   in   tlio  Pendcrgast  y.  Bank  of  Stockton,  2  Sawyer, 

commercial  exchanges,  and  the  enforce-  108(1871).      Vf.  Tuttle  v.  Walton,  1  Ga. 

nient  of  the   liens   created   thereupon  by  43(1846). 

such  by-laws  in  favor  of  other  members  ••  Bryon  v.    Carter,   22    La.   Ann.   98 

of  the  coi'poration.  (1870). 

'  People  7).  Crockett,  9  Cal.  112(1858).  =■  Brent  t).   Bank   of  Washington,    10 

'  Morgan  v.  Bank  of  North  America,  Peters,  596,  61 1  ct  acq.  (1836). 

511 


§  526.]  CORPORATE   LIEN   ON  STOCK.  [CH.  XXXI. 

and  further  provides  that  the  stock  of  the  company  "  shall  be 
transferable  in  such  manner  as  shall  be  prescribed  by  the  by-laws 
of  the  company,''  has  the  power  to  make  a  by-law  providing  that 
no  transfer  of  stock  shall  be  made  upon  the  books  of  the  corpora- 
tion until  after  the  payment  of  all  indebtedness  to  the  corporation, 
due  from  the  person  in  whose  name  the  stock  stands  on  its  books.^ 
But  in  Bullard  v.  Bank,^  it  is  held  as  to  the  national  banks,  that 
a  by-law  giving  the  bank  a  lien  on  the  stock  of  the  debtor,  is 
not  "  a  regulation  of  the  business  of  the  bank,  or  a  regulation  for 
the  conduct  of  its  aifairs,"  within  the  proper  meaning  of  those 
words  in  the  National  Banking  Act  of  1864,  and,  in  consequence, 
not  such  a  regulation  as  the  national  banks,  under  that  act,  have 
a  right  to  make.^ 

§  526.  The  lien,  when  established,  covers  all  tlie  stockholder's 
shares  and  dividends. — A  valid  lien  in  favor  of  the  corporation, 
when  regularly  established,  attaches  in  general  to  all  the  shares 
and  dividends  of  the  indebted  stockholder.  Thus,  it  attaches  to 
all  the  shares  the  stockholder  owns,  although  the  debt  be  for 
calls  due  and  unpaid  upon  only  a  part  of  them.^  In  Virginia, 
however,  it  seems  that  there  can  be  no  lien  on  wholly  paid  up 
shares  to  secure  the  payment  of  an  unpaid  subscription  to  other 
shares.^  And  in  England,  a  lien  on  stock  for  unpaid  calls  is  a 
lien  only  on  those  particular  shares  upon  which  the  call  is  made, 
and  not  on  other  shares.^  The  lien  attaches  not  only  to  the  stock 
itself,  but  to  dividends  declared  on  the  stock,''  even  though  only 

'  Pendergast  v.  Bank  of  Stockton,   2  made  by  the  bank  upon  the  security  of 

Sawyer,  108  (IS'Zl).     Such   a  by-law,  in  the  stock — a  transaction  forbidden  by  the 

order  to  be  valid,  must  have  been  adopted  35th    section   of  the    National   Banking 

by  vote  of  a  majority  of  the  stockhoKlers,  Act. 

and  not  merely  by  vote  of  the  board  of  *  Stebbins   v.    Phoenix  Fire   Ins.  Co., 

directors.     Carroll  v.  Mullanphy  Savings  3  Paige,  350  (1832). 

Bank   8  Mo.  App,  249  ;  Bank  of  Attica  w,  ^Shenandoah    Valley    R.    R.    Co.    v. 

Manfg.  Bank,  20  N.  Y.  501.  Griffith,   76  Va.   913    (1882).        Cf.   Va. 

^  18  Wall.  589  (1873).  Code,  1860,  ch.  57,  §§  21,  22,  24  ;  Peters- 

3  To  the  same  effect,    see  Delaware,  burg  Savings,  &c.,  Company  v.  Lumsden, 

&c.,  R.  R.  Co.   V.  Oxford  Iron  Co.,  38  N.  7b  Va.  327  (1881). 

J     Eq    340,    and  the   notes ;    Hagar    v.  ^  Hubbersty  v.  Manchester,  <fec.,   Ry. 

Union  National  Bank,  63  Me.  509  (1874);  Co.,  L.  R.,  2  Q.  B.  471  (1867). 

Lee  V    Citizens    National  Bank,  2  Cin.  '  Stebbins  v.  Phoenix  Fire  Ins.   Co.,  3 

298    306;  Evansville    National  Bank  v.  Paige,   350  (1832);    Bates  v.   New  York 

Metropolitan  National  Bank,  2  Biss.  527  Ins.  Co.,  3  Johns.  Cas.  238  (1802);  Sar- 

(1871).      In  the   case  last    cited,    which  gent   v.   Franklin   Ins.   Co.,    8    Pick.    90 

upon  appeal  was  affirmed  bv  the  Supreme  (1829);    Grants.   Mechanics    Bank,    15 

Court  of  the  United  States,  it  was  held  Serg.  &  R.   140  (1826);  Hagar  v.  Union 

that  such  a  by-law  was  in  its  operation  National   Bank,  63  Me.   509  (1874).     In 

the  same  thing  as  though  a  loan    were  the  case  last  cited  it  was  held  that  even  a 

512 


CH.  XXXI.]  CORPORATE   LIEN   OX   STOCK.  [§  52Y. 

"  shares  and  stock "  be  specifically  named  in  the  statute  or 
charter  as  subject  to  the  lien.^  It  is  accordingly  held  that  a  cor- 
poration may  lawfully  retain  dividends,  and  apply  them  to  the 
payment  of  a  debt  due  to  it  from  the  shareholder.  And  this  is 
reasonable,  since  in  an  action  by  the  shareholder  to  enforce  pay- 
ment of  his  dividends  the  corporation  may  always  plead  the  debt 
by  way  of  set-off.^  But  dividends  declared  after  the  death  of 
the  stockholder  are  not  subject  to  a  lien  for  his  debts,^  The  lieu 
follows  the  proceeds  of  the  shares  after  a  liquidation  or  dissolu- 
tion of  the  company.*  And  attaches  not  only  to  valid  stock,  but 
to  spurious  stocks  or  shares  obtained  by  forgery.^  So  also  the 
lien  exists  as  to  debts  due  from  a  trustee  who  holds  stock  in  trust, 
but  in  his  own  name,  and  without  any  indication  of  the  trust.^ 
And  where  a  cestui  que  trust  owes  the  corporation  a  debt  the 
lien  attaches  to  his  stock  though  held  for  him  in  the  name  of  a 
trustee.' 

§  527.  Tlw  lien  protects  the  corporation  as  to  all  the  debts 
due  to  it  from  the  shareholder.— It  is  a  general  rule  that  a  lien 
upon  shares  of  this  nature  is  a  lien  as  against  all  liabilities  of  the 
shareholder  of  every  name  and  nature  due  to  the  corporation.^ 
And  it  is  not  material  that  the  debt  be  due  and  payable  at  the 
time  when  the  lien  is  sought  to  be  enforced.  It  covers  debts 
which  are  not  due  as  well  as  those  that  are  due,  and  all  indebtedness 
to  the  corporation,  whether  payable  presently  or  at  a  future  time.^ 

national  bank    might    have     a   lien    on  Brocklebank,  L.  R.,  21  Chan.  Div.   302 

dividends,  though  it  cannot  have  a  lien  (1882);  Young  v.   Vough,  23  N.  J.    Eq. 

on  the  stock  itself.     Of.  Brent  v.  Bank  of  325  (1873) ;  Burns  v.  Lawrie's  Trustees, 

Washington,  2  Cranch  C.  C.  517  (1824);  2  Scotcli  Ct.  of  Sessions  Cas.  (2d  scries), 

Klopp  V.  Lebanon  Bank,  46  Penn.  St.  88  1348   (1840),  otherwise  cited,   2  Dunlap, 

(1863).  Bell  &  Murray,  1348. 

'  Hague  V.   Dandeson,   2    Exch.    147  ''  Stebbins  v.  Phoenix  Fire  Ins.  Co.,  3 

(1848).  Paige,  360  1 1832). 

'■*  Ilagar  v.  Union  National   Bank,  63  '  Union  Bank  of  Georgetown  v.  Laird, 

Me.  509  (1874);  Sargent  v.  Franklin  Ins.  2  Wheat.  390(1817);  Mobile  Mutual  Ins. 

Co.,  8  Pick.  90  (182'.^);  Bates  i;.  New  York  Co.   v.   McCallum,   49   Ala.    558    (1873); 

Ins.  Co.,  3  Johns.   Cas.  238  (1802).     Cf.  Cunningham  v.  Ain.,  Ac.TrustCo.,  4  Ala. 

Mercliant.s  Hank  v.  Shouse,  102  Penn.  St.  (N.  S.)  652(1843);  Rogers  w.  Huntington 

488;  s.  c;.  16  Rep.  442  ;   Brent  v.  Bank  of  Hank,  12  Serg.  &  U.  77'  (1824);    hx  parte 

Washington,  2  Cranch  C.  C.  517  (1824).  Stringer,   L.  R.  9  Q.  B.  Div.  436  (1882). 

-  Brenl  v.    Bank    of    Washington,    2  6/.  Hall  v.  United  States  Ins.  Co.,  5  Gill 

Cranch  C.C.  617  (1824).  (Md),  484    (1847);     Jure    Peebles,     2 

^ /n  re  General  Exchange  Bank,  L.  R..  Ilugiies,  394  (1875);    Planters,  <fec.  Mu- 

6  Chan.  818  (1871).  tual  Ins.  Co.  v.  Selma  Savings  Bank,  63 

'-  Mt.  Holly  I'aper  Company's  Appeal,  Ala.  58.")  (1879). 

»9  Penn.  St.  513  (1882).  '  Pittsburgh,  <Sic.  R.  R.  Co.  %<.  Clarke, 

'  New   London  &.   Brazilian  Bank  v.  29  Pcun.  St.  146(1857);  /7t  re  Bachman, 

[33]  513 


1 527.] 


CORPORATE   LIEN   ON   STOCK. 


[CH.  XXXI. 


The  lien  also  will  survive  to  the  advantage  of  the  corporation, 
although  the  debt  be  barred  by  the  Statute  of  Limitations.^  The 
lien  attaches  whether  the  stockholder's  debt  to  the  corporation 
.-accrued  before  or  after  he  became  a  stockholder.  It  also  secures 
debts  for  which  the  shareholder  is  liable  only  as  surety,^  and  debts 
«due  from  a  partnership  in  which  the  stockholder  is  a  partner.^ 
iSo  also  it  secures  the  corporation  for  unpaid  calls  upon  the  origi- 
.nal  subscription.*     And  the  call  will  be  considered   made  at  the 


12  Nat.  Bank.  Reff.  223  (1875);  Downer's 
Admr.  v.  Zanesville  Bank,  Wright  (Ohio), 
477  (1833);  Brent  v.  Bank   of  Washing- 
ton,    10    Peters,    596    (1836);  Grant  v. 
Mechanics'    Bank,   15    Serg.   &   R.    140 
>{1826);  Rogers  v.  Huntington  Bank,   12 
Id.  77  (1824);  Sewall  v.  Lancaster  Bank, 
17  Id.  285  (1828);  McCready  v.  Rumsey, 
6  Duer,  574  (1857);  St.  Louis  Perpetual 
Insurance  Co.  v.  Goodfellow,  9   Mo.    149 
■(1845);  Cunningham  v.   Ala,   (fee.  Trust 
■Co.,  4  Ala.  (N.  8.)  652  (1843)  ;    Hall  v. 
United  States  Ins.  Co.,  5  Gill  (Md.),  484, 
(1847);  Leggett  V.   Bank  of  Sing   Sing, 
.24  N.  Y.  283  (1862);   hire  Stockton  Mal- 
leable Iron  Co.,  L.  R.  2   Chan.    Div.    101 
(1875).     In  Grant  v.  Mechanics'  Bank,  15 
:Serg.  <fe  R.  14(»  (1826),  it  was  held  that  a 
bank  organized  under  the  Pennsylvania 
■law  of  March    21,  1814,  might  lawfully 
jrefuse  to  permit  the  transfer  of  the  stock 
.of  a  shareholder  who  was  the  drawer  of 
■a  bill  discounted  by  the  bank,    but  not 
payable  at  the  time  the  transfer  was   de- 
manded,   both     the     shareholder      and 
his  indorser  having,  since  the  discount  oi 
the     paper,    become     insolvent.       Ace. 
Downer's    Admr.    v.    Zanesville    Bank, 
Wright  (Oliio),  477  (1833).     But    where 
the  lien  is  expressly  made  a  security  for 
debts  "  actually  due  and  payable,"  it  will 
be  held  to  cover  only  debts  due  and  pay- 
able.    Reese  v.  Bank   of  Commerce,   14 
Md.  271  (1859V    Cff.  Downer's  Admr.  v. 
Zanesville    Bank,    Wright    (Ohio),  477 
.(1833). 

'  Farmers'  Bank  of  Maryland  v.  Igle- 
hart,  6Gill  (Md.),  50  (1847);  Geyer  v. 
Western  Ins.  Co.,  3  Pittsb.  41  (1867). 
■Cf.  Brent  v.  Bank  of  Washington,  10 
Peters,  596  (1836). 

2  Schmidt  v.  Hennepin  County  B.  Co., 
•29  Northwest,  Rep.  200  (Minn.  1886);  Mc- 
Lean V.  LaFayette  Bank,  3  McLean,  587 
(1846) ;  Leggett  v.  Bk.  of  Sing  Sing,  24  N. 
Y.  283  (1862) ;  Unicm  Bk.  of  Georgetown 
v.  Laird,  2  Wheat.  390(1817)  ;  McDowell 
w.  Bank  of  Wilmington  &  Brandywine, 
1  Harr.  (Del.)27(l'832);  Erent  v.   Bank 

514 


of  Washington,  10  Peters,  596  (1836); 
St.  Louis  Perpetual  Ins.  Co.  v.  Goodfel- 
low,  9  Mo.  149  (1845).  As  to  whether 
the  lien  extends  to  a  guarantee  of  a  cer- 
tain income  to  the  corporation,  see  Miles 
V.  New  Zealand,  <fec.  Co.,  54  L.  T.  Rep. 
582  (1886).  It  attaches  to  the  stock 
of  an  indorser  of  a  note  upon  a  protest. 
West  Branch  Bank  v.  Armstrong,  40 
Penn.  St.  278  (1861). 

■*  In  the  Matter  of  Bigelow,  2  Bene- 
dict, 469  (1868) ;  German  Security  Bank 
V.  Jefferson,  10  Bush,  326  (1874);  West 
Branch  Bank  v.  Armstrong,  40  Penn.  St. 
278  (1861);  Geyer  v.  Western  Ins.  Co.,  3 
Pittsb.  41  (1867);  Arnold  v.  Sufiblk 
Bank.  27  Barb.  424  (1857);  Planters,  Ac. 
Ins.  Co.  V.  Selma  Savings  Bank,  63  Ala. 
585  (1879). 

*  Morgan  v.  Bank  of  North  America, 
8  Serg.  <fe  R.   73   (1822);    s.    c.    11    Am. 
Dec.  575;  Spurlock  v.  Pacific  R.  R.  Co., 
61  Mo.  319  (1875);    McCready  v.   Rum- 
sey, 6  Duer,  574  (1857) ;  Regiua  v.  Wing, 
33    Eng.   L.    &    E.   80    (1855);    Ez  parte 
Littledale,  L.    R.    9   Chan.    257    (1874) ; 
Companies    Clauses    Consolidation    Act, 
1845  (8  Vict.   chap.   16,   §  16).      Contra, 
Hall  V.   United  States  Ins.    Co.,    5    Gill 
(Md.),  484  (1847).    In  Pittsburgh,  (fee.  R. 
R.  Co.  V.  Clarke,  29  Penn.  St.  146  (1857), 
it  is  held  that  the  liability  of  the   stock- 
holder to  pay  for  his  stock  is  an    indebt- 
edness to    the    corporation    within    the 
meaning  of  tliat  section  of  the  General 
R.  R.  Act,  whicli  provides  that  no  trans- 
fer can  be  made  by  a  person  indebted  to 
the  company.     And  in  Rogers  v.    Hunt- 
ington Bank,  12   Serg.   &  R.    77  (1824), 
it  was  held  that  a  bank,    organized   in 
Pennsylvania  under  the  act    regulating 
banks*  of  that   State,   passed  March  21, 
1813  (6  Sm.  L.  154),  which  act  provided 
that  "  no  stockholder  indebted  to  the  in- 
stitution shall  be  authorized  to    make  a 
transfer  or  receive  a  dividend,  till  such 
debt  shall  have  been  discharged,  or  secu- 
rity, to  the  satisfaction  of  the  directors, 
given  for  the  same,"  had  a    lien  on  the 


CH.  XXXI.] 


CORPORATE  LIEN  ON   STOCK. 


[§  527. 


time  when  tlie  shareholder  is  regularly  notified  of  tlie  resolution 
of  the  board  of  directors  making  the  call.  The  company  cannot 
be  required  to  accept  a  transfer  until  every  such  call  has  been 
paid.^  Whether  the  lien  will  avail  to  protect  the  corporation  as 
to  instalments  on  the  stock  not  called,  seems  not  to  be  settled.  In 
Maryland,^  and  Missouri,^  it  is  held  that  it  will  not,  while  in  some 
other  jarisdictions  there  is  a  contrary  rule.^  After  a  shareholder 
has  regularly  notified  the  corporation  that  he  has  transferred  his 
stock,  the  corporation  cannot  avail  itself  of  a  lien  on  that  stock 
to  secure  debts  of  the  transferrer  contracted  subsequently  to  the 
transfer.^  But  M'here  the  shareholder  transfers  his  stock,  and 
subsequently,  without  notifying  the  corporation  of  the  transfer, 
borrows  money  from  the  corporation  in  the  regular  course  of 
business,  the  corporation  may  refuse  to  register  the  ti-ausfer  and 
insist  upon  the  lien.^  The  lien  also  attaches  to  the  stock  of  a 
depositor  who  has  overdrawn  his  account.''  And  the  corporation, 
in  discounting  a  bill  or  note,  may  take  security  from  one  of  the 
parties,  and  also  hold  the  shares  of  another  party  as  security  for 
the  same  loan.^     If  the  shareholder's  indebtedness  to  the  bank  is 


stock  of  any  shareholder  who  was  in  ar- 
rears to  the  bank,  eitiier  upon  his  sub- 
scription to  the  capital  stock,  or  on  a  note 
discounted  in  the  regular  order  of  business. 

In  Virginia  the  statutory  lien  on 
shares  conferred  by  the  })rovision  of  the 
Code  (Code  of  1860,  chap.  57,  §§  21,  22, 
24),  is  a  lien  onlyior  the  unpaid  balance  of 
the  subscription  price.  Petersburg  Sav- 
ings, <fec.  Co.  V.  Lumsden,  TS  Va.  327 
(1881). 

'  ^haw  V.  Rowley,  5  Eng.  Ry.  &  Canal 
Cas.  47  (1847);  Ez  parte  tooke,  6  Id.  1 
(1849).  Cf.  Newry,  <fec.  Ry.  Co.  v.  Ed- 
mund-;, 2  Exch.  118  (1848);  Ambergate, 
&.C.,  Ry.  Co.  V.  Mitchell,  4  Id.  540(1849); 
Great  North  of  England  Ry.  Co.  v.  Bid- 
dnlph,  7Mees.  <t  VV.  243(1840);  Regina 
V.  Wing,  33  Etig.  L.  &  E.  80  (1855). 

''  Hall  V.  United  States  Ins.  Co.,  5  Gill 
(Md.),  484  (1847). 

•'  Kahn  V.  Bank  of  St.  Joseph,  70  Mo. 
202  (1879).  lu  this  case  it  is  held  that 
where  the  lien  is  created  to  protect  the 
corporation  as  to  "  arrears"  and  "  indebt- 
edness "  to  the  corporation,  it  is  not  to  be 
extendf  d  to  uncalled  instalments  of  sub- 
BCi  iplion. 

*  In  re  Bachnian,  12  Nat.  Bank.  Reg. 
223  (1875).  In  this  case  it  is  said  that 
the  construction  put  upon  a  by-law  creat- 


ing a  lien  on  stock,  by  tlie  corporate  offi- 
cers, will  not  bind  the  court  in  constru- 
ing it. 

^  Conant  v.  Seneca  County  Bank,  I 
Ohio  St.  298  (1853).  But  see  Union 
Bank  of  Georgetown  v.  Laird,  2  Wheat. 
390(1817). 

*  Piatt  V.  BirmiDgham  Axle  Co.,  41 
Conn.  255  (1874). 

■"  In  Reese  v.  Bank  of  Commerce,  14 
Md.  271  (1859),  where  the  charter  of  the 
bank  provided  that  "  all  debts  actually 
due  and  jjayable  to  the  corporation  by  a 
stockholdcF  requesting  a  transfer,  must 
be  satisfied  before  such  transfer  shall  be 
Tuade,  unless  tlie  president  and  directors 
shall  dii-ect  to  the  contrary,"  it  was 
held  that  this  creates  a  lien  in  favor  of 
the  bank  which  attaches  to  balances  duo 
tlic  bank  by  the  stockholder,  for  over- 
d'af'ts  on  checks,  but  not  to  notes  and 
bills  on  which  the  shareholder  may  be  a 
l)arty,  or  maker,  or  indorser,  which  are 
not  due  at  the  time  the  transfer  is  de- 
mand (!d. 

•*  Union'Batik  of  Georgetown  v.  Laird, 
2  Wheat.  390  (1817);  First  National 
Bank  of  Hartford  v.  Hartford,  itc.  Insur- 
ance Co.,  45  Conn.  22  (1877).  Cf.  Conant 
V.  Seneca  (.'ounty  Hank,  1  Ohio  St.  298 
(1853);   Helm  z;.  Swig^ett,    12   Ind.    194 

515 


§  528.]  CORPORATE  LIEN  ON  STOCK.  [CH.  XXXI- 

less  than  the  value  of  his  stock,  the  bank,  if  it  has  a  lien  on  the 
stock,  may  hold  the  whole  until  the  debt  is  paid.  They  are  not 
obliged  to  appropriate  part  of  the  stock  to  the  payment  of  the 
debt  and  transfer  the  rest.^  But  there  can  be  no  lien  as  to  debts 
created  before  the  right  of  lien  was  granted.^  In  Bishop -y.  Globe 
Company,^  the  rule  is  declared  that  if,  by  the  law  of  the  State 
under  which  a  corporation  is  organized,  the  corporation,  has  a  lien 
on  the  stock  of  any  shareholder  for  a  debt  due  from  him  to  the 
corporation,  that  lien  is  a  good  defense  to  an  action  in  another 
State  against  the  corporation  by  a  person  to  whom  the  sharehold- 
er has  transferred  his  stock,  but  in  whose  name,  by  reason  of  the 
lien,  the  corporation  has  refused  to  register  the  transfer.  Where 
the  corporation  claims  a  lien  when  it  is  not  entitled  thereto,  the 
transferee  may  hold  it  liable  in  damages.* 

§  528.  No  lien  for  the  dehts  of  an  xmrecorded  transferee. — 
The  lien  of  a  corporation  on  shares  of  stock  as  security  for  the 
payment  of  debts  due  to  the  corporation  from  the  owner,  is  a  lien 
only  as  to  the  indebtedness  of  duly  recorded  shareholders.  There 
is,  in  general,  no  lien  on  the  stock  as  to  debts  of  an  intervening 
unrecorded  owner  of  the  stock.^  But  there  may  be  a  contrary 
sale  in  equity  where  the  lien  is  created  by  a  by-law.^  And  if  the 
charter  or  an  authorized  by-law  provides  that  no  transfer  or  as- 
signment of  stock  shall  be  valid  unless  made  on  the  books  of  the 
company,  an  individual  obtaining  an  assignment  of  shares  from 
an  apparent  owner,  which  assignment  is  not  registered  on  the 
books  of  the  company,  takes  it  subject  to  all  the  equitable  rights 


(1859).     But  where  one  borrowed  money  of  the  beneficiaries  of  the  decedent  over 

from  a  bank  upon  his  title  deeds  as  secur-  another  class,  something  the   bank   was 

ity,  it  was  held,  upon  his  death,  the  ques-  not  called  upon  to  do.     Dunlop  v.   Dun- 

tion  arising,  upon  the  settlement  of  the  lop.  L.  R.  21  Chan.  Div.  583  (1882). 

estate,   as  to  what  part    of   the    estate  '  Sewall  v.  Lancaster  Bank,  17  Serg. 

Bhould  be  charged  with  payment  of  cer-  <fe  R.  285  (1828);  Ace.  Pierson  v.  Bank 

tain  debts,  that  his  shares  of  stock  in  the  of   "Washington,  3    Cranch    C.    C.     863 

bank   need  not  contribute  ratably  with  (1828). 

the  real  estate  toward  the  repayment  of  '  People  v.  Crockett,  9  Cal.  112(1858), 

the  sum  borrowed  from  the  bank,  merely  ^  135  Mass.  132  (1883). 

because  the  deed  of  settlement  of   the  •*  Skinner  v.  City  of  London,  <fec.  Co., 

bank  gave  it  a  lien  on  its  shares  for  debts  53  L.  T.  191  (1885),  holding  also  that  the 

due  to  it  by  the  shareholder,  for  the  rea-  measure  of   damages  is  not    the    secret 

son,  as  it  seems,  that  the  loan  having  been  price  of  the  stock  transferred. 

made  iipon  the  security  of  the  real  estate,  "Helm    v.    Swiggett,    12     Ind.     194 

and  the  security  being  ample,  there  was  (1859). 

no  reason  that  the  bank  should  assert  its  ^  Planters,  <fec.  Ins.  Co.  v.  Selma  Sav- 

lien  on  the  &tock  except  to  favor  one  class  ings  Bank,  63  Ala.  585  (1879). 

516 


CH.  XXXI.]  CORPORATE   LIEX   ON   STOCK.  [§  529. 

of  the  company  against  the  real  owner  thereof.^  A  pledgee  who 
is  duly  registered  on  the  corporate  books  as  a  shareholder,  but 
to  whom  no  certificate  has  been  issued,  is  nevertheless  protected 
against  liens  upon  his  shares  for  the  indebtedness  of  the  pledgor.'* 
But  a  pledgee  who  neglects  to  notify  the  corporation  that  he  holds 
the  stock  in  pledge,  or  to  take  the  proper  steps  to  secure  title  to 
the  stock  in  his  own  name,  will  not  be  protected  against  the  lien. 
of  the  corporation  upon  the  stock  to  secure  the  payment  of  an  in- 
debtedness contracted  to  the  bank  by  tlie  pledgor  in  the  mean- 
time, and  subsequently  to  the  pledge  of  the  shares.^  Stock  stand- 
ing on  the  corporate  books  in  the  name  of  a  fictitious  person  is 
subject  to  a  lien  for  the  indebtedness  of  the  real  owner.*  A  corpo- 
rate lien  for  the  debts  of  a  legatee  will  not  attach  to  stock  unless 
the  legatee  accept  the  shares.^ 

§  529.  The  lien  can  he  enforced  for  the  henefit  of  the  corpora- 
tion only. — The  right  of  a  corporation  to  a  lien  on  the  stock  of  its 
ehareholders  as  security  for  the  payment  of  their  debts  to  the 
corporation,  is  a  right  to  be  enforced  only  by  the  corporation  and 
exclusively  for  its  own  benefit.  Accordingly  it  is  held  that  the 
corporation  cannot  become  the  assignee  of  the  claim  of  some  third 
person  against  one  of  its  shareholders  in  order  to  enforce  pay- 
ment of  that  claim  for  the  benefit  of  the  third  person  by  a  re- 
course to  the  corporate  lien  on  the  shareholder's  stock.^  Neither 
can  the  corporation  be  compelled,  for  the  benefit  of  sureties  as  to 
a  part  of  the  shareholder's  indebtedness,  to  apply  the  proceeds  of 
the  sale  of  the  stock  to  the  liquidation  of  that  part  of  their  claim 
which  is  secured.  The  lien  is  for  the  benefit  of  the  corporation, 
and  it  may  apply  the  proceeds  of  the  sale  of  the  stock  in  such  a 
way  as  best  to  subserve  its  own  interest.''  There  seems  to  be  a 
contrary  rule  in  Delaware,^  Virginia,^  and  Pennsylvania/"  but,  as 
the  author  believes,  not  well  grounded.     But  where  one  pays  a 

■  Stebbins  v.  Phoenix   Fire  Ins.  Co.  3  that   this  lien  ia   one  exclusively  for  the 

Paij^e,  350  (1832).  benefit  of  the  corponiUon   see    Bank  of 

''  National  Bank  v.  Watsontown  Bank,  Utica  v.  Smiilley,  2  Cowcn,  770  (1824). 
105  U.  S.  207(1881).  •"  Crosa  v.    Phenix  Bank,   1    U.  I.  39 

^  Piatt  V.    Birminfrlmm  Axle   Co.,  41  (1840). 
Conn.  255,  204  (1874).  "*  Hardcastle  v.    Commercial    Bank,   1 

■»  St^bbiiis  V.   Piioenix  Fire  Ins.  Co.,  3  Ilarr.  374  n.  (1831). 
Paigo,  350  (1832).  »  Petersburg  Savings,  tfec.  Co.  v.  Lums- 

'  Farmers  Bank  of  Maryland  v.  Igle-  den,  75  Va.  3'27  (1881). 
•hart,  6  Gill  (Md.),  50(1847).  '"  Kuhns    i;.  Wcstinorflnnd    Bank,     2 

«  White'.s  Bank?;.  Toledo,  <fec.  Ins.  Co.,  Watts    (Penn.),    136    (1833);     Klopp  w. 

12  Ohio   St.  001    (1801).     To  the   point  Lebanon   Bank,  40    I'ciiii.  St.  88  (18G3). 

517 


s 


§  530.]  CORPORATE  LIEN   ON  STOCK.  [CH.  XXXI. 

debt  as  surety  for  a  shareholder,  he  is  entitled  to  be  subrogated  to 
the  rights  of  the  corporation  by  way  of  lien  on  the  share- 
holder's stock.^  And  where  the  transferee  pays  the  transferrer's 
debt  to  the  corporation,  in  order  to  obtain  a  registry  of  the  trans- 
fer, he  may  have  his  action  to  recover  back  the  amount  so  paid 
from  his  transferrer.^ 

§  530.  Metliods  of  enforcing  tlie  Ziejt.— When  a  coi^poration 
has  a  lien  upon  the  stock  of  those  of  its  shareholders  who  are  in- 
debted to  it,  it  may  refnse  to  allow  a  transfer  of  the  stock  until 
the  debt  is  paid  or  secured  to  its  satisfaction.  This  is  the  usual 
method  of  enforcing  the  lien.^  And  the  corporation  may  insist 
upon  its  hen  and  hold  the  stock  even  against  a  honafide  purchaser 
at  an  execution  sale.*  It  may,  moreover,  hold  the  whole  amount 
of  the  shareholder's  stock,  although  the  amount  of  the  debt  be  less 
than  the  value  of  the  shares.  It  cannot  be  compelled  to  transfer 
so  much  of  the  stock  as  is  in  excess  of  the  amount  of  the  debt." 
The  corporation  can  enforce  its  lien  against  the  transferee  only  by 
a  refusal  to  allow  the  transfer.  It  cannot  elect  to  make  the  trans- 
feree personally  liable  for  the  debt,  but  as  against  the  transferrer 
the  corporation  may  proceed  by  an  attachment  of  the  stock.^  So, 
also,  upon  non-payment  of  the  debt,  the  corporation  may  make  an 
application  to  a  court  of  chancery  and  have  the  shares  sold  in  the 
usual  way,  as  in  other  cases  of  property  held  under  a  hen.''     A 

1  Youno-  V  Vough,  23  N.  J.  Eq.  325  (1828);  Rogers  v.  Huntington  Bank,  12 
(IS'ZS)  •  Hedges  V.  Planters  Bank,  7  Gill  Id.  77  (1824);  Grant  v.  Mechanics  Bank, 
<fe  J  306,  310  (1835);  West  Branch  Bank  15  Id.  140  (1826).  Cf.  Sabin  v.  Bank  of 
r.  Armstrong,  40  Penn.  St.  278(1861);  Woodstock,  21  Vt.  353  (1849);  West 
Klopp  V.  Lebanon  Bank,  46  Id.  88  (1863);  Branch  Bank  v.  Armstrong,  40  Penn.  6t. 
Hardcastle  v.  Commercial  Bank,  1  Harr.  278  (1861). 

(Del)   374    n.    (1831).      C/.  Higgs  y.  As-  ■'Newbury?'.  Detroit,  <fec.  R.  R.   Co., 

sam   Tea  Co.,  L.  R.  4  Exch.  387  (1869);  17  Mich.  141  (1868);  Titcomb  v.  Union,, 

In  re  Northern  Assam  Tea  Co.,  L.  R.  10  <fec.  Ins.  Co.,  8  Mass.  326  (1811);  Rogers 

Eq     458    (1870)  ;     National    Exchange  v.  Huntington  Bank,  12   Serg.   &  R.   77 

Bank  V.  Silliman,  65  N.  Y.  475  (1875).  (1824);  Grant  i-.  Mechanics  Bank,  15  Id 

2  Bates  v  New  York  Ins.  Co.,  3  Johns,  140  (1826) ;  Sewall  v.  Lancaster  Bank,  17 
Cas.  238  (1802).  Id.  285    (1828);    West  Branch  Bank    v. 

3  Reese  v.  Bank  of  Commerce,  14  Md.  Armstrong,  40  Penn.  St.  278  (1861);  Me- 
271  (1859)-  Brent  v.  Bank  of  Washing-  chanics  Bank  v.  Merchants  Bank,  45  Mo. 
ton  10  Peters,  596  (1836) ;  First  National  513  (1870);  St.  Louis  Perpetual  Life  Ins. 
Bank  of  Hartford  v.  Hartford,  Ac.  Ins.  Co.  v.  Goodfellow,  9  Id.  149(1845);  lut- 
Co.,  45  Conn.  22  (1877);  Vansands  v.  tie  «.  Walton,  1  Ga.  43  (1846). 
Middlesex  County  Bank,  26  Conn.  144  ^  gewall  v.  Lancaster  Bank,  17  Serg. 
(1857)-  Farmers  Bank  of  Maryland  ®.  &  R.  285  (1828);  Pierson  v.  Bank  ot 
lo-lehar't,  6  Gill  (Md.),  50(1847);  Mc-  Washington.  3  Crnnch  C.  C.  363  (1828) 
Cready  v.  Rumsey,  6  Duer,  574  (1857);  «  Sabin  i'.  Bank  of  Woodstock,  21  Vt. 
Tuttlet*.  Walton,  1  Ga.  43(1846);  Sewall  353(1849).                         ..      t,     i     o 

V.   Lancaster  Bank,  17   Serg.  &   R.    285  ^ /«  re  Morrison,  10  Nat.  Bank.  Keg. 

518 


CH.  XXXI.] 


CORPORATE  LIEN  ON  STOCK. 


[§  ^31, 


decree  authorizing  the  sale  of  the  stock  for  the  payment  of  the 
debt  need  not  give  the  shareholder  the  right  of  redemption. 
An  absolute  and  valid  title  may  pass  to  the  purchaser  immediately 
upon  the  sale.^  A  valid  lien  in  favor  of  a  bank  upon  shares  of 
stock  in  the  bank  belonging  to  the  estate  of  a  deceased  person, 
will  not  yield  to  a  prior  claim  against  the  estate  in  favor  of  the 
government."^  But  an  unwarranted  claim  of  lien  by  a  corpora- 
tion, and  a  consequent  refusal  to  register  a  transfer,  until  the  debt 
as  to  which  the  lien  is  asserted  is  paid,  is  a  conversion  of  tiie 
shares,  and  the  transferrer  may  have  his  action  against  the  corpo- 
ration therefor.^  In  order,  however,  to  put  the  corporation  in  the 
wrong,  for  a  refusal  to  transfer,  where  it  claims  more  than  is 
due,  the  shareholder  must  tender  what  he  admits  to  be  due.* 

§  531.  Tlw  corporation  may  waive  its  lien.— A  corporation 
is  no  more  bound  to  collect  a  debt  for  which  it  holds  a  lien  upon 
shares  of  its  own  stock,  than  any  other  pledgee  or  mortgagee  is 
to  enforce  or  foreclose  his  lien.  The  lien  may  be  asserted  and 
enforced,  or  in  the  discretion  of  the  corporation  it  may  be  waived.^ 


105  (ISH);  Farmers  Bank  of  Maryland's 
Case,  2  Bland's  Chan.  (Md.)  394  (18S0); 
Brent  v.  Bank  of  Washington,  10  Peters, 
596  (1836). 

'  Reese  v.  Bank  of  Commerce,  14  Md. 
271  (1859).  In  one  case  the  lien  was 
held  to  he  equivalent  to  a  p]ed2:e,  and  it 
was  held  that  after  giving  due  notice  to 
the  delinquent  shareholder  the  corpora- 
tion might  sell  at  public  auction,  without 
filing  a  bill  to  foreclose.  Farmers  Bank 
of  Maryland's  Case,  svpra.  In  this  case  it 
is  held^  that  where  the  corporation  neg- 
lects or  refuses  to  sell  the  stock  of  a  de- 
ceased shareholder,  who  is  in  arrears,  the 
administrator  may  file  a  bill  and  obtain 
an  order  of  sale  directed  to  the  corpora- 
tion. 

^  Brent  v.  Bank  of  Washington,  10 
Peters,  590(1836). 

^  Bank  of  America?.'.  McNeil,  10 Bush, 
54  (1873).  Cf.  Dickinson  v.  Central  Na- 
tional Bank,  129  Mass.  279(1880).  See 
Case  V.  Bank,  100  U.  S.  440  (1879). 

*  Pierson  v.  Bank  of  Washington,  3 
Cranch  C.  C.  363  (1828).  In  German  Se- 
curity Bank  v.  .Ufferson  (10  Busli,  326, 
1874),  it  was  held  that  where  the  stock 
sold  under  the  lien  realized  a  sum  insuffi- 
cient to  sati>fy  the  corporate  debt,  tlic 
unpaid  balance  of  the  claim  of  the  corpo- 
ration could  not  be  l)aid   until  there  had 


been  a  proportionate  payment  of  the 
claims  of  other  creditors  of  the  share- 
holder out  of  his  general  assets,  as  in  the 
distribution  of  assets,  in  general,  in  the 
case  of  an  insolvent  partnershi]).  In  this 
case  the  sliareholder  being  largely  in- 
debted to  the  bank,  became  insolvent  and 
made  an  assignment  for  the  benefit  of 
his  creditors.  The  sale  of  his  bank  stock 
did  not  pay  in  full  what  lie  owed  th& 
bank.  The  bank  thereupon  claimed  the 
right  to  come  in  equalh'  with  other  cred- 
itors in  the  distribution  of  the  generiil  as- 
sets, but  the  court  held  that  the  other 
creditors  must  firi^t  be  paid  proportionally 
as  much  as  the  bank  had  secured  by  rea- 
son of  its  lien.  "  And,"  says  the  court, 
per  Lindsay,  J.,  "  when  this  is  done  the 
balance  will  then  be  distributed  pari 
passu  among  all  the  creditors."  German 
Security  Bank  v.  Jetlerson,  10  Bush,  326 
(1874).  Cf.  Northern  Hank  of  Kentucky 
V.  Kcizer,  2  Duv.  169;  /«  re  Peebles,  2 
Hughes,  394  (1875). 

'  National  I'.ank  r.  Watsontown  Bank. 
105  U.  S.  217  (1881);  s.  c  subvoiii.  Cecil 
National  Bank  v.  Watsontown  Hank,  21 
Am.  Law  Reg.  (N.  S.)  545;  Hodges  v. 
Planters  Bank,  7  Gill  &  J.  306  (1835); 
Chaniber.sbiirg  Ins.  Co.  v.  Smith,  1 1  Penn. 
St.  120  (1819);  Hall  »•.  United  States  Ins. 
Co.,  5  Gill  (Md.),  484  (1847);  /«  re  Hoy 

519 


§  531.]  CORPORATE   LIEN   ON   STOCK.  [CH.  XXXI. 

Cases  may  arise  where  the  intervening  rights  of  other  creditors 
of  the  shareholder  render  it  inequitable  for  the  corporation  to 
waive  its  lien  on  the  stock,^  but  in  general,  the  right  of  the  cor- 
poration at  its  option  to  waive  the  lien  is  absolute. 

Accordingly,  where  a  note  discounted  for  a  shareholder,  was 
protested  for  non-payment,  it  was  held  that  the  bank  might  waive 
its  lien  on  the  stockholder's  shares  in  the  bank,  and  proceed  di- 
rectly against  the  indorser.^  And  the  corporation,  by  waiving 
the  lien,  does  not  discharge  a  surety  unless  the  surety  has  given 
the  corporation  express  notice  not  to  waive  the  lien.^  The  cor- 
poration will  not  be  held  to  have  waived  its  lien  upon  the  stock 
of  its  debtor,  merely  because  it  has  taken  other,  or  additional, 
security  for  the  debts;*  nor  because  it  assents  to  a  general  assign- 
ment by  the  shareholder  for  the  benefit  of  creditors.^  And  the 
corporation  may  allow  the  transfer  of  a  portion  of  a  shareholder's 
stock  without  waiving  its  lien  on  the  rest.^  But  a  waiver  of  the 
lien  for  a  limited  time  is  fatal,  provided  the  stock  is  transferred 
during  that  time.' 

A  waiver  which  will  bind  the  corporation  may,  in  the  absence 
of  some  thing  to  qualify  the  power,  be  made  by  the  cashier  of  a 
bank,  acting  by  virtue  of  an  express  or  implied  authority,  for  the 
board  of  directors,^  or  the  secretary  of  an  insurance  company,^ 
or  the  general  manager  or  properly  qualified  general  agent  of  the 

lake  Ry.  Co.,  L.  R.,  9  Chan.   257,  259  '  In  re  Bachman,  12  Nat.  Bank.  Reg. 

(1874).     But  see  Conant  v.   Seneca  Co.  223  (1875). 

Bank,  1  Ohio  St.  298,  301(1853).     Alien  -Cross  v.   Phenix  Bank,   1  R.   I.  39 

does  not  proceed  of  its  own  vitality,  but  (1840). 

the  officers  of  the  corporation  must  set  it  ■*  Perrine  v.  Fireman's  Ins.  Co.,  22  Ala. 

in  motion  or  they  gain  nothing  by  it.     Itis  575(1853). 

merely  a  reserved  right  in  "favor  of  the  ■*  Union  Bank  of  Georgetown  v.  Laird, 

corporation,  and  it  is  efifectual  to  protect  2  Wheat.  390  (1817). 

the  corporation    only  when  it  elects  to  ^  Dobbins    «.    Walton,    37   Ga.    614 

avail  itself  of  it,  in  the  prescribed  manner.  (1868). 

If  the  corporation  take  no  steps  to  enforce  •*  First  National  Bank  of  Hartford  v. 

its  lien,  the  owner  not  being  divested  of  Hartford,  <fec..  Insurance  Co.,  45  Conn.  22 

his  title,  some  other  creditor  may  step  in  (1877).      But    see  contra,    Presbyterian 

and  may  reach  the  value  of  the  stock  in  Congregation  v.  Carlisle  Bank,  5  Penn. 

excess  of  the  amount  of  the  lien.     In  re  St.  345  (1847). 

Bigelow,  1  Nat.  Bank.  Reg.  667  (1868).  •>  Bank  of  America  y.  McNeil,  10  Bush, 

A  waiver  is  the  intentional   relinquish-  54  (1873). 

ment  of  a  known  right.     It  is  not  to  be  *  National  Baukw.  Watsontown  Bank, 

inferred,  and  imputed  to  a  corporation,  105  U.  S.  217  (1881).     So  also  the  refusal 

in  the  absence  of  proof  of  it,  and  a  mere  of  the  cashier  to  permit  a  transfer  is  the 

failure  to  assert  the  lien  is  not  equivalent  act   of  the   bank  for  which   it  may  be 

to  a  relinquishment  or  waiver  of  it.    First  charged.     Case  v.  Bank,  100  U.   S.  446 

National  Bank  of  Hartford  v.  Hartford,  (1879). 

Ac,  Ins.  Co.,  45  Conn.  22,  43  (1877).  '^  Charabersburg  Ins.  Co.  v.  Smith,  11 


Penn.  St.  120  (1849). 


520 


CH.  XXXI.]  CORPORATE   LIEN   ON  STOCK.  [§531. 

corporation,  especially  if  that  is  a  general  custom  of  the  com- 
pany.- Accordingl}^,  where  one  buys  shares  on  the  faith  of  a 
representation  of  the  corporate  officers,  that  the  stock  is  unin- 
cumbered, he  is  entitled  to  the  shares  free  from  any  corporate  lien.^ 

And  where  the  corporate  officers  allow  a  transfer  to  be  regis- 
tered, and  a  new  certificate  to  be  issued,  there  is  a  waiver  of  the 
corporate  lien  as  to  the  debts  of  the  transferrer.^  So  also  a  by- 
law, requiring  the  consent  of  the  board  of  directors  to  a  transfer 
by  one  indebted  to  the  corporation,  is  held  to  be  repealed,  where  a 
custom  of  disregarding  it  has  been  shown,  it  appearing  also  that 
the  secretary  had  been  allowed  to  exercise  his  own  discretion 
about  such  transfers,  without  consulting  the  directors.  In  such 
a  case,  the  consent  of  the  secretary  to  the  transfer  is  a  waiver  of 
the  lien.'* 

It  is  held  that  a  failure  to  recite  the  lien,  on  the  face  of  the 
certificate,  is  not  a  waiver  of  the  lien,^  and  that  a  statement  in  the 
cei'titicate,  that  the  holder  is  entitled  to  a  certain  number  of 
shares,  transferable  upon  presentation  and  surrender  thereof, 
in  the  absence  of  any  assertion  of  a  lien,  is  not  a  waiver  of  the 
lien,  but  a  mere  indication  of  the  manner  in  which  the  shares 
are  to  be  transferred.^  When  the  lien  is  given  to  the  corpora- 
tion by  the  charter,  or  the  articles  of  association,  or  by  statute, 
there  is  constructive  notice  to  all  persons  dealing  with  the  cor- 
poration, that  they  must,  at  their  peril,  without  reference  to  what 
the  certificate  recites  or  fails  to  recite,  inform  themselves  as  to 
any  incumbrance  that  may  affect  the  shares  they  propose  to  buy. 
If  there  is  a  lien  they  are  held  to  have  known  it,  whether  the 
certificate  declares  it  or  not. 

But  where  the  lien  is  created  by  a  by-law,  it  is  something  of 
which  purchasers  of  the  shares  cannot  so  strictly  be  held  to  have 
had  constructive  notice.  In  such  a  case,  if  the  certificate  does  not 
disclose  the  lien,  and  actual  knowledge  of  it  be  not  shown,  a  hona 

'  See  Bishop  v.  Globe  Company,  136  ^  Reese  v.  Bank  of  Commerce,  14  Md. 

Mass.    132  (1883);  Young  «.  Vough,   23  271  (1859);  McCreadv  >'.  Rumsey,  6  Diier, 

N.  J.  Eq.  325  (1873).  574  (1857).      In  Hoffman  Steam  Coal  Co. 

5  Moore  v.  Bank  of  Commerce,  52  Mo.  v.  Cumberland  Coal  &   Iron  Co.,  IG  Md. 

377  (1873).  456  (18(50),  it  is  held  that  a  lien  avails, 

^  Hill  V.  Paine  River  Bank,  45  N.  H.  though  it  be  not  recited  on  the  face  of 

300(1864);   Higgs  t>.  Assam  Tea  Co.,  L.  the   curtificate,  against  even  o.  bona  fide 

R.,  4  Exch.  387  (1869).     /n  re  Northern  purciiascr. 
Assam  Tea  Co.,  L.  R.,  10  Eq.  458  (1870).  •>  First  National   Bank  of  Hartford  v. 

*  Chambersburg  Ins.  Co.  v.  Smith,  11  Hartford,  &c.,  Ins.  Cd.,  45  Conn.  22,  and 

Penn.  St.  120  (1849).  the  cases  cited  in  the  preceding  note. 

521 


§  532.]  CORPORATE  LIEN  ON  STOCK.        [CH.  XXXI. 

fide  piircliaser  would  be  protected.  Kecitals  in  the  certificate  as 
to  a  lien  are,  therefore,  material  only  when  the  lien  has  been 
created  by  a  by-law.  In  that  case,  there  must  be  actual  notice 
of  the  lien,  or  the  corporation  is  not  protected.  But  when  the 
lien  is  part  of  the  constitution  of  the  corporation,  that  is  when  it 
is  created  by  statute  or  the  charter  of  the  corporation,  there  is 
constructive  notice,  and  the  corporation  is  protected  without  ref- 
erence to  the  recitals  of  the  certificates  of  stock.^ 

§  532.  T]ie  lien  as  affected  hy  transfers  and  notice. — Upon 
a  transfer,  as  between  transferrer  and  transferee,  title  to  the  stock 
passes  absolutely,  although  the  corporation,  in  the  assertion  of  a 
lien  upon  the  stock  for  the  indebtedness  of  the  transferee,  refuses 
to  register  the  transfer  until  the  debt  is  paid  or  otherwise  secured.'' 
But,  of  course,  the  assignee  or  transferee,  or  whoever  succeeds 
to  the  rights  of  the  shareholder  in  the  stock,  takes  it  subject  to 
the  lien  of  the  corporation.^  And  when  the  stock  is  sold  by  the 
corporation  to  pay  the  debts  of  .the  transferrer,  the  transferee  is 
entitled  to  the  surplus,  if  any  there  be,  which  remains  after  the 
claim  of  the  corporation  is  satisfied.^ 

The  corporation  cannot,  after  it  has  been  regularly  notified  of 
tlie  transfer,  assert  a  lien  upon  the  stock  to  secure  an  indebted- 
ness of  the  transferrer  contracted  subsequently  to  the  notice.^  A 
mere  notice  to  the  bank  is,  in  such  a  case,  sufficient  to  protect 
the  transferee.     It  is  immaterial  that  the  transfer  was  not  regis- 


'  Bank  of  Holly  Sp^in^s  v.  Pinson,  58  74  Id.  223  (18Y8);  Pittsburgh,  (fee,  R.  R. 

Miss.  421  (1880);    Fitzhngh  v.  Bank  of  Co.  v.  Clarke,  29  Penn.  St.  140  (1857); 

Shepherdsville,  3  Mon.  (Kv.)  126  (1825);  Sargent  v.    Essex   Marine   Ry.    Corp.    9 

Anglo -Californian     Bank' v.    Grangers'  Pick.  202  (1829) ;  Carroll  i;.  MuUanphy 

Bank  of  California, 63  Cal.359.    See  §  523.  Savings  Bank,  8  Mo.  App.  249  (1880'. 

^  National  Bank  v.  Watsontown  Bank,  ^  Mobile  Mutual  Ins.  Co.  v.  Cullora,  49 
105  U.S.  217(1881);  Johnson  «.  Laflin,  Ala.   558  (1873);  New  Orleans  National 
103   Id.    800  (1880);    Duke  v.   Cahawba  Banking  Association  «;.  Wiltz,  4  Woods, 
Navigation  Co.,  10  Ala.  82  (1846);  St.  43  (1881);  s.  c.  10  Fed,  Rep.  330. 
Louis  Perpetual  Life  Ins.  Co.  v.  Goodfel-  ■•  Weston  v.  Bear  River,  &c.,  Mining 
low,  9  Mo.  149(1845);  Commercial  Bank  Co.,  5  Cal.  186  (1855);  Tuttle  v.  Walton,* 
of  Buffalo   V.  Kortright,    22   Wend.   348  1  Ga.  43  (1846);  Foster  i;.  Potter,  37  Mo. 
(1839) ;  s.  c.  suhnom.  Kortright  »•.  Buffalo  325  (1866);  West  Branch  Bank  v.  Arm- 
Commercial  Bank,  20  Id.  91  (1838);  Bank  strong,  40  Penn.  St.  278  (1861). 
of  Uticaii.  SmalleJ-,  2  Cowen,  770  (1824);  "  Conant  v.    Seneca  County  Bank,   1 
McNeil  V.  Tenth  National  Bank,  46  N.  Y.  Ohio  St.  298  (1853);  Nesmith  v.  Wasbing- 
325  (1871);  People  ex  rd.  Krohn  v.  Mil-  ton  Bank.  6  Pick.  324  (1828).      Cf.  Piatt 
ler,  39  Hun,  657,  563  (1886).     Cf.  Dunn  v.  Birmingham  Axle  Co.,  41   Conn.  235 
f.  Commercial  Bank  of  Buffalo,  11  Barb.  (1874);    Union   Bank  of  Georgetown    v. 
580;  Davis  v.  Bechstein,  69  N.   Y.  440  Laird,  2  Wheat.  390(1817). 
(1877);    Merchants   Bank  v.  Livingston, 

522 


CH.  XXXI.] 


CORPORATE   LIEN  ON  STOCK. 


[§  533. 


tered.^  And  in  a  case  where  tlie  transfer  was  registered  but  no 
certificate  had  been  issued,  it  was  held  that  a  pledgee  was  pro- 
tected.^ But  where  there  is  neither  a  register  of  the  transfer, 
ncr  notice  of  it  served  upon  the  corporation,  the  stock  may  prop- 
erly be  subjected,  to  a  corporate  lien  for  the  indebtedness  of  the 
transferrer,  incurred  subsequently  to  the  transfer.^  In  Pitot  v. 
Johnson,*  it  is  held  that  a  corporate  lien,  for  the  debts  of  the 
transferrer,  contracted  after  the  transfer,  will  not  attach  to  tlie 
stock,  even  though  no  notice  of  the  transfer  has  been  given  to 
the  corporation.^  In  England,  the  I'ule  has  recently  been  settled 
that  a  provision  in  the  articles  of  association  creating  a  paramount 
lien  on  shares  in  favor  of  the  corporation,  gives  the  company 
priority  over  a  mortgagee  of  the  shares,  or  over  one  whose  claim 
is  an  equitable  one,  of  whose  charge  upon  the  shares  the  company 
had  notice  before  the  specific  liability  of  the  shareholder  toward 
the  company  has  been  incurred.® 

§  5.33.  Liens  on  national  lank  stock. — National  banks  were 
formerly  held  to  have  power  to  enact  by-laws  creating  a  lien  on 
stock  in  the  bank  for  debts  owed  by  its  owner  to  the  bank.'     But 


'  Bank  of  America  v.  McNeil,  10  Bush, 
M  (1873). 

•  Cecil  National  Bank  v.  Watsontown 
Bank,  21  Am.  Law  Reg.  (N.  S.)  545  (1881); 
s.  c,  sub  nom.  National  Bank  v.  Watson- 
town Bank,  105  U.  S.  2lY. 

•*  Piatt  V.  Birmingham  Axle  Co.,  41 
Conn.  255  (1874). 

"  33  La.  Ann.  1286  (1881). 

^  Upon  the  question  of  notice  as  affect- 
ing the  right  of  a  member  of  the  New 
York  Cotton  Exchange  to  transfer  his 
membership,  see  People  ex  rel.  Krohn  v. 
Miller,  39  ilun.  557  (188(1),  and  a  full  dis- 
cussion of  the  matter  uf  ncjtice  by  Mr.  Jus- 
tice Daniel.s. 

''Ihe  cuse  in  wliich  this  rule  is, 
after  much  contest,  explicitly  declared,  is 
Bradford  Banking  Co.  v.  Briggs,  L.  R., 
31  Chan.  l)\v.  \<J  (1885);  8.  c.  53  L.  T. 
Rep.  (N.  S.)84C);  reversing  e.  c.  L.  R., 
29  Clian.  l)iv.  119  (1885).  See  also  Mil<  s 
V.  New  Zealand  Alford  Kstate  Company, 
54  L.  J.  Chan.  1U35  (1885);  8.  o.  Week. 
Notes  (1885),  p.'ige  142;  s.  c.  53  L.  T. 
Rep.  (N.  S.)  219;  Re  Dunlop,  48  L.  T. 
Rep.  (N.  8.)  89  (1883);  Societe  Gencrale 
De  Paris  v.  Tramways  Union  Company, 
L.  It.,  14  (.1  H.  Idv".  424;  Ilopkin-dii "«;. 
Rolt,  L.  R,,  9  II.  L.  Cub.  514  ;  New  Lon- 


don <fe  Brazilian  Bank  v.  Brockleebank,  L. 
R.  21  Chan.  Div.  302  (1882),  where  it 
appears  that  the  articles  of  association  of  a 
company,  registered  under  the  Companies 
Act  of  1862,  gave  the  company  a  first 
lien  on  every  share  for  all  debts  due  from 
the  shareholder  to  the  comiiany.  A 
shareholder  deposited  his  certificate  with 
his  bankers,  as  security  for  a  balance  due 
the  bank  on  his  current  account,  and  no- 
tice of  the  deposit  was  given  to  the  com- 
jjany.  The  certificate  .stated  tliat  the 
shares  were  held  subject  to  the  articles 
of  association.  It  was  held  that  the  com- 
pany might  claim  priority  over  the  bank- 
ers in  respect  of  moneys  which  became 
due  from  tiie  shareholder  to  tlie  cumpany, 
even  after  notice  of  tiie  bankers'  advances 
had  been  given,  hecaufe  the  company's 
lien  was  a  first  lien  as  against  all  jjcrsons 
claiming  oidy  equitable  interests,  and 
hiiving  notice  ol'  the  articles  of  associa- 
tion, and  because  by  the  d('])iisit  of  the 
certificiitc,  the  bankers  acquired  only  an 
equitable  interest,  or  that  only  n  trust 
was  created  in  their  favor,  and  that  tiie 
Companies  Act  of  1862,  t?  30,  relieved  the 
comjjany  from  taking-  notice  of  any  mere 
trust,  ci'ealed  in  ri'Sjiect  of  its  shares. 
■"  The  leading  case  was  Knij^lit  v.  The 

523 


§533.] 


CORPORATE   LIEN   ON   STOCK. 


[CH.  XXXI. 


the  Supreme  Court  of  the  United  States,  when  the  question  came 
before  it,  refused  to  enforce  such  a  by-law,  and  decided  that  its 
enactment  was  not  within  the  spirit  of  those  provisions  of  the 
National  Banking  Act  of  1864,  which  confer  power  upon  the 
management  of  a  national  bank  to  regulate  the  business  of  the 
"bank,  and  to  conduct  its  affairs.^  In  the  present  state  of  the  law, 
therefore,  no  national  bank  can,  by  any  by-law,  create  any  lien 
upon  shares  of  stock  in  the  bank  to  secure  the  payment  of  any 
indebtedness  which  the  owner  of  the  shares  may  contract  to  the 
bank.^ 


•Old  National  Bank,  3  Clifford,  429  (18Y1), 
■wherein  Mr.  Justice  Clifford  sustained 
auch  a  by-law  with  much  cogency  of  rea- 
soning. In  this  case  it  was  declared  that 
the  directors  of  a  national  bank  may  law- 
fully enact  and  enforce  a  by-law  to  the 
effect  that  "  no  person  indebted  to  the 
bank  shall  be  allowed  to  sell  or  transfer 
his  or  her  stock  without  the  consent  of  a 
majority  of  the  directors,  and  this  whether 
liable  as  principal  or  surety,  and  whether 
the  debt  or  liability  is  due  or  not." 
To  the  same  effect  see  Lockwood  v.  Me- 
chanics National  Bank,  9  R.  I.  308  (1869); 
In  re  Dunkerson,  4  Biss.  227  (1868); 
Young  V.  Vough,  23  N.  J.  Eq.  235  (1873). 
1  Bullard  v.  Bank,  18  Wall.  589(1873). 
See  also  Bank  v.  Lanier,  11  Id.  369  (1870); 
Case  V.  Bank,  100  U.  S.  446  (1879). 


'  Delaware,  <fec.,  R.  R.  Co.  v.  Oxford 
Iron  Co.,  38  N.  J.  Eq.  340  (1884);  Myera 
V.  Valley  National  Bank,  18  Nat  Bank. 
Reg.  34  (1878);  Hagar  v.  Union  National 
Bank,  63  Me.  511  (1874);  New  Orleans 
National  Bank  v.  Wiltz,  10  Fed.  Rep.  330 
(1881);  8.  c.  4  Woods,  43;  Second  Na- 
tional Bank  of  Louisville  v.  National 
State  Bank  of  New  Jersey,  10  Bush,  367 
(1874);  Evansville  National  Bank  v. 
Metropolitan  National  Bank,  2  Biss.  527 
(1871).  Cf.  National  Bank  of  Xenia  v. 
Stewart,  107  U.  S.  676  (1882);  Rosen- 
bach  V.  Salt  Springs  National  Bank,  53 
Barb.  495  (1868)  This  accords  with  the 
more  general  rule  in  New  York,  which 
holds  all  such  by-laws  of  any  corporation 
in  that  State  inyalid.     See  §  522. 


524 


CHAPTER  XXXII. 


DIVIDENDS     ON    STOCK. 


§  534.  Definition  of  a  dividend,  and  the 
relation  of  shareholders  thereto. 

535.  Four  kinds  of  dividends. 

536.  Scrip     dividends    and    property 

dividends. 
637.   Stock  dividends. 
538.  Interest-bearing  stock. 
539-40.  Dividends  can  be  made  only 

from   net   profits. — Net    profits 

defined. 

541.  Discretion  of  the  directors  as  to 

declaring  dividends. 

542.  To  whom    the  dividend  is  to  be 

paid. 

543.  To  whom  the  dividend  belongs. 

544.  Dividends    must    be    equal    and 

without  preferences. 


545 


546 


Dividend  when  declared  is  a  debt 
due  absolutely  to  the  share- 
holder. 

It  is  a  debt  which  may  be  col- 
lected by  legal  proceedings. 

547.  Right  of  the  corporation  to  apply 

dividends  to  the  payment  of 
debts  due  to  it  by  the  share- 
holder. 

548.  Dividends     which     impair     the 

capital  stock  are  illegal,  and 
may  be  recovered  back  from  the 
stockholders. 

549.  Proceedings  to  recover  back  such 

a  dividend. 

550.  The   liability  herein   of  the   cor- 

porate officers. 


§  534.  Definition  of  a  dividend,  and  the  relation  of  share- 
liolders  thereto. — A  dividend  is  a  corporate  protit  set  aside, 
declared,  and  ordered  by  the  proper  corporate  authorities,  to  be 
paid  to  the  stockholders  on  demand  or  at  a  fixed  time.^  A 
dividend  becomes  the  property  of  the  shareholder,  and  the  share- 
holder acquires  his  legal  right  thereto,  only  when  it  is  regularly 
declared.^     Inasmuch  as  a  dividend  can  be  declared  only  out  of 


'  Lockbardt  v.  Van  Alstyne,  31  Mich. 
76  (1876) ;  Webb  v.  Earle,  L.  R.,  20  Eq. 
556  (1875);  Chaffee  v.  Rutland  R.  R.  Co  , 
55  Vt.  110(1882). 

•'  Hyatt  V.  Allen,  56  N.  Y.  553  (1874); 
Jones  w.  Terre  Hauti-,  etc.,  R.  R.  Co.,  hi 
Id.  196  (1874) ;  Brundage  v.  Hrundage, 
1  Thomp.  <fe  C.  82  (187;i)  ;  affi'd,  GO  M. 
Y.  544  (1875);  Lockbardt  t;.  Van  Alstyne, 
31  Mich.  76,  78  (1875);  Gordon's  Execu- 
tors V.  llichmond,  <fcc.,  R.  II.  Co.,  78  Va. 
501(1884);  Dalton  i:.  Midland  (bounties 
Ry.  Co.,  \y,  C.  l;.  471  (1853).  C'f.  Curry 
V.  Woodward,  44  Ala.  305  (1870).  In 
Fancett  v.  Lourie,  1  Drew.  <fe  Sm.  192 
(1860),  it  was  held  tiiat  a  declaration  of  a 
dividend  gives  the  shareholders  sucli  a 
legal  right  to  the  payment  of  it,  that  a 
court  of  chancery  will  not,  at  the  suit  of 


a  single  shareholder,  interfere  by  an  in- 
junction to  restrain  the  directors  from 
paying  it,  while  at  the  same  time,  in  such 
a  .suit,  it  will  in  a  proper  case  grant  an 
injunction  as  to  future  and  undeclared 
dividends.  Cf.  Stevens  v.  South  Devon. 
Hy.  Co.,  9  Hare,  313  (1851).  Surplus 
profilB  before  a  dividend  is  declared  be- 
long to  the  corporation,  and  not  to  the 
Bliareholders.  Until,  therefore,  a  divi- 
dend is  regularly  declared,  surplus  profits 
are  liable  for  corporate  indebtedness. 
Curry  v.  Woodward.  44  Ala.  305  (1870); 
Goodwin  v.  Hardy,  57  Me.  143,  146 
(18691;  Rand  r'.  Ihilibell,  lir.  Mass.  461 
474  (1874).  Suit.s  against  corporations 
to  enforce  the  payment  of  dividends 
cannot  be  maintaineil  until  a  demand  has 
been  made  and    payment  refused.     State 

525 


§^  535,  536.] 


DIVIDENDS. 


[cH.  xxxn. 


net  profits  which  may  or  may  not  be  earned,  a  shareholder,  it  is 
clear,  is  not  absolutely  but  only  contingently  entitled  to  a  divi- 
dend, and  he  is,  therefore,  in  no  proper  sense,  in  respect  thereto, 
a  creditor  of  the  corporation  until  the  dividend  is  declared  and 
made  absolutely  payable.^ 

§  535.  Four  hinds  of  dividends. — A  corporation  may,  in  gen- 
eral, make  four  different  kinds  of  dividends;  namely,  a  dividend 
payable  in  cash,  in  certiticates  of  stock,  in  scrip,  or  in  property. 
In  the  absence  of  a  special  provision  to  the  contrary,  dividends 
will  be  presumed  to  be  payable  in  cash,  and  in  lawful  or  current 
money.^ 

§  536.  Scrip  dividends  and  property  dividends.— A  scrip 
dividend  is  a  dividend  of  certificates  giving  the  holder  certain 
rights  which  are  specified  in  the  certificate  itself.  These  divi- 
dends are  usually  declared  when  the  company  has  profits  which, 


V.  Baltimore,  &c.,   \l.   R.  Co.,   6  Gill,  368 
(1848);    Scott  v.   Central  Railroad,    &c., 
Co.  of  Georgia,  .52  Barb.  45  (1868).     So 
the  Massachusetts   Statute    (Gen.     Stat. 
ch.  47,  §§  23,  24),  which  provides  that 
the  income  of  any  property,  real  or  per- 
sonal, (^iven  by  will  until  the  happenhig 
of  a  contingent  event,  shall  be  apportioned 
upon  the  happening  of  such  event  at  any 
time  before  the  end  of  a  year  from  the 
time  when  the  whole  ot  the  annual  amount 
for  the  preceding  year  had  become  dne, 
does  not  make  apportionable   dividends 
from  the  profits  of  business  of  incorporat- 
ed companies  not   declared  at  tlie  time 
when  the  event  happened.     Granger  v. 
Bassett,  98  Mass.  462  (18BS).     Ace.  Gold- 
smith   V.    Swift,    25    Hun,     201    (1881). 
Upon  the  general  question  of  the  relation 
of  the  shareholder  to  the  property  of  the 
corporation,  and  especially  to  profits  or 
undeclared  dividends,  see  City  of  IJtica 
V.  Churchill,  33  N.  Y.  161  (1875)  [over- 
ruled in   Supreme  Court   of   the  United 
States.     Van  Allen  v.  Assessors,  3  Wall. 
673  (1865);  People  v.  Commissioners  of 
Taxes,  94  U.   S.  415  (1876)]  ;  First  Na- 
tional  Bank   v.  Fancher,    48  N.    Y.   524 
(1872);  Leitch  2-.  Wells,  Id.  585  (1872); 
North  Hempstead  v.  Hempstead,  2  Wend. 
110   (1828);  Mickles   v.    Rochester  City 
Bank,  11  Paige,  118  (1844). 

1  Elkins  V.  Camden,  Ac,  R.  R.  Co.,  36 
N.  J.  Eq.  233  (1882). 

526 


^  In  Ehle  v.  Chittenango  Bank,  24  N. 
Y.  548  (1862),   where  a  dividend    of  the 
profits  of  a  banking  ass:)ciation  was  de- 
clared by  the  directors  "  payable  in  New 
York  State  currency,"  it  was  held  that 
there   was   no    authority    any  where   to 
make  it  payable  in   anything  else,    and 
that  evidence  of  an  understanding  by  the 
cashier  that     ''State    currency"   meant 
country  bank  notes  current  in  New  York 
city  at  a  discount  of  a  quarter  of  one  per 
cent.,  in  the  absence  of  evidence  to  show 
a  general  usage  in  that  sense,  was  inad- 
missible.    In  Scott  V.  Central   Ruilway, 
Ac,  Co.  of  Georgia,  52  Barb.  45  (1868), 
the  validity  of  dividends  paid  during  the 
civil   war,  by  southern  corporations,  in 
confederate   money,    is    considered,    the 
couit  holding  that  such   dividends  when 
expressly  made  payable   in    confederate 
money    were   valid    and    binding,    even 
upon   the  northern   slu.reholders   of  the 
company,  but   thut    dividends    declared 
payable  genei-ally  must  be  regarded  as 
payable  in    lawful   and   not    in  unlawful 
money.       The   plaintiff,   therefore,    who 
sued  as   executor    of  a   deceased  share- 
holder,    was    allowed     to    recover    the 
amount   only   of  such  dividends  as  had 
been  declared   without  specific  provision 
that  they  were  to  be  paid  in  the  current 
confederate  currency.     Cf.  Reid  v.  Eaton- 
ton  Manfg.  Co.,  40  *Ga.  98  (1869). 


CH.  XXXII.]  DIVIDENDS.  [§  536. 

however,  are  not  in  the  shape  of  money,  hut  are  in  otlier  forms  of 
property,  and  the  company  wishes  to  anticipate  the  time  when 
the  property  may  be  sold  for  cash,  and  the  casli  distributed  by  a 
money  dividend.  The  certificate  sometimes  entitles  the  liolder 
to  a  sum  of  money  payable  with  interest  at  a  certain  time  after 
date,  or  at  the  option  of  the  company,  or  when  the  company 
shall  have  accumulated  sufficient  surplus  to  pay  the  certificates  in 
full.  Sometimes  the  certificates  are  made  convertible  at  the 
option  of  the  holder  into  bonds  or  stocks,^  or  the  certificate  may 
entitle  the  holder  to  exchange  the  certificate  for  lands  of  the  cor- 
poration to  an  amount  equivalent  in  value  to  the  face  value  of 
the  certificate  ;  or  to  receive  from  the  corporation  any  other  bene- 
fit or  advantage  which  the  corporation  may  lawfully  confe?\  In 
issuing  such  certificates  the  corporation  usually  reserves  the 
right  to  redeem  them  either  at  a  fixed  time  or  at  its  option,  either 
in  money  or  stock  or  bonds.^  Sometimes  the  certificate  so  far 
partakes  of  the  character  of  a  certificate  of  stock  that  it  entitles 
the  holder  to  dividends.^  Where  the  corporation,  having  a  large 
surplus,  issues  such  certificates,  they  are  held  not  to  transfer  the 
title  to  that  surplus  from  the  corporation  to  the  holders  of  the 
certificates.*  In  general  the  issue  of  scrip  dividends  is  entirely 
lawful,  and  they  are  upheld  by  the  courts,  but  when  they  are  de- 
clared in  fraud  of  the  rights  of  third  parties  they  may  be  set 
aside.^  A  property  dividend  is  rarely  made,  but  in  this  country 
it  would  unquestionably  be  lawful,  and  is  sometimes  found  con- 
venient.® 

•  Chaffee  v.  Rutland  R.  R.  Co.,  55  Vt.  (ISH).  Cf.  Commonwealth  v.  Pittsburgh, 
110  (1882);  State  v.  Baltimore,  <fec  ,  Co.,  <fec.,  R.  R.  Co.,  74  Penn.  St.  83  (1873). 
6  Gill,  363  (1848);  Brown /;.  Lehi^fh  Coal  ^  While  negotiations  were  pending 
Navigation  Co.,  49  Pi-iin.  St.  270  (1865);  between  two  gas  com[)aiiies  for  their  con- 
Bailey  t>.  (Jitizena  Gas  Light  Co.,  27  N.  J.  solidation,  upon  a  certain  basis  of  capital 
liq.  196(1876).      See  §  283.  and  indebtedness,   one   of  them,  witliout 

^  Brown  v.  Lehigh  Coal  <fe  Navigation  the  knowledge  of  the  other,  passed  a  reso- 

Co.,  49  Penn.  St.  270  (1865).  lution  declaring  a  scrip  dividend  of  ten 

^  Bailey  v.  Railroad  Co.,  22  Wall.  604  per  cent,   on   its   capital  stock,    thus   in- 

(1874).     Cf.  Brundage   v.  Brundage,  60  creasing  its  ind('btetiness  to  tiiat  amount. 

N.  Y.  544  (1875).  The  certificates  were  accorilingly   issued, 

•*  Peo(»le  V.  Board  of  Assessors,  76  N.  but  after  the  consolidation,  upon  a  bill 
Y.  202  (1879);  affirming  b.  c.  16  Ilun,  filed  for  that  purpose,  the  scrip  was  dc- 
196.  In  this  case  it  was  held  that  the  clared  void.  Bailey  v.  Citizens  Gas 
issue  of  these  certificates  conld  not  opor-  Light  Co.,  27  N.  J.  Eq.  196  (1H7('>). 
ate  to  relieve  the  corporation  from  their  "  In  Scott  v.  Central  Hailroad,  Ac, 
obligations  to  f)ay  tlu;ir  tax  u\t(m  the  sur-  Co.  of  Georgia,  52  Harb.  45  (l.S(')S),  divi- 
plus,  because  the  surplus  remaincl  in  the  dends  paid  during  the  civil  war,  by  a 
hands  of  the  company,  and,  as  such,  was  Georgia  corporation,  in  confiderat(!  cur- 
liable  to  assessment  and  taxation.  Anr.  rency,  were  ui)iield  as  though  dividends 
Bailey    v.    Railroad   Co.,    22    Wall.    604  of  properly. 

/)27 


§  537.] 


DIVIDENDS. 


[CH.  XXXTI. 


§  537.  iStocli  dividends. — A  stock  dividend,  as  the  name  im- 
ports, is  a  dividend  of  the  stock  of  the  corporation.  Such  a 
dividend  is  lawful  when  an  amount  of  money  or  property  equiva- 
lent in  vahie  to  the  full  par  value  of  the  stock  distributed,  as  a 
dividend,  has  been  accumulated  and  is  permanently  added  to  the 
capital  stock  of  the  corporation.  Corporations  frequently  make 
a  dividend  of  this  character  when  improvements  of  the  corpo- 
rate property,  or  extension  of  the  business,  have  been  made  out 
of  profits  earned,  or  when  the  corporate  plant  has  increased  in 
value,  and  it  seems  better  to  issue  new  stock  to  represent  the  ex- 
cess of  value,  than  to  sell  the  increase  and  declare  a  cash  divi- 
dend. In  the  United  States  these  dividends  are  frequently 
made  and  are  constantly  sustained  by  the  courts.^  In  general 
they  can  be  initiated  only  by  a  vote  of  the  shareholders,  especial- 
ly in  a  case  where,  as  is  usual,  the  power  to  increase  the  capital 
stock  is  vested  exclusively  in  the  body  of  stockholders.'^     But  the 


'  Williams  v.  Western    Union    Tele- 
graph Co.,  93  N.  Y.  162,  188  eisc^.  (1883); 
City  of  Ohio  v.  Cleveland,  &c.  R.  R.  Co., 
6  Ohio  St.  489  (1856) ;  Howell  v.  Chicago, 
<Sec.   R.   R.   Co.,    51  Barb.    378    (1868): 
Clarkson  v.  Clarkson,  18  Id.  646  (1855); 
Simpson  v.   Moore,    80  Id.   637   (1859); 
Gordon's  Executor  v.  Richmond,  &c.  R. 
R.  Co.,  78  Va.  501  (1884) ;  Minot  v.  P.aine, 
99  Mass.  101  (1868);  Boston,    Ac.  R.  R. 
Co.  V.  Commonwealth,  100  Id.  399  (1868); 
Dalandi;.  Williams,  101  Id.  571   (1869); 
Leland  v.   Hayden,  102  Id.   542  (1869); 
Rand    v.    Hubbell,     115    Id.    461,    474 
(1874);  Gibbons  v.  Mahon,  4  Mackey,  130 
(1885);  Jones  v.  Morrison,  31  Minn.  140 
(1883);  Earp's  Appeal,  28  Penn.  St.  368 
(1857);   Wiltbank's  Appeal,    64    Id.  256 
(1870);  Commonwealth  v.  Pittsburgh,  &c. 
R.  R.  Co.,  74  Id.  83(1873);  Biddle's  Ap- 
peal, 99  Id.   278;  Terry  v.   Eagle    Lock 
Co.,   47  Conn.   141    (1879);     Brander  v. 
Brander,  4  Vesey,  Jur.  800  (1799);  Bar- 
ton's Trust,  L.    R.   5   Eq.   239.     But  see 
Hoole  V.  Great  Western  Ry.  Co.,  L.  R.  3 
Chan.  262  (1867).    Cf.  Mills  v.  Northern 
Ry.  of  Buenos  Ayres  Co.,  L.  R.  5   Chan. 
621(1870);    Brown    v.    Lehigh   Coal    & 
Nav.  Co.,  49  Penn.  St.  270  (1865);  Moss' 
Appeal,  83  Penn.  St.  264  (1877);    Lord 
ti.  Brooks,  52  N.  H.  72  (1872);  Lohmau 
V.  New  York,  <fec.  R.    R.  Co.,    2   Sandf. 
Super.  Ct.  39  (1848);  Currie  v.  White,  45 
N.   Y.    822  (1871);  State  v.   Baltimore, 
(fee.  R.  R.   Co.,  6   Gill,   363    (1847).     In 
Kenton  Furnace  Railroad  &  Manfg.    Co. 

528 


V.  McAlpin,  5  Fed.  Rep.  737  (1880),  it 
was  held  in  the  case  of  a  Kentucky  cor- 
poration, that  an  incorporated  company, 
free  from  indebtedness,  and  acting  in 
good  faith,  has  the  power,  as  between  it- 
self and  its  shareholders,  all  the  share- 
holders assenting,  to  agree,  in  considera- 
tion of  the  surrender  to  it  by  the  share- 
holders of  accumulated  profits,  and  of  the 
increased  value  of  the  corporate  plant 
and  property,  to  treat  stock  upon  which 
only  fifty  per  cent,  has  been  paid,  as  fully 
paid  up  stock,  and  to  call  in  and  cancel 
the  original  certificates,  and  issue  in 
their  stead  new  certificates  for  fully  paid 
up  stock — a  transaction  which  was,  in  ef- 
fect, simply  the  payment  of  an  unpaid 
subscription  out  of  accumulated  profits. 
In  Massachusetts,  railway  corporations 
are  by  statute  prohibited  from  declar- 
ing a  stock  dividend,  except  by  authority 
of  the  general  court.  Pub.  Stat,  of 
Mass.,  chap.  112,  §  61.  It  has  been 
held  not  a  violation  of  this  statute  for  a 
railway  company  to  distribute  among 
its  shareholders  withoiit  the  assent  of 
the  general  court,  shares  of  its  own 
stock  which  it  hud  purchased  from  the 
commonwealth,  when  it  had  legislative 
authority  for  such  purchase  and  distri- 
bution. Commonwealth  v.  Boston  &  Al- 
bany R.  R.  Co.  (Mass.  June  30, 1886)  25 
Am".  &  Eng.  Ry.  Cas.  17.  See  §g  51,  287. 
'^  Terry  v.  Eagle  Lock  Co.,  47  Conn. 
141  (1879);  Williams  v.  Western  Union 
Telegraph  Co.,  93  N.  Y.  162  (1883). 


CH.  XXXII.] 


DIVIDENDS. 


[§§  538,  539. 


stock  may  lawfully  be  issued  to  the  corporation,  instead  of  to  the 
stockholders,  and  subsequently  sold  for  the  benefit  of  the  corpo- 
ration.^ The  shareholders,  having  voted  to  declare  such  a  divi- 
dend, may,  at  any  time  before  the  certificates  are  issued,  recon- 
sider the  matter,  and  revoke  the  dividend.^  In  Virginia,  in  a 
recent  case,  it  is  declared  that  the  holders  of  preferred  stock  are 
entitled  to  share  equally  with  the  common  stockholders  in  a  dis- 
tribution of  stock  by  a  stock  dividend ;  that  the  preferred  stock- 
liolders  are  entitled  first  to  their  dividends,  in  full  before  the  com- 
mon stockholders  are  paid  anything,  and  then  after  the  dividends 
'are  paid  on  the  common  stock,  to  any  other  or  further  distribution 
of  profits  equally  with  the  holders  of  the  common  stock.^ 

§  538.  Interest  lyearing  stock. — It  has  already  been  shown 
elsewhere  that  a  corporation  may  issue  stock  and  contract  with 
the  subscriber  that  the  company  will  pay  interest  upon  the  sums 
paid  in  by  the  subscriber.^  Such  a  contract  is  legal,  however, 
only  when  the  interest  is  to  be  paid  from  the  net  profits  of  the 
enterprise,  and  not  from  the  capital  stock.  Unless  net  profits 
have  been  earned,  the  stipulated  interest  cannot  legally  be  paid. 
Consequently  there  is  little  difference  between  interest-bearing 
stock,  and  preferred  stock. 

§  539.  Dividends  can  l)e  made  only  from  net  profits — Net 
profits  defined. — A  dividend  can  lawfully  be  made  only  out  of  net 
profits.  The  payment  of  it  must  leave  the  capital  stock  of  the 
company  intact  and  unimpaired,  or  it  will  be  held  fraudulent  and 
void.^ 


'  Jones  V.  Morrison,    31    Minn.     140  the  transaction  must  be  viewed  from  the 

(1883).  standpoint  of  tliat  time,  and  not  in  tiie 

■'  Terry  v.  Ea^le  Lock  Co.,  supra.  liij;ht    of    subsequent    events.     Notes  or 

3  Gordon's  Executors    v.     Richmond,  overdrafts  by    persons  then  considered 

<fec.  R.  R.  Co.,  78  Va.  .^01    (1884);  s.    p.  abundantly    good,  included    among    the 

Piiillips  V.  Eastern  R.  R.  Co.,    138  Mass.  corporate  assets  when  the  divi<icnd   was 

122  (1884).  declared  and  paid,  should  not  be  rt'gard- 

*  S'-e  ^  277,  supra.  ed  as  losses  sustained  by  the  corpuration, 

'•  Lockhardt  v.  Van  Alstyne,  31  Mich,  because  they  afterwards  proveil  to  be  un- 

76  (1876);    Attorney    General   v.  State  available.      Main    v.    Mills,    6    Eiss.    98 

Bank,  1  Uev.  <fe  H.  (N.  C.   Eq.)   545,  555  (1874).     In  re  Mercantile   Trading  Co., 

(1837);   Klkins  v.  Camden,  <fec.  R.  R.  Co.,  L.  R.  4  Chan.  475  (1861));  Cf.   l-Titcroft's 

36N.  J.  Eq.  233(1882);  Carpenter  i^.  New  Case,  L.   R.    21    Chan.    Div.   51!t   (1HH2). 

York,  (fee.   R.   R.  Co.,  5   Abb.  Prac.  277  Accordingly,   it   is    held   tiiat   dividends 

(1857);   Hughes  V.  Vermont  Copper  Min-  made  and   paid   in   good    faith  wIumi   the 

ing  Co.,  72  N.  Y.  207,  210  (1878) ;   I'itts-  company  is   .solvent,   cannot,   be   reached 

burgh,  <lc.  R.  R.  Co.  V.  Count}' of  Alleghe-  by  corporate  creditors,  upon  the  siibse- 

ny,  f,3  Pcnn.  St.  120  (1860).     Indccifling  quent  insolvency  of  the  company.     Reid 

whetlier  a  dividend  was  rightfully  made,  v.  Ealonton  ISIanfg.  Co.,  40  Ga.  9b  (1869). 


[34] 


529 


§  539.] 


DIVIDENDS. 


[CH.  XXXII, 


A  court  of  cliancery  M'ill,  upon  the  application  of  any  dissent- 
ing member,  enjoin  an  attempt  to  distribute  any  part  of  the  cap- 
ital stock  as  a  dividend.^  But  it  has  been  held  that  an  injunction 
will  not  be  granted,  at  the  instance  of  corporate  creditors,  to  res- 
train th§  payment  of  such  a  dividend,  or  other  acts  tending  to 
•decrease  the  amount  of  corporate  assets.^  Nor  will  equity  res- 
tiain  the  payment  of  a  dividend  merely  upon  allegations  that  an 
account,  honestly  made  out,  and  jjublished  in  good  faith,  con- 
tains certain  immaterial  errors  in  calculation,'^  or  that  there  is 
not  actually  cash  in  hand  or  at  the  banker's  to  the  full  amount  of 
the  proposed  dividend.*  The  facts  may  be  such  that  equity 
would  restrain  the  declaration  of  the  dividend,  but  not  the  pay- 
ment of  it  after  it  had  been  declared.^  But,  except  in  cases  of 
fraud  injuriously  affecting  citizens  of  this  State,  said  the  Supreme 
Oourt  of  New  York,  our  courts  will  not  enjoin  the  payment  of 
dividends  by  foreign  corporations.^ 


The  payment  of  a  diyidend  out  of  the  cap- 
ital stock  is  ■ultra  vh'ex,  and  incapable 
of  ratification  by  the  shareholders.  Ac- 
•cordingly,  where  the  directors  mislead 
the  sliareliolders  by  rej)resenting  in  the 
areports  and  balance  sheets  as  good,  debts 
'which  they  know  to  be  bad,  and  thus 
iknowingly  pay  dividends  which  in  fact 
impair  the  capital  stock,  it  is  not  a  de- 
fense that  the  shareholders,  relying  in 
good  faith  upon  the  representations  and 
reports  of  the  directors,  pass  resolutions 
•declaring  the  dividends  at  regular  meet- 
ings of  the  corporation,  and  an  action 
•will  lie  on  behalf  of  creditors  to  compel 
the  directors  to  refund.  In  such  an  ac- 
tion the  directors  cannot  set  off  any 
money  due  from  the  company  to  them, 
nor  have  they  recourse  to  the  sharehold- 
ers who  took  the  dividends  bona  Jide. 
In  re  Exchange  Banking  Co.,  L.  R.  21 
Chan.  Div.  519  (1882);  Ace.  Main  v.  Mills, 
6  Biss.  98  (1874);  In  re  County  Ma- 
rine Ins.  Co.,  L.  R.  6  Chan.  104  (187<i). 
See  also  Scott  v.  Eao-le  Fire  Ins.  Co.,  7 
Paige  198  (1838).  In  New  York  the 
.statutes  provide  very  explicitly  as  to  the 
declaration  of  dividends  by  moneyed  cor- 
porations, and  as  to  the  manner  in 
■which  surplus  profits  are  to  be  ascer- 
tained. I<ev.  Stat,  of  New  York,  Chap. 
XVIII,  title  2,  art.  1,  §  3  (seventh  ed. 
1865);  Idem,  title  4,  §  2  (seventh  ed.,  p. 
2533). 

'  Macdougall  v.  Jersey  Imperial  Hotel 

530 


Co.,  2  Hem.  &  M.  528  (1864);  Bloxam  v. 
Metropolitan  Ry.  Co.,  L.  R.  3  Chan.  337 
(1867);  Salisbury  v.  Metropolitan  Ry. 
Co.,  38  L.  J.  Chan.  249  (1869);  Carpen- 
ter V.  New  York,  <fec.,  Ry.  Co.,  5  Abb. 
Prac.  277  (1857). 

*  Mills  V.  Northern  Ry.  of  Buenos 
Ayres  Co.,  L.  R.  5  Chan.  621  (1870). 

3  Yool  V.  Great  Western  Rv.  Co.,  20 
T.  L.  (N.  S.)  74  (1869).  But  it  is  other- 
wise when  there  is  an  intentional  misrep- 
resentation. Ranee's  Case,  L.  R.  6 
Chan.  104  (1870). 

■*  Stringer's  Case,  L.  R.  4  Chan.  475 
(1869). 

^  Carpenter  v.  New  York,  <fec.,  R.  R. 
Co.,  5  Abb.  Prac.  277  (1857).  In  Carlisle 
V.  Southeastern  Ry.  Co.,  1  MacN.  <fe  G., 
689  (1850),  upon  a  bill  filed  to  restrain 
the  railwaj^  company  from  paying  any 
dividend,  either  declared  or  to  be  de- 
clared, contrary  to  the  provisions  of  an 
Act  of  Parliament,  it  was  held  proper  to 
grant  the  injunction  as  to  future  divi- 
dends, but  to  reluse  it  as  to  a  dividend 
declared,  on  the  ground  that  the  plaintiff 
showed  no  title  to  share  in  such  dividend, 
and  that  the  general  body  of  the  share- 
holders who  were  interested  in  the  divi- 
dend was  not  adequately  represented. 
But  see  Browne  v.  M<mmouthshire  Ry. 
&  Canal  Co.,  13  Beav.  32  (1851);  Coates 
V.  Nottingham  Waterworks  Co.,  30  Id. 
86  (1861). 

•^  Howell  V.  Chicago,  d'c,  R.  R.  Co., 


CH.  XXXII.] 


DIVIDENDS. 


[§  540. 


§  540.  In  view  of  the  rule  that  dividends  can  be  made  only 
from  net  profits,  it  becomes  important  to  ascertain,  as  precisely 
as  possible,  what  part  of  the  income  of  a  corporation  will  lawfully 
constitute  such  "net  profits."  This  question  seems  to  have 
caused  the  courts  considerable  difficulty.  Mr.  Justice  Blatchford, 
by  way  of  a  definition,  having  special  reference  to  the  case  of  the 
net  profits  and  net  earnings  of  a  railway  company,  says:  "  Ket 
earnings  are,  properly,  the  gross  receipts,  less  the  expenses  of 
operating  the  road  to  earn  such  receipts.  Interest  on  debts  is 
paid,  out  of  what  thus  remains,  that  is,  out  of  net  earnings. 
Many  other  liabilities  are  paid  out  of  the  net  earnings.  When 
all  liabilities  are  paid,  either  out  of  the  gross  receipts  or  out  of 
net  earnings,  the  remainder  is  the  profit  of  the  shareholders,  to 
^0  towards  dividends,  which  in  that  way  are  paid  out  of  the  net 


earnmgs 


)5  1 


51  Earb.  378  (1868).  In  Massachusetts 
DO  equitable  relief  can  be  granted  against 
a  foreign  corporation,  which  has  neither 
officers  nor  place  of  business  in  that  State, 
for  a  failure  to  declare  and  pay  dividends 
according  to  the  stipulations  of  their  cer- 
tificates of  stock  Williston  v.  Michigan 
Southern,  &c.,  R.  R.  Co.,  IS  Allen,  400 
(11SG6).  In  Virginia  it  is  the  rule  that 
interest  upon  guaranteed  stock  is  to  be 
paid  out  of  the  gross  earnings  of  the  cor- 
poration. Gordon's  Executors  v.  Rich- 
mond, &c.,  R.  R.  Co.,  78  Va.  501  (1884). 
See  Ch.  XVI. 

'  St.  John  V.  Erie  Ry.  Co.,  lOBlatchf. 
271,  279  ;  8.  c.  affi'd,  22'Wan.  136  (1874); 
Warren  r.  King,  108  U.  S.  389  (1882). 
Vf.  Union  Pacific  R.  R.  Co.  v.  United 
States,  99  U.  S.  402,  418  (1878).  Net 
earnings,  it  is  clear,  are  one  thing,  and 
not  at  all  the  same  thing  as  net  profits. 
People  V.  Supervisors  of  Niagara,  4  IJill, 
20,  23  (1842).  Sec  Park  v.  Grant  Loco- 
motive Works,  40  N.  J.  Eq.  114  (1885). 
"  Surjilus  earnings"  are  said  to  be  net 
prohts  in  Williams  v.  Western  llnion 
Telegraph  Co.,  93  N.  Y.  lf)2,  191  (1883). 
See  Union  Pacific  R.  R.  Co.  v.  United 
States,  99  U.  S.  402  (1878).  And  in  Vnn 
D3  ck  V.  McQuade,  80  N.  Y.  38,  47  ( 1 88 1 ), 
it  is  held  tlial  savings  bnnks  organized 
under  the  act  of  1875  (Laws  of  1875,  ch. 
371),  can  lawfully  pay  dividends  only 
from  surplus  profits,  which,  as  the  slnlute 
itself  provides  (Laws  of  1875,  cha[).  371, 
§  3),  are  to  be  ascertained  by  deductions 


from  "  actual  profits,"  "  the  interest  paid 
or  then  due  or  accrued  on  debts  owing  by 
the  company."  "Net  earnings"  is  a 
term  synonymous  with  "  net  income." 
Phillips  V.  Eastern  K.  R.  Co.,  138  Mass. 
122  (1884).  In  Belfast,  <fec.,  R.  R.  Co.  v. 
Belfast,  77  Me.  445  (1885),  it  is  said  that 
the  term  "  net  earnings"  does  not  imply 
that  the  company  is  wholly  out  of  debt ; 
and  in  Myles  v.  Northern,  etc.,  Ry.  Co., 
L.  R.  5  Chan.  Ap.  621  (1870),  Lord  Hath- 
erly,  L.  C,  said:  "Mr.  Dickinson  started 
a  very  curious  theory,  which,  I  appre- 
hend, never  found  its  way  into  any  mer- 
cantile arrangement — that  there  never 
can  be  any  available  income,  or  any  prof- 
it, so  long  as  there  is  anj-  debt  remaining 
unpaid.  If  that  be  so,  I  suppose  there  is, 
hardly  a  railway  in  the  kingdom  which 
could  pay  any  dividends  at  all  to  their 
stockholders."  In  Bari'y  v.  Merchants 
Exchange  Co.,  1  Sandf.  Clian.  280,  307, 
(1844),  Vice-chancellor  Sandford  says, 
"Tlic  capital  stock  of  a  corjxiration  is, 
like  that  of  a  copartnership  or  jdint  stock 
company,  the  amount  wliich  the  partners 
or  associates  put  in  as  their  stake  in  the 
concern.  To  this  they  add  ujion  the 
credit  of  the  company,  frtun  the  means 
and  resources  of  others,  to  such  un  extent 
as  their  jirudcnce  or  ihc  confidence  of 
such  other  persons  will  permit.  Sucli 
additions  create  a  debt;  the}'  do  not  form 
cajiital.  And  if  successful  in  their  career, 
i\u-  surplus  over  and  above  tiieir  ca))ital 
and  debts  becomes  i)rolit8,  and  is  either 

r)8i 


§  540.]  DIVIDENDS.  [CH.  XXXir. 

It  is  not  required  that  a  corporation  be  entirely  free  from 
debt  before  it  may  lawfully  make  a  dividend  to  its  shareholders.^ 
And  it  may  properly  borrow  money  to  pay  a  dividend,  if,  upon  a 
fair  estim.ate  of  its  assets  and  liabilities,  it  has  assets  in  excess  of 
its  liabilities  equal  to  the  amount  of  the  proposed  dividend.^ 
Unearned  premiums  received  by  an  insurance  company,  on 
which  the  risks  are  still  running,  are  not  surplus  profits  out  of 
which  dividends  can  legally  be  made  without  leaving  a  sufficient 
surplus  on  hand  to  meet  the  probable  losses  on  risks  then  assumed 
and  not  yet  terminated,  independent  of  the  capital  stock  of  the 
corporation.^  The  term  net  profits  has  been  held  to  mean  net 
earnings  after  deducting  curi'ent  working  expenses,  without  in- 
cluding interest  on  money  borrowed.^  and  also  to  mean  that  which 
remains  after  the  deduction  of  all  charges  and  every  outlay.^ 
But,  upon  a  reduction  of  the  capital  stock,  the  surplus  funds 
over  and  above  the  full  amount  of  the  capital  stock,  as  reduced, 
may  be  divided  among  the  stockholders,  the  only  restriction  being 
that  such  a  distribution  leave  the  reduced  capital  stock  entire  and 
unimpaired.^  The  surplus  earnings  of  an  insolvent  concern  can- 
not legally  be  distributed  as  a  dividend.''     When  the  company 

divided  among;  the  partners  nnd  asso  c  In  the  following  cases  the  term  "  net 
ates  or  used  still  further  to  extend  their  profits,"  or  an  equivalent  phrase,  is  de- 
operations."  fined.     Coltness  Iron  Co.  v.  Black,  51   L. 

1  Mills  r  Northern  Railway  of  Buenos  J.  (Q.  B.  Div.)  626  (1881);  Nickals  v. 
Avres  Co    L.  R.  5  Chan.  621  (1870).  New  York,  Ac,  E.  R.  Co.,  21  Blatchf.  Ill 

2  stringer's  Case,  L.  R.  4  Chan.  475  (1883);  s.  c,  15  Fed.  Rep.  5*75  ;  Heard  v. 
(1869).  Funds  on  hand— a  cash  balance  Eldredge.  109  Mass.  258;  Bloxam  v.  Met- 
in  bank  to  the  credit  of  the  corporation —  ropolitan  Ry.  Co.,  L.  R.  3  Chan.  337 
the  total  indebtedness  of  the  company  (1867);  Salisbury  i».  Id.,  SB  L.J.Chan, 
being  less  in  amount  than  the  balance,  249(1869);  Bardwell  v.  Sheflneld  Water- 
are  not  such  net  profits  as  will  justify  a  works  Co.,  L.  R.  14  Eq.  517  (1872) ;  Park 
court  to  order  a  dividend  to  be  declared,  v.  Grant  Locomotive  Works,  40  N.  J.  Eq. 
Karnes  v.  Rochester,  &e.,   R.  R.  Co.,  4  114  (1885). 

Abb  Prac.  (N.  S.)  107  (1867).  *  Corry  v.  Londonderry,  <fec.,  Ry.  Co., 

sDe  Peyster  v.  American  Fire  Ins.  29  Beav.  263  (1860).     Cf.  People  v.  The 

Co     6  Pai"-e,  486  (1837).     Ace.  Scott  v.  Supervisors,  4  Hill,  20(1842). 

Ea'o'le  Fire  Ins.  Co.,  7  Id.   198  (1838);  '  St.  John  v.  Erie  Ry,  Co.,  22  Wall. 

Lexin-rton,  &c.,  Ins.  Co.  v.  Page,  17  B.  136  (1874).     Cf.  Warren  v.  King,  108  U. 

Mon   412  (1856).     In  Gratz  v.  Redd,  4  B.  S.  389  (1882). 

Mon    178,  187  (1843),  it  is  held  that  capi-  "  Seeley  v.  New  York  National  Ex- 

tal  6tock,'paid  in  for  the  purpose  of  car-  change  Bank,  8  Daly,  400  (1877);  s.  c, 

rvine:  into  effect  the  objects  of  the  com-  Thompson  Natl.  Bank  Cas.,   804;  affi'd, 

panv     does    not,    xipon    a   forfeiture    of  78  N.  Y.  608  (1879) ;  Strong  v.  Brooklyn 

the  stock  become  profits,  and  liable  to  be  Crosstown  R.  R.  Co..   93  N.  Y.  426,  436 

distributed  as  a  dividend.     Money  paid  (1883)  ;    Parker  v.   Mason,   8  R.   1.  427 

in  as  capital  must  remain,  and  be  treated  (1867).     See  also  i<  548. 

and    expended   as    capital,   whether    the  '  The  directors  of  a  joint-stock  msur- 

stock  that  represents  it  is  forfeited  or  not.  ance  corporation  may  be  compelled   to 

To  distribute  such  money  as  profits  is  to  divide  the  actual  surplus  profits  of  the 

equander  and  dissipate  the  capital  stock,  company  among   its   shareholders   from 

532 


CH.  XXXII.] 


DIVIDENDS. 


[§54L 


has  us^d  profits  for  improvements,  it  may  lawfully  borrow  an 
equivalent  sum  of  money  for  the  purpose  of  a  dividend.^  And 
profits  earned  and  accumulated  in  times  of  prosperity  may  prop- 
erly be  paid  out  as  dividends  subsequently  and  at  a  time  when  no 
dividends  have  been  earned.^  Where,  however,  a  consolidation 
takes  place,  it  is  unlawful  to  take  the  profits  of  any  of  the  old 
corporations  for  a  dividend  to  the  shareholders  of  the  new  organ- 
ization. Such  profits  belong  exclusively  to  the  shareholders  of  the 
corporation  by  which  they  were  earned.^ 

§  541.  Discretion  of  the  directors  as  to  declaring  dividends,. 

— In  general  it  is  for  the  directors,  and  not  the  shareholders,  to 
determine  whether  or  not  a  dividend  is  to  be  declared.  When, 
therefore,  the  directors  have  exercised  this  discretion,  and  de- 
clared or  refused  to  declare  a  dividend,  there  will  be  no  interfer- 
ence by  the  courts  with  their  decision,  unless  they  are  guilty  of  a 
willful  abuse  of  their  discretionary  powers,  or  of  bad  faith,  or 
of  a  neglect  of  duty.*     Accordingly,  the  directors  may,  in  the 


time  to  time,  if  they  neglect  or  refuse  to 
do  so  witliout  any  reasonable  cause.  But 
if  they  abuse  their  power  to  make  divi- 
dends out  of  surplus  profits,  by  dividing 
the  unearned  preiiiiums  received  by  therii 
without  leaving  a  sufficient  fund,  exclu- 
sive of  the  capital  stock,  to  satisfy  the 
probable  losses  u[)on  risks  assumed  by 
the  company,  they  will  be  personally  lia- 
Ijle  to  the  creditors  of  the  c  jmpany,  if,  in 
consequence  of  extraordinary'  losses,  the 
company  becomes  insolvent  and  be  un- 
able to  pay  its  debts.  Scott  v.  Eagle 
Fire  In.s.  Co.,  7  Paige,  198  (1838).  Of. 
Karnes  v.  Rochester,  <fec-.,  II.  R.  Co.,  4 
Abb.  Prac.  (N.  S.)  107  (1867). 

'  Mills  V.  Northern  Railway  of  Buenos 
Ayres  Co.,  L.  R.  6  Chan.  621  (1870); 
Stringer's  Case,  L.  R.  4  Chan.  475  (1809). 

''  Mills  V.  Northern  Railway  of  Buenos 
Ayres  Co.,  supra.  Cf.  Iloole  v.  Great 
Western  Ry.  Co.,  L.  R.  3  Chan.  262 
(1867);  Beers  v.  Bridgeport  Spring  Co., 
42  Conn.  17  (1875). 

3  (jhase  V.  Vanderbilt,  37  N.  Y.  Super. 
Ct.  334  (1874).  In  March  v.  Eastern  R.  cl 
R.  Co.,  43  N.  II.  515  (1862),  where  one 
railroad  leased  its  entire  projiorty  and 
franchises  to  another,  it  was  iield  tiiat, 
under  the  provisions  of  the  lease,  tliere 
was  noitiier  a  union  of  ir)torcst  and  cajii- 
tal  between  the  two  roads,  nor  any  war- 
rant of  an  equality  of  divlilonds  between 
the  stockiioldeis  of  tlie  two  corporations. 


*  Howell  V.  Chicago,  &c.,  R.  R.  Co., 
51  Barb.  378  (1868)';  Ely  v.  Spraguc, 
Clarke's  Chan.  (N.  Y.)  35l'(1840);  Scott 
V.  Eagle  Fire  Ins.  Co.,  7  Paige,  198(1838); 
Williams  v.  Western  Union  Telegraph 
Co.,  93  N.  Y.  162  (1883);  Park  v.  Grant 
Locomotive  Works,  40  N.  J.  Eq.  114 
(1885);  Barnard  v.  Vermont,  Ac,  R.  R. 
Co.,  7  Allen,  512  (1863);  Chaffee  v.  Rut- 
land R.  R.  Co.,  55  Vt.  110  (1882);  Smith 
V.  Prattville  Manfg.  Co.,  29  Ala.  503 
(1857).  See  also  Barry  «.  Merchants  E.\- 
change  Co.,  1  Sandf.  Chan.  280  (1844); 
Luling  V.  Atlantic  Mutual  Ins.  Co.,  45 
Barb.  510  (1865);  Jackson's  Admr.  v. 
Newark  Plankroad  Co.,  31  N.  J.  Law,  277 
(1865);  The  King  v.  Bank  of  England.  2 
Barn.  &  Aid.  620  (1819)  ;  Stringer's 
Case,  L.  R.  4  Chan.  475  (1869);  Browne 
V.  Monmouthsliirc  Ry.  &  Canal  Co.,  4 
En,'.  Law  »t  Eq.  118  ;  s.  c.  13  Boa  v.  32 
(1851).  The  directors  are  bound  to  dis- 
tribute as  profits  only  such  part  of  the 
net  income  as  they  think  proper,  and 
their  judgment  of  what  i^t  proper  is  con- 
clusive upon  the  stockholders.  State  v. 
Baltimore,  Ac,  R.  K.  (;o.,  0  Gill,  363 
(184H);  State  of  Louisiana  v.  Bank  of 
Louisiana,  6  La.  745  (1834).  In  conse- 
quence, an  action  at  law  cannot  be  main- 
tained a'.;aitifit  a  (;or[>oration  by  one  of  its 
stoi^kiiolik'rs  to  cimipel  it  to  declare  and 
pay  a  dividend  from  funds  on  hand. 
Karnes   /■.    Rochester,  «fec.,  R.   K.  Co.,  4 

533 


§5il.J 


DIVIDENDS. 


[CH.  XXXII, 


fair  exercise  of  their  discretion,  invest  profits  to  extend  and  de- 
velop the  business/  or  retain  profits  in  the  treasury  as  a  fund  to 
meet  probable  or  possible  liability  upon  disputed  claims,^  or  for 
the  payment  of  probable  future  indebtedness,  though  it  is  not  yet 
contracted.^  The  free  exercise  of  their  discretion  cannot  be  in- 
terfered with  by  the  contracts  of  promoters  or  original  incorpora- 
tors as  to  the  disposition  of  corporate  profits.*  But  when  money 
which  ought  to  have  been  divided  among  the  shareholders  has 
been  applied  by  the  directors  to  a  purjDose  not  warranted  by,  and 
not  within  the  scope  of  the  charter,  there  is  such  a  breach  of  trust 
as  to  give  a  court  of  equity  jurisdiction.^  And,  obviously,  when- 
ever there  is  a  clear  abuse  of  power  on  the  part  of  the  corporate 
management,  and  a  refusal  to  declare  a  dividend  that  ouglit  to  be 


Abb.  Prac.  (N.  S.)  107  (1867).     In  this 
case  it  is  held  that  a  coi-poration  stands 
in   no  fiduciary    relation    to    its    stock- 
holders.    The  directors,  not  the  corpora- 
tion, are  the  trustees,  and   they  should 
be  the  parties  defendant  to  a  suit  for  the 
enforcement  of  the  trust.     But  compare 
Brown  v.  Buffalo,  <fec.,  R.  R.  Co.,  27  Hun, 
342  (1882).     A  very  strong:  case  must  be 
made  to  require  a  court  to  interfere  with 
the  direction  of  the  directors  in  relation 
to  the  quantum  of  profits  of  the  corpora- 
tion which  they  are  to  divide  as  dividend. 
State  of  Louisiana  v.  Bank  of  Louisiana, 
6  La.  745  (1834).     In  Lambert  v.  Neu- 
chatel  Asphalte  Co.,  51  L.  J.  Chan.  S82 
(1882),  where  a  company  having  a  capital 
stock,  divided  into  both  preference  and 
ordinary  shares,  was  authorized  by  its 
articles  to  divide  its    "net  profits,"   in 
certain    proportions,   between    the    two 
classes  of  shareholders,  and  to  set  aside  a 
certain  part  of  the  net  profits  for  a  reserve 
fund  ;  in  an  action  by  an  ordinary  share- 
holder, to  prevent  the  payment  of  a  divi- 
dend which    had  been  declared  on   the 
preference  shares,  until  certain  extraor- 
dinary indebtedness  of  the  company  had 
been  "paid,  it  was  held  that  a  court  of 
chancery  had  no  power  to  interfere,  be- 
cause, by  the  articles  of  association,  the 
interpretation  of  the  term  "net  profits" 
had  been  left  to  the  company  in  general 
meeting,  and  the  other  questions  involved 
in  the  making  of  a  dividend  to  the  direc- 
tors, and  that,  in  consequence,  in  the  ab- 
sence of  fraud,  when  the  company  and 
directors  had  settled  upon   a  dividend, 
their  decision  was  not  subject  to  a  review 
in  chancery.     Cf.  Dent.  v.  London  Tram. 

534 


ways  Co.,  50  L.  J.  Chan.  190  (1880):  s.  c. 
L.  R.  16  Chan.  Div.  344;  Davison  v.  Gil- 
lies, Id.  192,  note  (1879);  Coltness  Iron 
Co.  V.  Black,  51  L.  J.  Q.  B.  Div.  626 
(1881);  Park  v.  Grant  Locomotive  Works, 
40  N.  J.  Eq.  114(1885). 

'  Where  a  corporation  having  a  large 
surplus  proposed,  with  the  concurrence 
of  a  majority  of  the  shareholders,  to  em- 
ploy the  surplus  in  extending  the  busi- 
ness, although  such  extension  was  op- 
posed by  a  minority  of  the  shareholders, 
it  appearing  that  the  proposed  enlarge- 
ment of  the  corporate  enterprise  was 
clearly  intra  vires,  and  that  the  nominal 
capital  of  the  company  was  in  reality 
much  less  than  the  amount  constantly 
used  and  necessary  for  its  ordinary  oper- 
ations, it  was  held,  on  a  bill  brought  by 
the  dissenting  minority  for  an  injunction 
against  tlie  proposed  use  of  the  surplus, 
and  praying  a  distribution  of  it  among 
the  siiareholders,  that  the  facts  were  not 
such  as  to  require  the  interposition  of 
the  court  ou  behalf  of  the  minority. 
Pratt  V.  Pratt,  33  Conn.  446  U866).  Of. 
Park  V.  Grant  Locomotive  W'orks,  40  N. 
J.  Eq.  114  (1885). 

^  Carpenter  v.  New  York,  <fec.,  R.  R. 
Co.,  5  Abb.  Prac.  277  (1857). 

3  Karnes  o.  Rochester,  (kc,  R.  R.  Co., 
4  Abb.  Prac.  (N.  S.)  107(1867). 

•*  Coyote  Gold  &  Silver  Mining  Co.  v. 
Ruble,  8  Ores^on,  284  (1880).  Cf.  Rich- 
ardson V.  Railroad  Company,  44  Vt.  613 
(1872). 

5  March  v.  Eastern  R.  R.  Co..  43  N. 
IT.  515  (1862) ;  Park  v.  Grant  Locomo- 
tive Works,  40  N.  J.  Eq.  114  (1885). 


en.  XXXII.]  DIVIDENDS.  [§  542- 

declared,  a  court  of  equity  will,  at  the  instance  of  any  sliareholdery 
compel  the  proper  authorities  to  declare  and  pay  tlie  dividend.^ 
Laches  on  the  part  of  the  shareholders,  in  failing  to  commence 
their  suit  to  compel  the  payment  of  a  dividend  until  the  corpora- 
tion becomes  insolvent,  is  fatal.^  And  the  court  will  also  con- 
sider, as  against  an  enforcement  of  the  dividend,  that  the  ag- 
grieved shareholders  may,  if  a  majority,  refuse  to  re-elect  the 
directors  at  the  next  election,  or  that  the  complaining  stockholders 
may  sell  their  shares.^ 

§  542.  To  xvliom  the  dividend  is  to  he  paid. — The  question  to 
whom  shall  the  dividend  be  paid  after  it  has  been  regularly  de- 
clared, is  one  which  sometimes  involves  the  corporate  manage- 
ment in  considerable  difficulty.  It  is  not  always  easy  to  decide 
which  one  of  two  or  more  claimants  is  entitled  to  the  dividend. 
The  cestui  que  trust  may  claim  it  as  against  the  trustee ;  the  heir 
or  distributee  as  against  the  executor  or  administrator ;  or  the 
unrecorded  transferee  as  against  the  owner  of  the  record.  In 
these  and  like  cases  of  disputed  titles  to  dividends  the  general 
rule  is  that  the  corporation  may  lawfully  pay,  and  may  safely 
pay  the  dividend  to  the  person  in  whose  name  the  stock  stands 
registered  upon  the  corporate  stock  book/  It  may  do  so  without 
inquiring  whether  he  has  transferred  the  stock,"  and  without  re- 
quiring the  production  of  the  certificate.^  It  is  a  well  settled  rule 
that  the  corporation  is  protected  in  paying  dividends  to  a  recorded 
shareholder,  although  he  may  have  transferred  bis  shares,''  But 
after  notice  of  a  transfer  the  corporation  may  properly  pay  the 


'  Stevens  v.  South  Devon.  Ry.  Co.,  9  Terre    Haute,  <fec.  R.    R.    Co.,  29   Barb. 

Hare,  313  (1851) ;  Browne  i'.  Moniiioutli-  353  ^1859);    Northrup  v.  Newtown,  Ac. 

shire  Ry.  &  Canal  Co.,  4  En-;.  L.  <fe   E.  Turnpike  Co.,  3  Conn.  544  (1821).     Cf, 

118;   8.  c,  13  Beav.  32  (1851;;   Broivn  v.  Manninii   v.   Quicksilver  Mining   Co.,  24 

Buffalo,   <fec.,    R.    R.    Co.,    27    Hun,   342  llun,    300  (1881);  McNeil  v.  Tcntii  Na- 

(1882);  Parki'.  Grant  Locomotive  Work.s,  tional   Bank,  46  N.  Y.  325  (1871) ;   Bank 

40  N.  J.  Eq.  114  (1885);   Scott   v.  E.igle  of  Utiea  y.  Smalley,  2  Cowen,  77(1(1^^24). 
Fire  Ins.  Co.,  7  Paige,  198  (1838);  State  ^  Cleveland,  Ac.  R.  R.  Co.  v.  Kobbiiis. 

of  Louisiana  ?'.  Bank  of  Louisiana,  6  La.  35    Oiiio    St.    483  (1880);     Brisbane  v. 

745(1834);  Pratt  w.  Pratt.  33  Conn.  446  Delaware,  &c.   R.  R.  Co.,  25    Hun,  438 

(1860);   Beers  t>.  Bridgeport  Spring  Co.,  (1881);  Bank  of  Commerce's  Apjical,  73 

42  id.  17  (1875).  Penn.   St.  59  (1873);    Bell  v.  Lafferty,  1 

■^  Scott  V.  Eagle  Fire  ins.  Co.,  mipra.  Penn.  Sup.  Court,  454  (1881). 

'  Barry  v.   .Merchants  Exchange  Co.,  ''  Brisbane   v.    Delaware,    &<:.    R.    R. 

1  Snndf  Chan.  280  (1844).  Co.,  94  N.  Y.  204  (1883) ;  Cleveland,  &c. 

"  Brisbane   v.    Delaware,    «fec.    R.    R.  R.  R.  Co.   v.    Robbins,  35    Ohio  St.  483 

Co.  94  N.  Y.    204  (1883);  affi'g  25   Hun,  (1880). 

438    (1881);  Smith    v.     American     Coal  ■■  Cleveland,  drc.  K.  R.  Co.  ;•.  Robbing, 

Co.,    7   Lansing,    317    (1873);     Jones  v.  supra. 

535  . 


542.] 


DIVIDENDS. 


[CH.  XXXII. 


dividend  to  the  transferee,  although  no  registry  has  been  made.^ 
And  between  two  claimants  of  the  dividend,  one  being  the  cestui 
que  trust  and  the  other  a  hona  fide  transferee,  the  corporation  may 
interplead.^  When  a  dividend  is  made  pa^-able  on  a  day  subse- 
quent to  the  day  on  which  it  is  formally  declared,  it  belongs  to 
the  stockholder  who  owns  the  shares  on  the  day  the  dividend  is 
declared,  and  not  to  the  owner  when  it  is  payable.^  A  transfer 
of  stock  passes  all  dividends  declared  subsequently  to  the  trans- 
fer, although  the  dividend  was  earned  before  the  transfer  was 
made.*  And  a  purchaser  of  stock  at  a  tax  sale,  if  the  proceed- 
ings are  legal  and  regular  on  their  face,  is  entitled  to  a  certificate 
and  to  dividends  subsequently  declared.^  The  right  to  dividends 
does  not,  however,  depend  upon  the  issue  of  the  certificate,  and 
the  owner  of  shares  may  claim  his  dividends  though  no  certificate 
has  ever  been  issued  by  the  corporation.®  The  heirs  of  a  stock- 
holder must,  in  order  to  entitle  themselves  to  dividends,  procure 
a  transfer  of  their  ancestor's  shares  into  their  own  names  on  the 


'  Bell  V.  Laffert}^  1  Penn*  Sup.  Court, 
454(1881);  Hill  v.  Newichawanick  Co., 
48  How.  Prac.  427  (ISH).  See  Smith  v. 
American  Coal  Co.,  7  Lansing,  317  (1873), 
and  cf.  Bank  of  Utica  v.  Smalley,  2 
Cowen,  770  (1824). 

'  Salisbury  Mills  v.  Townsend,  109 
Mass.  115  (1871). 

3  Wright  V.  Tuckett,  1  Johns.  <fe  H. 
266  (1860);  De  Gendre  v.  Kent,  L.  R.  4 
Eq.  283  (1867);  Hill  t;.  Newichawanick 
Co.,  71  N.  Y.  593  (1877);  affirminjr,  s.  c, 
8  Hun,  459;  48  How.  Prac.  427  (1874); 
Spear  v.  Hart,  3  Robertson,  420  (1865); 
Bright  V.  Lord,  51  Ind.  272  (1875).  Cf. 
Brundage  v.  Brundage,  60  N.  Y.  544 
(1875);  affirming,  s.  c,  65  Barb.  397 
(1873);  Hopper  v.  Sage,  47  N.  Y.  Super. 
Ct.  77:  Manning  v.  Quicksilver  Mining 
Co.,  24  Hun,  360  (1881);  City  of  Ohio  v. 
Cleveland,  Ac.  R.  R.  Co.,  6  Ohio  St.  489 
(1856);  Clive  v.  Clive,  Kay  (Eng.  Chan.), 
600(1854).  Conifra,  Burroughs  u.  North 
Carolina  R,  R.  Co.,  67  N.  C.  376  (1872). 

■*  Kane  %\  Bloodgood,  7  Johns.  Chan. 
90  (1823),  by  Chan.  Kent ;  Bailey  v.  Rail- 
road Co.,  22  Wall.  604,  637(1874).  A 
dividend  belongs  to  the  owners  of  (he 
stock  at  the  time  the  dividend  is  de- 
clared. Goodwin  v.  Hardy,  57  Me.  143 
(1869);  Marsh  v.  Eastern  R.  R.  Co.,  43 
N.  H.  515  (1862);  State  of  Louisiana  ii. 
Bank  of  Louisiana,  6  La.  745  (1834),  al- 
though the   fund  from  which   it  was  de- 

536 


clared  was  earned  in  great  part  before 
they  became  stockholders.  Phelps  v. 
Farmers  <fe  Mechanics  Bank,  26  Conn. 
269  (1857);  Brundage  v.  Brundage,  1 
Thomp.  (fe  C.  (N.  Y.  Sup.  Ct.)  82  (1873) ; 
Jones  V.  Terre  Haute,  <fec.  R.  R.  Co.,  57 
N.  Y,  196  (1874);  Currie  v.  White,  45  Id. 
822(1871).  A  dividend  belongs  to  the 
owner  of  the  stock  at  the  lime  the  divi- 
dend accrues.  Dow  v.  Gould  and  Curry 
Silver  Mining  Co.,  31  Cal.  629  (1867). 
Mere  possession  of  the  stock  or  a  special 
property  therein  is  not  sufficient  to  entitle 
one  to  dividends.  The  surplus  profits  of 
a  corporation,  whenever  they  accrued, 
are  to  be  distributed  among  such  persons 
as  are  stockholders  when  the  dividend  is 
declared.  Goodwin  v.  Hardy,  57  Me. 
143  (1869);  Hill  ?;.  Newichawanick  Co., 
48  How.  Prac.  427  (1874).  The  profits 
and  surplus  funds  of  a  corporation  when- 
ever they  may  have  accrued  are,  until 
separated  from  the  capital  by  the  declar- 
ing of  a  dividend,  a  part  of  the  stock  it- 
self, and  will  jiass  under  that  name  in  a 
transfer  or  bequest.  Phelps  v.  Farmers 
tfe  Mechanics  Bank,  26  Conn.  269 
(1857).  Cf.  Clapp  V.  Astor,  2  Edw.  Chan. 
379  (1884). 

^  Smith  V.  Northampton  Bank,  4Cu.sh. 
1  (1849,  Shaw,  C.  J.) 

^  Ellis  V.  Proprietors  of  Essex  Merii 
mack  Bridge,  2  Pick.  243  (1824). 


CH.  XXXII.]  DIVIDENDS.  [§  543. 

corporate  books.^  Moreover,  the  corporation  is  protected  if  it 
pay  dividends  to  the  administrator  without  notice  of  a  transfer  by 
hini.^  With  respect  to  the  dividends  on  the  stock  of  a  married 
woman,  the  corporation  must  pay  tliem  to  the  husband  or  not, 
according  to  the  law  of  the  domicile  of  the  corporation,  and  not 
at  all  according  to  the  law  of  the  domicile  of  the  married  woman.^ 
And  the  husband  by  collecting  dividends  on  his  wife's  shares  does 
not  thereby  reduce  the  stock  to  possession.^  "Without,  perhaps, 
a  positive  declaration  in  its  favor,  there  is  a  plain  tendency  to 
hold  that  the  custom  of  closing  the  transfer  books  for  a  certain 
number  of  days  before  a  dividend  is  paid,  is  a  lawful  and  regular 
exercise  of  control  over  the  corporate  affairs  on  the  part  of  the 
management.^ 

§  543.  To  ivliom  tlie  dividend  belongs. — As  between  the  ven- 
dor and  vendee  of  shares  of  stock,  it  is  a  settled  rule  that  the 
vendee  is  entitled  to  all  the  dividends  on  the  stock  which  are  de- 
clared after  the  transfer  of  the  certificate  of  stock.  Even  thono'h 
the  transfer  has  not  been  recorded  the  transferee  has  a  right  to 
the  dividends  as  against  the  transferrer.  The  law,  moreover,  re- 
fuses to  investigate  the  question  when  the  dividend  was  earned. 
In  contemplation  of  law  the  net  profits  were  earned  at  the  instant 
the  dividend  is  declared.^  But  of  course  any  agreement  in 
other  respects  valid   between  vendor  and  vendee,  modifying  or 


'  State  V.  New  Orleans,  <fec.  R.  R.  Co.,  (1850);    Central  R.  R.  and  Bankiiiir  Co. 

30  La.  Ann.  308  (1878).  of  Ga.  v.  Papot,  59  Ga.  342  (1877);  Ryan 

'^  Brisbane  v.  Delaware,  <fec.  R.  R.  Co.,  v.  Leavenworth,  Ac.    R.  R.   Co.,  21  Kan. 

94  X.  Y.  204  (1883).  365,  403  (1879) ;  Foot,  Appellant,  22  Pick. 

3  Graham  v.  First  National    Bank  of  290    (1839);     Jones  i-.  Terre  llnut",  etc. 

Norfolk,  84   N.  Y.  393  (1881);  affirming,  R.  R.  Co.,  57  N.  Y.  19G  (1874);  Currie  v. 

B.  c,  20  Hun,  325.      Of.  Dow  v.  Gould  &  White,  45  Id.    822   (1871);    Brundage  v. 

Curry  Silver   Mining    Co.,   31  Cal.    629  Brundage,    65    Barb.    397,    408   (1873); 

(1867).  Goodwin  v.    Hardy,  57   Me.  143  (1869); 

"  Burr  V.   Sherwood,  3  Bradf.   (N.  Y.  Hill    v.    Newiehawanick    Co.,    48    How. 

Surrogate),  85    (1854).     Cf.    Harcum  v.  Prac.    427  (? 874) ;  Black  ?'.  Homcrshani, 

nudnal],14  Gratt.  309.  382  (1858);  Sear-  L.  R.   4  Exch.  Div.  24(1878);    Bales  »•. 

ing  V.  Searing,  9  I'aige,  283  (1841);  Hart  McKiniey,  31  L.  J.  Chan.  389  (1862).    Cf. 

v:  Stephens,  6  Ado).  <t  Ellis  (N.  S.)  937  Union  Screw  Co.  v.  American  Screw  Co., 

<1845).     A  receipt   of  dividends  by  l.lio  11    R.  L   569  (1877):    s.  c,  affi'd,  13  Id. 

husband  only  reduces  the   dividends  into  673(1880);  Kane  v.  Bloodgood,  7  .loiins. 

possession  and  not  tlie  stock.     See  ^  319.  Chan.    90   (1823);    Coleman  v.  ('o]und)ia 

*  Jones  V.  Terre  Haute,  <fec.  R.  R.  Co.,  Oil  Co.,  51    I'enn.  St.  74  (1865);  Minot  r. 

57  N.  Y.  196,   205  (1S74).     This  right  is  I'ainc,  99  Mass.  101    (1R6.S);  Boston,  <^tc. 

frequently  gi\  en  to  the  corporation  by  its  It.  R.  Co.    v.  C'mnion wealth,  100  Id.  b99 

charter.  (1868);  G i fiord  «.  Thompson,  115  Id.  478 

"King  V.   FoUett,  3    Vt.  385  (1831);  (1874)      A  purchaser  of  sliares  of  stock 

Abercrombie  v.  Riddle,  3  Md.  Chan.  320  takes  the  shares  with  all  their  incidents. 


543.1 


DIVIDENDS. 


[cn.  XX  xn. 


changing  this  rule,  will  be  upheld.  It  is  a  proper  subject  for  a 
contract,  and  a  valid  contract  may  be  made  in  reference  to  it.^ 
But  where  such  an  agreement  exists  there  is  still  a  presumption 
that  the  general  rule  is  to  prevail,  and  that  the  dividend  is  not 
apportionable.^ 

A  legatee  of  shares  takes  the  stock  as  it  was  at  the  time  of 
the  testator's  death.  All  dividends  declared  previous  to  that 
event  go  to  the  administrator.^  Where  stock  is  bought,  deliver- 
able at   the  seller's  option,  the  dividends  declared  between  the 


one  of  which  is  the  right  to  receive  all 
future  dividends  declared  on  the  shares. 
Nor  does  it  make  any  difference  at  what 
times  or  from  what  sources  the  profits 
which  constitute  the  dividend  may  have 
accrued.  They  are  an  incident  to  the 
shares  to  which  the  purchaser  becomes  at 
once  entitled,  provided  only  that  he  re- 
main a  member  of  the  corporation  until  a 
dividend  is  made.  March  v.  Eastern 
R.  R.,  43  N.  H.  515  (1862).  In  Clive  ». 
Clive.  Kay  (Eng.  Chan.),  600  (1854),  by 
the  terms  of  the  deed  of  settlement  the 
net  profits  of  the  concern  were  to  be  di- 
vided ratably  to  such  an  amount  as 
should  be  declared  at  the  semi-annual 
meetings,  and  were  to  be  paid  within 
twenty-one  days  thereafter,  and  it  was 
provided  that  a  sliareholder  was  not  to 
receive  any  dividend  after  the  period  at 
which  he  ceased  to  be  a  proprietor  of 
sliares,  but  the  dividends  on  such  shares 
were  to  continue  in  suspense  until  some 
other  person  should  become  proprietor  of 
them.  When  a  shareholder  died  sixty- 
nine  days  after  a  half-yearly  meetinsc  at 
which  a  dividend  had  been  declared,  but 
before  notice  had  been  given  that  such 
dividend  was  payable,  ha\'ing  by  his  will 
bequeathed  the  interest  and  annual  in- 
come arising  from  all  his  shares,  to  one  for 
life — and  then  in  remainder  to  others — it 
was  held  that  this  dividend  belonged  to 
the  legatee  for  life,  and  not  to  the  general 
personal  estate  of  the  te:;tator.  See  also 
Title  to  Dividends,  19  Am.  Law  Rev.  571 
(1885). 

•  Brewster  v.  Lathrop,  15  Cal.  21 
(1860);  llj-att  v.  Allen,  56  N.  Y.  553 
(1874). 

'■*  Thus,  for  example,  a  bequest  of  the 
income  of  shares  in  a  corporation  to  the 
testator's  widow  fov  life,  for  her  own 
maintenance  and  the  support  and  educa- 
tioa  of  her  children,  includes  a  dividend 

538 


declared  thereon  after  her  death  for  a 
period  that  expired  during  her  life,  al- 
though the  shares  btill  stood  in  the  name 
of  the  testator's  estate,  and  her  executor 
after  demand  may  maintain  an  action  for 
such  dividend  against  the  corporation. 
Johnson  v.  Bridgewater  Iron  Manfg.  Co., 
14  Gray,  274  (1859).  Where  it  is  agreed 
that  a  party  shall  receive  all  dividends 
and  profits  on  certain  stock  so  long  as  he 
remain  in  a  designated  employment,  and 
he  leaves  the  employment  before  any  divi- 
dend is  made,  he  cannot  have  any  appor- 
tionment of  any  general  dividend  after- 
wards made.  Profit  does  not  become 
dividend  until  so  declared  by  the  direc- 
tors. Clapp  V.  Astor,  2  Edw.  Chan.  379 
(18.'H4).  In  this  case  preferred  stock  was 
issued  under  an  agreement  entitling  the 
holders  to  non-cumulative  dividends  in 
preference  to  the  common  stock,  but  de- 
pendent upon  the  profits  of  each  particular 
year,  as  declared  by  the  board  of  directors, 
and  the  board  in  their  report  for  a  certain 
year  stated  that  there  had  been  a  net  profit 
more  than  sufficient  to  pay  the  dividend 
on  the  preferred  stock,  but  resolved  that 
they  did  nut  deem  it  wise  to  declare  the 
dividend,  and  subsequently  applied  the 
net  profit  to  the  permanent  improvement 
of  tliepiopert}'.  It  was  held,  in  an  equi- 
table action  by  the  holders  of  the  preferred 
stock,  which  had  been  transferred  to  them 
after  the  year  in  question,  that  the  com- 
plainants were  entitled  to  a  decree  that 
the  net  profits  of  that  ye;ir  be  ascertained 
and  the  dividends  due  to  the  holders  of  the 
preferred  stock  be  paid.  Nickals  v.  New 
York.  Lake  Erie  &  Western  Ry.  Co.,  21 
Blatchf.  177  (1883);  s.  c,  15  Fed.  Rep. 
575.  15  Rep  72. 

^  Brundage  v.  Brundage,  60  N.  Y.  544 
(1875).  Cf.  Johnson  v.  Bridgewater  Iron 
Mfg.  Co.,  14  Gray,  274  (1859). 


CH.  xxxn.] 


DIVIDENDS. 


[§  544. 


day  of  the  pnrcliase  and  the  delivery  belong  to  the  purchaser.* 
So  also  an  offer  to  sell  shares,  which  is  subsequently  accepted, 
entitles  the  vendee  to  dividends  received  by  the  owner  while  the 
offer  was  open.'"^  But  a  contract  to  sell  on  demand  entitles  the 
vendor  to  dividends  declared  before  the  demand  is  made.^ 

Considerable  difficulty  has  been  experienced  in  determining 
to  whom  the  dividend  belongs  when  it  was  declared  before,  but 
made  payable  after  the  day  of  the  sale.  According  to  the  more 
general  rule  it  belongs  to  the  vendor,^  but  there  are  cases  in  which 
the  right  of  the  vendee  to  such  dividends  is  maintained.^  A  divi- 
dend declared  but  payable  at  a  future  day,  may  be  assigned  apart 
from  the  stock  itself.^ 

§  544.  Dividends  must  l)e  equal  and  ivitlwnt  preferences. — 

Dividends  among  stockholders  of  the  same  class  must  be  always 


'  Currie  v.  White,  46  N.  Y.  822  (1871). 
In  this  case  it  is  held  that  a  contract  for 
the  purcliase  and  sale  of  shares  of  the 
stock  of  a  1  aili  oad  corporation,  at  a  speci- 
fied price,  "payable  and  deliverable, 
seller's  option,  in  this  year,  with  interest 
at  the  rate  of  six  per  cent,  per  annum," 
effects  a  sale  in  pnsenti,  the  vendor  be- 
coming a  qvosi  trustee  for  the  purchaser, 
and  the  latter  is  entitled  to  all  dividends 
accruing  on  such  shares  thereafter.  And 
the  case  is  all  the  stronger  when  a  de- 
posit is  paid  upon  the  sale.  Black  v. 
Homersham,  L.  R.,  4  Exch.  Div.  24 
(l&VS).  • 

"^  W&TTiBv.  Stevens,  YN-H.  454  (18S5). 
3  Bright  V.  Lord,  51  Ind.  272  (1875). 
Cf.  Central  R.  R.  &  Banking  Co.  of  Ga. 
V.  Papot,  59  Ga.  342  (1877).  In  South- 
western R.  R.  Co.  V.  Papot,  67  Ga.  675, 
690  (1881),  where  stock  had  been  ad- 
vanced to  a  construction  company,  upon 
an  iigrcement  of  the  contractors  to  ac- 
count for  the  accruing  dividends  upon  a 
final  Bcttlemcnt,  it  was  held  that  such 
agreement  was  not  the  same  thing  as  to 
agree  to  pay  interest  on  the  amount  of 
stock  advanced  before  the  road  was  com- 
pleted, even  though  the  rate  of  interest 
may  he  the  same  jier  cent,  as  the  rate  of 
dividends,  because  in  the  one  case  the 
presumption  tliat  dividends  follow  tlie 
owiiership  of  the  stock  is  to  be  overcome, 
and  in  the  other  it  is  not. 

*  Hill  V.  Newichawanii'k  Co.,  8  ITun, 
459  (1876):  s.  c.  45  How.  Prac.  427 
(1874);  affi'd,  71  N.  Y.  593  (1877);  Hoard- 
man  V.  Lake  s-horc,  itc,  R.  R.  Co.,  84  N. 


Y.  157.  178  (1881);  Spear  v.  Hart,  a 
Robertson,  420  (1865):  Bright  v.  Lord, 
51  Ind.  272(1875);  City  of  Ohio  ?'.  Cleve- 
land, Ac,  R.  R.  Co.,  6  Ohio  St.  489  (1856); 
Wright  V.  Tuckett,  1  Johns.  &  H.  266 
(1860);  De  Gendre  v.  Kent,  L.  R.,  4  Eq. 
283  (1867). 

^  Clive  V.  Clive,  Kay,  600  (1854); 
Black  V.  Homersham,  L.  R.,  4  Exch.  Div. 
24  (1878).  Cf.  Curry  v.  "Woodward,  44 
Ala.  305  (1870).  In  Burroughs  v.  North 
Carolina  R.  R.  Co.,  67  N.  C.  S76  (1872), 
it  is  held  that  a  sale  of  shares  of  stock  in 
a  railway  company,  carries  with  it  the 
dividends  declared  by  the  company,  when 
they  are  to  be  paid  at  a  time  subsequent 
to  the  transfer.  In  this  case  it  appears 
that  a  dividend  was  declared  upon  the 
stock  of  the  North  Carolina  Railroad  Com- 
pany, on  the  sixteenth  day  of  February, 
payable  on  the  first  days  of  April  and 
July  following,  and  that  upon  tlie  seven- 
teenth day  of  Februnr}%  being  the  day 
after  the  dividend  was  declared,  the  owner 
of  certain  shares  ti-ansferred  them.  Under 
the>e  circumstances  it  was  liel<i  that  the 
transferee  acquired  the  dividends  as  well 
the  stock  by  his  ptirchase.  Browne  v. 
Collins,  L.  R.,  12  Eq.  586  (1871).  is  to 
the  effect  that  profits  of  a  partni'rship 
accrued  and  earned  before,  lait  not  set 
aside  qua  profits,  until  after  tiie  dentli  of 
the  tes^tator,  lielongs  to  the  corpus  of  the 
estate,  and  that  profits  accruing  after  iiis 
death  go  to  tiie  tcnimt  for  life  as  income. 

••  I'.run<liig(^  ?'.  lirunilMge,  CO  N.  Y.  544 
(1S75);  iiflirining  s.  v.  1  'I'hon.p.  &  C.  82. 
(1873) ;  also  65  Bur!).  ;;97  (1873). 

539 


g  544.] 


DIVIDENDS. 


[CH.  XXXU, 


jpro  rata^  equal  and  without  preference.  If  the  company  has 
issued  preferred  stock,  the  holders  thereof  constitute  a  class  bj 
themselves,  and  shareholders  of  that  class  will  be  entitled,  as  a 
class,  to  dividends  in  preference  to  holders  of  the  common  stock. 
But  as  between  shareholders  of  the  same  class  there  can  be  no 
discrimination,  and  profits  set  aside  for  dividends  must  be  evenly 
divided  among  the  stockholders  according  to  the  amount  of  stock 
each  one  owns.^  Accordingly  there  cau  be  no  lawful  discrimina- 
tion in  the  division  of  dividends,  although  the  subscription  price 
of  part  of  the  stock  is  due  and  unpaid,^  nor  can  there  be  a  dis- 
crimination between  the  large  and  small  stockholders  of  a  com- 
pany as  to  the  manner  of  payment  of  dividends.^  After  paying 
a  dividend  to  a  part  of  the  shareholders,  the  corporation  cannot 
refuse  to  pay  the  rest,  upon  the  ground  that  by  so  doing,  the 
capital  stock  will  be  impaired,*  or  that  all  the  surplus  earnings 
have  been  either  paid  out  as  dividends,  or  invested  in  permanent 
improvements.^ 


'  Luling  V.  Atlantic  Mutual  Ins.  Co., 
45  Barb.  510  (1865);  Howell  ti.  Chicao-o, 
<fec.,  R.  R.  Co.,  51  Id.  378  (1868);  Jones 
V.  Terre  Haute,  <tc.,  R.  R.  Co.,  57  N.  Y. 
196  (1874);  affirming  s.  c.  29  Barb.  353 
(1859);  Ryder  i;.  Alton,  <fcc.,  R.  R.  Co., 
13  111.  516  (1851);  State  v.  Baltimore, 
<fec.,  R.  R.  Co.,  6  Gill,  363  (1847);  At- 
lantic, <fec.,  Telegraph  Co.  v.  Common- 
wealth, 3  Brewster  (Penn.l,  366  (1870); 
Hale  V.  Republican  River  Bridge  Co.,  8 
Kan.  466  (1871);  Coey  v.  Belfast,  <fec., 
Ry.  Co.  (Irish  Rep.)  2  'C.  L.  112  (1866); 
Harrison  v.  Mexican  Ry.  Co.,  L.  R.,  19 
Eq.  358  (1875).  Cf.  Chase  v.  Vanderbilt, 
62  N.  Y.  307  (1875).  If  the  directors  of 
a  corporation,  in  making  a  distribution 
of  a  dividend,  omit  to  apportion  a  quota 
thereof  to  certain  shares  of  stock,  the 
owner  of-  those  shares  can  maintain  as- 
sumpsit against  the  company  for  breach 
of  the  contract,  which  the  law  im])lies 
from  the  relationship  of  the  parlies,  that 
an  eqnnl  distribution  of  dividends  will 
be  made.  Jackson's  Adrars.  v.  Newark 
Plankroad  Co.,  31  K  J.  Law,  277  (1865). 

-  Oakbank  Oil  Co.  v.  Crura,  L.  R.,  8 
App.  Cas.  65  (1882). 

^  Accordingly,  where  a  dividend  was 
declared,  viz.,  to  all  stockholders  owning 
less  than  fifty  shares  cash,  to  all  of  fifty 
shares  and  over,  part  cash  and  part  in 
interest-bearing  bonds  of  the  corporation, 
the  discrimination  was  held  invalid  and 

540 


unlawful.  State  v.  Baltimore,  <tc.,  R.  R. 
Co.,  6  Gill,  363  (1848);  Jones  i'.  Terre 
Haute,  Ac,  R.  R.  Co.,  57  N.  Y.  196 
(1874).  So  also  where  a  part  of  the  au- 
thorized capital  stock  remained  untaken, 
and  a  resolution  of  the  directors  Avas  car- 
ried into  effect,  by  which  the  untaken 
portion  of  the  stock  was  issued  to  those 
shareholders  not  in  arrears  upon  shares 
previously  taken,  to  the  exclusion,  as  to 
the  ney  shares,  of  those  in  arrears  upon 
the  original  issue,  in  was  held  an  invalid 
discrimination,  and  an  unlawful  imposi- 
tion of  a  penalty  upon  those  in  arrears. 
Reese  v.  Bank  of'Montgomery  County,  31 
Penn.  St.  78  (1865). 

•*  Stoddard  v.  Shetucket  Foundry  Co., 
34  Conn.  542  (1868). 

^  Beers  v.  Bridgeport  Spring  Co.,  42 
Conn.  17  (1875).  But  where  a  company, 
having  bought  in  its  own  stock,  reissued 
\i pro  rata  among  the  stockholdtrs,  and 
a  stockholder,  who  had  between  the  date 
of  the  purchase  and  the  time  of  the  dis- 
tribution assigned  a  part  of  his  stock, 
sued  the  company  for  a  pro  rata  of  the 
reissued  stock,  upon  the  basis  of  the  num- 
ber held  by  him  at  the  date  of  the  pur- 
chase, it  was  held  that  there  had  been  no 
discrimination  against  him,  and  that  as 
to  him,  the  distribution  upon  the  basis  of 
the  shares  he  owned  at  the  time  of  the 
reissue  wa^  an  equitable  one.  Coleman 
V.    Columbia   Oil  Co.,   51   Penn.   St.    74 


CH.  xxxn.] 


DIVIDENDS. 


[§545. 


A  bill  in  equity  may  be  maintained  by  a  stockholder  to  pre- 
vent an  unequal  or  unfair  distribution  of  the  profits  of  the  com- 
pany/ and  for  an  injunction  to  restrain  a  dividend,  when  stock 
has  been  fraudulently  overissued,  until  a  true  list  of  the  holders 
of  genuine  stock  can  be  obtained.^  In  New  York  it  is  held  that 
closing  the  books  for  a  time,  previous  to  the  payment  of  a  divi- 
dend, cannot  as  to  the  owner  of  the  stock  issued  during  the 
interval,  deprive  him  of  that  dividend.^ 

§  545.  A  dividend  ivlien  declared  is  a  deht  due  ahsolutehj  to 
the  sliareliolder. — When  a  dividend  out  of  the  earnings  of  the 
company  has  been  regularly  declared  and  is  due,  it  becomes  im- 
mediately the  individual  property  of  the  shareholder.  There  is, 
eo  instante,  a  severance,  for  the  use  and  benefit  of  the  members 
of  the  corporation,  of  so  much  of  the  accumulated  earnings  as 
are  declared,  and  the  dividend  thereafter  exists  as  a  separate 
fund,  distinct  from  the  capital  stock  or  surplus  profits.  It  then 
becomes  the  absolute  property  of  the  stockholders.'' 

Accordingly,  whenever  a  dividend  is  regularly  declared   and 


(1865).  Cf.  Miller  v.  Illinois  Central  R. 
R.  Co.,  24  Barb.  312  (1867);  Gray  v. 
Portland  Bank,  3  Mass.  364  (1807). 

'  Luling  V.  Atlantic  Mutual  Ins.  Co  , 
45  Barb.  510  (1865).  Cf.  Harrison  v. 
Mexican  Ry.  Co.,  L.  R.,  19  Eq.  358 
(1875).  In  New  Jersey  it  seems  that  the 
action  might  be  at  law,  as  for  a  breach  of 
the  contract  for  an  equal  distribution 
which  the  law  implies.  Jackson's  Admr. 
V.  Newark  Planki-oad  Co.,  31  N.  J.  Law, 
277  (1865). 

-  Underwood  v.  New  York,  (fee  ,  R.  R. 
Co.,  17  How.  Prac.  537  (1859),  a  case 
growing  out  of  the  Schuyler  frauds  in 
New  York. 

•*  Jones  V.  Terre  Haute,  <fec.,  R.  R.  Co., 
57  N.  Y.  196  (1874). 

"  Van  Dyck  v.  McQuade,  86  N.  Y.  38 
(1881);  Jennain  v.  Lake  Shore,  <fec.,  R. 
K.  Co.,  91  Id.  483  (1883) ;  Hill  )■.  Newich- 
awanick  Co.,  71  Id.  593  (1877);  affirming 
8.  c.  8  Hun,  459  (1876);  Brundage  v. 
Brundage,  60  N.  Y.  544  (1875);  affirm- 
ing s.  c.  65  Barb.  397(1873);  Spear  v. 
Hart,  3  Robertson,  420  (1865);  Scott  c. 
Central  U.  R.  &  Banking  Co.  of  Georgia, 
52  Barb.  45  (1868);  King  v.  Paterson, 
(fee.,  R.  R.  Co.,  29  N.  J.  Law,  82,  504 
(1860);  Beers  V.  Bridgeport  Spring  Co., 
42  Conn.  17  (1875);  Harris  i'.  San  Fran- 
cisco  Sugar   Refining  Co.,  41    Cal.    393 


having 


(]  871);  Fawcett  v.  Laurie,  1  Drew.  &,  Sm. 
192(1860);  Hart  v.  St.  Charles  St.  Ry. 
Co.,  30  La.  Ann.  758.  Cf.  Baton  v.  Shep- 
pard,  10  Simons,  186  (1839):  Carlisle  v. 
Southeastern  Ry.  Co.,  1  Mac.  &  G.  689 
(1850).  Where  a  railway  companj%  being 
solvent,  declared  a  dividend,  and  de- 
posited the  money  to  pay  it  with  a  firm 
of  bankers,  and  subsequently  withdrew 
what  remained  on  deposit  at  the  bank 
some  of  the  shareholders  not 
claimed  their  dividend, — and  then  passed 
into  the  hands  of  a  receiver,  it  was  held, 
in  an  action  by  one  who  was  a  share- 
holder at  the  time  the  dividend  was  de- 
clared, and  the  deposit  thereof  made,  but 
who  had  not  drawn  his  dividend,  that 
the  fund  deposited  at  the  bank  belonged 
to  the  shareholders  and  not  to  the  corpo- 
ration, and  that  accordingly  the  share- 
holders, each  of  them,  acquired  a  lien  in 
equity  u])on  the  fund,  to  the  extent  of  the 
amount  to  which  they  were  respectively 
entitleci,  which  followed  the  fund  into  the 
hands  ol  the  receiver.  It  was  fui'ther 
held  that  a.  stockholder  might  apply  on 
))  tition  for  such  a  divideiul,  and  that  it 
was  not  necessary  to  bring  an  action 
therefore.  Matter  of  Le  Blanc,  14  Hun, 
8  ( 1 878) ;  njion  the  latter  point  cf.  People 
V.  Merchants  &  Mechanics  Bank,  78  N.  Y. 
269  (1S79). 

541 


1 546.]  DIVIDENDS.  [CH.  XXXII. 

credited  to  a  depositor,  it  becomes  his  property,  to  which  he  is 
entitled  in  preference  to  the  creditors  -of  the  corporation.^     If, 
however,  the  funds  to  pay  a  dividend  are  placed  by  the  corpora- 
tion on  deposit,  at  a  bank  or  elsewhere,  the  deposit  is  made  and 
remains  at   the  risk  of  the  coi-poration,  and    not  of  the   share- 
holders.^    But  it  cannot  be  withdrawn   and  reclaimed  either  by 
the  corporation   or  a  receiver  of   the   corporation,  because   the 
shareholders  acquire,  by  virtue  of  the  declaration  of  the  dividend, 
a  lien  in  equity  upon  the  deposit.^     And  the  shareholders'  right 
to  a  dividend,  regularly  declared,  and  to  the  fund  set  apart  by 
the  corporation  to  pay  the  dividend,  is  not  affected  by  the  subse- 
quent insolvency  of  the  corporation.*      But  where  no  specific 
fund  has  been  set  aside,  a  shareholder,  not  having  claimed  or 
received  his  dividend,  has,  upon  the  insolvency  of  the  corporation, 
merely  a  claim  of  debt  against  the  corporation  and  must  come  in 
and  fare  as  the  other  creditors  do.^     A  dividend  is  something  dis- 
tinct and  separable  from  the  fund  upon  which  it  is  declared,  and 
it  may  be  the  subject  of  assignment  by  a  shareholder  before  it  is 
received  from  the  corporation.^     It  becomes  a  debt  when  by  the 
terras  of  the  resolution  declaring  it,  it  is  made  payable,  and  if  no 
time  be  fixed  for  payment,  then  the  intent  is  to  be  gathered  from 
circumstances.'^     So  it  is  held  that  a  dividend  must  be  made  pay- 
able within  a  reasonable  time  after  it  is  declared,  and  when  once 
declared  cannot  be  revoked.^     And  not  only  must  the  time  of 
payment  be  reasonable,  but  a  reasonable  place  of  payment  must 
be  designated,  and  the  entire  transaction  must  be  in  good  faith.^ 

§  546.  It  is  a  debt  ivhicli  may   le   collected  ly  legal  'pro- 
ceedings.— The  debt  which  the  corporation  owes  its  shareholders, 

'  Van  Dyck  v.  McQuade,  86  N.  Y.  38  action?,  which,  by  rule  61  of  the  Stock  Ex- 

/jgg^N  change,  the  committee  will  not  recognize 

-  Kino-  V.  Palerson,  <fec.,  R.  R.  Co.,  29  or  enforce.      The  contract  is,   however, 

N  J    Law,  82.  504  (1860).  one  which  is  not  contrary  to  law,  and  it 

'»  Matter   of    Le    Blanc,    14    Hun,    8  i?  good  between  the  parties.     Marten  t;. 

(1878);  Beers  v.  Bridgeport  Spring  Co.,  Gibbon,  su/;m. 

42  Conn.  17  (1875).  '  Brundage  v.  Brundage,  60  N.  Y   544 

^Le  Roy  v.  Globe  Insurance  Co.,   2  (1875);  s.  c.  65  Barb.  397;  City  of  Ohio 

Edw.  Chan,  657  (1836).  v.  Cleveland,  *fec.,  R.    R.   Co.,  6  Ohio  St. 

5  Lowne  v.  American  Fire  Insurance  489   (1856).       Of.    Burroughs   v.    North 

Co  ,  6  Paige,  482  ( 1 837).  Carolina  R.  R.  Co.,  67  N.  C.  376  (1872). 

«  Marten  v.  Gibbon,  33  L.  T.  (X.  S.)  "  Beers  v.   Bridgeport  Spring  Co., 

561(1875).     Cr.  Jermain  y.  Lake  Shore,  Conn.  17  (1875).  ,.    „    ^       „„ 

Ac,  R.  R.  Co.,  91  N.  Y.  483  (1883).    Bar-  '  King  v.  Paterson.  Ac,  R.  R.  Co.,  29 

gains  in  prospective  dividends  are  trans-  N.  J.  Law,  82  (1860). 

542 


CH. 


XXXII.] 


DIVIDENDS. 


[^  546. 


when  a  dividend  is  declared  and  the  day  of  payment  arrives,  is 
one  which  may  be  collected  by  the  usual  action  at  law.  A  suit 
to  enforce  the  declaration  of  a  dividend  must  be  in  equity,  but 
when  the  dividend  is  not  paid  after  it  lias  been  regularly  declared, 
the  shareholder's  action  is  at  law,  and  he  may  sue  in  indeVitatus 
ussumjmt  for  the  amount  due  him  according  to  the  terms  of  the 
resolution  declaring  the  dividend.^  It  is,  however,  held  that  tiie 
remedy  of  an  unrecorded  transferee  to  recover  a  dividend  cannot 
be  at  law.'^  It  has  been  held  also  that  a  bill  in  equity  will  lie  to 
enforce  payment  of  a  dividend  unjustly  withheld.^  But  manda- 
mus is  not  a  proper  remedy  in  such  a  case.*  A  contract  of  direc- 
tors to  pay  a  dividend  as  a  debt,  at  fixed  intervals,  being  in  reality 
a  preferred  dividend,  cannot  be  enforced  either  at  law  or  in 
equity,  except  out  of  net  profits,  like  other  dividends.^  A  de- 
mand is  necessary  before  the  action  at  law  by  the  shareholder  can 
be  maintained,^  and  a  mere  letter  of  inquiry  has  been  held  under 
this  rule,  an  insufficient  demand.^  A  demand  while  the  shares 
are  under  and  subject  to  an  attachment  by  the  corporation,  is  not 
such  a  demand  as  this  rule  contemplates.^     The  demand  must 


'  Coey  V.  Belfast,  <fec.,  Ry.  Co.,  Irish 
Rep.,  2*C.  L.  112  (1866);  Jackson's 
Admr.  v.  Newark  Plankroad  Co.,  31  K  J. 
Law,  277  (1865);  AVest  Chester,  <fec.,  R. 
R.  Co.  V.  Jackson,  77  Penn.  dt.  321 
(1875)  :  Kinij  v.  Paterson,  etc.,  R.  R.  Co., 
29  N.  J.  Law,  504  (1860i;  Keppel's 
Admrs.  v.  Petersburg  R.  R.  Co.,  Chase's 
Dec.  167(1868);  Stoddard  v.  Shetucket 
Foundry  Co.,  34  Conn.  542  (1868) ;  City 
of  Ohio  V.  Cleveland,  <fec.,  R.  R.  Co.,  6 
Ohio  St.  489  (1856);  Marine  Bank  of 
Baltimore  v.  Biays,  4  Har.  <fe  J.  338 
CLsl8);  State  v.  Baltimore,  (fee,  R.  R.  Co., 
6  Gill,  363  (1847);  Kane  v.  Bloodgood,  7 
Johns.  Chan.  90  (1823);  Jones  v.  Terre 
Haute,  dec,  R.  R.  Co.,  57  N.  Y.  196 
(1874);  Fawcett  v.  Laurie,  1  Drew.  & 
Sm.  192  (I860);  Dalton  v.  Midland 
Counties  Ry.  Co.,  13  C.  B.  474  (1853). 
Cf.  Stevens  v.  South  Devon.  Ry.  Co.,  9 
Hare,  313  (1851).  But  if  a  shareholder 
is  not  entitled  to  share  in  the  dividend 
according  to  thi-  terms  of  the  resolution 
declaring  it,  he  cannot  have  his  action  of 
assnmpiit.  State  v.  Baltimore,  (fee.  ,R.  R. 
Co.,  6  Gill,  363  (1848).  In  such  a  case  it 
seems  that  his  claim  against  the  corpora- 
tion would  be  that  his  rights  of  member- 
ship h  id  been  infringed  by  the  inequitable 
act  of  tlie  corporate  management  in  de- 
claring the  dividend  improperly  or  irreg- 


ularly, and  in  refusing  him  participation 
equally  and  equitably  in  the  profits  of  the 
concern. 

-  Chambersburgh  Ins.  Co.  v.  Smith,  11 
Penn.  St.  120  (1849);  Northrup  v.  Curtis, 

5  Conn.  246  (1824);  Xorthrup  v.  Newton, 
(fee,  Co.,  3  Id.  544;  Cleveland,  <fec.,  II.  R. 
Co.  V.  Robbins,  35  Ohio  St.  483  (1880). 
Gf.  Hall  )'.  Rose  Hill,  (fee,  Co.,  70  III.  673 
(1873);  Oxford  Turnpike  Co.  v.  Bunnell, 

6  Conn.  552  (1827).  Contra,  Hill  v. 
Newichawanick  Co.,  48  How.  Prac.  427 ; 
8.  0.  aflfi'd,  71  N.  Y.  593(1877). 

^  Beers  v.  Bridgeport  Spring  Co..  42 
Conn.  17  (1S75);  Le  Rov  v.  Globe  Insur- 
ance Co.,  2  Edw.  Chan.  657  (1836). 

■»  Van  Norman  v.  Central  Car.,  <tc., 
Co.,  41  Mich.  166  (1879). 

*  Painesville,  (fee,  R.  R.  Co.  ».  King, 
17  Ohio  St.  534  (1867). 

^  Keppel's  Admrs.  v.  Petersburg  R.  R. 
Co.,  Chase's  Dec.  167.  213  (1868);  llagar 
V.  Union  National  Bank.  63  .Me.  5'i9 
(1874) ;  Scott  v.  Central  R.  R.  &  Banking 
Co.  of  Ga..  52  Barb.  45  (1868) ;  State  v. 
Baltimore,  (fee,  R.  R.  Co.,  6  Gill,  363 
(1847) ;  King  v.  Paterson.  (fee,  R.  U.  Co.. 
29  N.  J.  Law,  501  (1860). 

1  Scott  V.  Central  R.  R.  &  Banking 
Co.  of  Ga.,  supra. 

'^  Hagar    v.    Union    National     Bank, 


supra. 


/i43 


§  546.]  DIVIDENDS.  [CH.  XXXII. 

have  been  made  at  the  office  of  the  company,  or  at  least  at  the 
place  where  the  dividend  is,  by  the  terms  of  the  resolution  by 
which  it  was  declared,  made  payable.-^  But,  with  reference  to  the 
necessity  of  this  antecedent  demand,  it  is  perhaps  the  better 
opinion  that  the  commencement  of  the  action  is,  of  itself,  a  good 
and  sufficient  demand,  and  that,  in  consequence,  no  formal  de- 
mand before  bringing  the  suit  is  necessary.^  Under  ordinary 
circumstances  interest  is  not  recoverable  upon  dividends  which 
have  been  declared,  but  wliich  the  shareholder  has  not  claimed. 
The  right  to  interest  arises  only  upon  a  demand  and  a  refusal  to 
pay.^  But  in  regard  to  interest  upon  dividends  on  preferred 
shares,  the  rule  is  otherwise.  Tlie  agreement  to  pay  preferred  or 
guaranteed  dividends  is  usually  the  principal  inducement  to  take 
the  stock,  and  in  general  the  dividends  promised  are  the  only 
return  for  the  use  of  the  money  advanced.  Hence,  upon  a  failure 
to  declare  a  preferred  dividend  when  one  ought  to  be  declared, 
or  when  funds  which  might  have  been  used  to  pay  such  a  divi- 
dend are  otherwise  employed,  there  is  a  misapplication  of  the 
corporate  resources,  and  hence,  for  this  the  shareholder  may  have 
his  action,  and  he  may  recover  the  dividend  as  well  as  interest 
thereon.''     Interest  upon  the  debt  and  the  Statute  of  Limitations 


'  See  the  cases  generally  iu  the  three  R.  R.  Co.,  84  N.  Y.  157,  188(1881).     In 

prece;ling  notes.  the  case  last  cited  the  court  said :  "  Having 

-Robinson  «;.  National  Bank  of  New  thus   misappropriated    the   funds   out  of 

Berne,  95  N.  Y.  637  (1884).     This  accords  which  the  interest  was  to  be  paid  to  the 

with  the  settled  theory  of  the  law  as  to  preferred     stockholders,    the     company 

demand  in  other  similar  cases.     See  East  should  be  compelled  to  pay  interest  on 

New  York,  &c.,  R.    R.  Co.  v.   Elmore,   5  the  sums  which  their  own  act  prevented 

Hun,  214  (1875);  Delamater  v.   Miller,  1  from  being  paid.     They  refused  to  fulfill 

Cowen,    75  (1823);  Everett   v.   CofHn,  6  the  contract,  or  to  do  what  was  required 

Wend.  693(1831);   Walradt  v.  Maynard,  by  law  to'pay  the  plaintiff  the  dividend 

3  Barb.  584(1818);  Carroll  v.  Cone,  40  to  which  he  was  entitled,  and  compelled 

Barb.  220(1862) ;  Ayer  v.  Ayer,  16  Pick,  him  to  bring  nn  action  to  enforce  the  de- 

327  (1835).  claration  of  dividends,  and  under  these 

2  Bo-.irdman  ?'.  Lake  Shore,  &c.,  R.  R.  circumstances  have  no  claim  to  ba  ex- 
Co.,  84  N.  Y.  157, 187(1881).  Cf.  Adams  empted  from  tlie  payment  of  interest  as 
V.  Fort  Plain  Bank,  36  N.  Y.  255  (1867),  damages,  as  a  consequence  of  their  failure 
where  it  is  held  that  whenever  a  debtor  to  perform  a  plain  obligation.  The 
is  in  default,  in  not  paying  money  pursu-  plaintiff  became  damnified  by  the  refusal 
ant  to  contract,  the  creditor  is  entitled  to  of  the  company  to  declare  a  dividend 
interest  by  way  of  damages.  when  they  had  funds  for  that  purpose, 

^  Manning  v.  Quicksilver  Mining  Co.,  and  by  the  diversion   of  such  funds  his 

24  Hun,  360(1881)  ;  Prouty  v.  Michigan  right  to  interest  accrued  by  being  com- 

Southern.  &c.,  R.  R.  Co.,  1  Hun,  655,  667  pelled  to  institute  an  action  to  enforce  the 

(1874);  Boardman   v.   Lake  Shore,   &c.,  same."     See  Ch.  XVI.  ' 

544 


CU.  XXXII.j  DIVIDENDS.  [§  54T. 

run  only  from  the  date  of  the  demand.^  The  plaintitf,  in  such  an 
action  as  this,  must  be  an  individual  shareholder  suing  in  his  own 
behalf,  and  one  cannot  sue  for  the  benefit  of  all.'^  And,  in  general, 
the  corporation  itself  is  the  proper  defendant,  upon  the  ground  that 
for  an  illegal  refusal  to  pay  a  dividend  the  corporate  officers  are 
not  to  be  held  personally  liable.^  But  where  tlie  treasurer  of  an 
incorporated  company  withheld  a  dividend  belonging  to  one  of  the 
stockholders,  to  satisfy  a  claim  of  his  own  against  the  stockholder, 
an  action  of  assumpsit  against  him  individually  was  sustained.* 
And  in  a  case  where  a  stockholder  had  been  unjustly  deprived  of 
his  stock,  it  was  held  that  he  could  not  sue  an  individual  share- 
holder to  recover  a  dividend  which  should  have  been  paid  to  him, 
but  that  his  action  was  properly  against  the  corporation.^  In 
actions  on  the  part  of  shareholders  to  enforce  the  payment  of 
dividends,  the  validity  or  legality  of  the  dividend  cannot  be  ques- 
tioned by  the  corporation.®  But  when  a  corporation  is  sued  for  a 
dividend  by  two  claimants  therefor,  it  may  support  a  bill  of  inter- 
pleader between  them.'' 

§  547.  Eight  of  the  Gor])oration  to  apply  tUviclench  to  the 
payment   of  debts   due   to  it   hy  the  shareholder. — It   is   well 

settled  that  if,  at  the  time  a  dividend  becomes  payable,  the  stock- 
holder owes  the  corporation  any  debt,  the  dividend  due  that  share- 
holder may  be  applied  in  liquidation  of  the  indebtedness,  and  if 
the  corporation  is  sued  for  the  dividend  it  may  set  up  the  debt  by 
wav  of  set-off  or  counterclaim.^     This,  however,  amounts  to  a  cor- 


'  State  V.  Baltimore,  &c.,  R.  R.  Co.,  6  Mass.  115(1871).  See  also  §  387.  In  En- 
Gill,  3C3  (1847);  Keppel's  Admrs.  v.  u;lancl  the  rule  was  formerly  otherwise. 
Petersburg  H.  R.  Co.,  (,  hase's  Dec.  KM,  Dalton  v.  Midland  Ry.  Co.,  12  C.  B. 
213(18*18);  I'hiladelpliia,  Ac.,  R.  R.  Co.  458  (1852);  Scott  v.  Central  R.  R.  & 
V.  Cowell,  '28  Penn.  .St.  32'.)  (18.")7).  liaiikin}?  (o.  of  Ga.,  52  Barb.   45  (18G8). 

'^  Carlisle  v.  Southeastern  Ry.  Co.,  2  W!icr(i  a  corporMtion  is  sued  by  a  atock- 
Hall  <fe  Tw.  366  (1850);  Morjjan  !».  Great-  holder  for  a  ilividend  declared  b}-  the 
eastern  Ry.  Co.,  1  Hem.  &  M.  560  (1863);  directors  and  all  tiie  other  stoekholdera 
Carpenter »'.  New  York,  <fec.,  R.  R.  Co.,  5  have  received  their  dividends  and  re- 
Abb.  I'rac.  277  (1857).  tained    them,    the    company     cannot    be- 

^  Smith  V.   I'oor,  40   Me.  415(1855);  allowed  to  set  u[)  ils  defense  to   the  suit. 

B.  c.  3  Ware,  148  (1858).  tliat  the   dividend  lias   tiot  been   earned, 

^  Williams  v.    FuUerton,  20   Vt.    346  and  that  its  payment   would    withdraw  a. 

(1848).  part    of     the    capital    of   the    ccmpiiny, 

'  Pcckham  v.  Van  Wagenen,  83  N.  Y.  Stoddard    r.    Slietuckot    Foundry     Co., 

40  (1880).  mpra. 

<*  Stoddard  w.  Shetucket  Foundry  Co.,  "  Ilaj^ar  ti.  Union   National    Hank,  OS 

34  Conn.  542  (1868).  Me.  5U'J   ( 1874) ;   Kiiifjj  i'.    I'atrrMoii,    Ac., 

■"Salisbury    Mills    v.   Townsend,    100  Ry.  Co.,  2'J  N.  J.    Law,  504  (I860);  Sar- 

[351  545 


§  548.]  DIVIDENDS.  [CH.  XXXII. 

porate  lien  on  the  stock,  so  far  as  dividends  are  concerned,  and  it 
is  doubtful  whether  it  should  be  upheld  where  the  registered 
.stockholder  had  sold  and  transferred  his  certificate  of  stock  before 
the  dividend  was  declared. 

§  548.  Dividends  which  impair  the  caintal  stock  are    ille- 
gal, and  may  he  recovered  hack  from    the    stockholders. — As 

already  shown,^  a  dividend  can  be  lawfully  declared  only  when 
sufficient  net  profits  have  been  earned  to  pay  that  dividend.  Ac- 
cordingly, a  dividend  paid  wholly  or  partly  from  the  capital 
.stock  is  illegal,  and  subjects  the  corporation  and  the  shareholders 
who  are  parties  to  it,  to  serious  liability.  It  is  the  well  determined 
doctrine  of  the  courts  of  this  country  that  the  capital  stock  is  a 
trust  fund  to  be  jealously  preserved  intact  for  the  benefit  of  cor- 
porate creditors.^  Hence  the  rule  that,  where  dividends  are  paid 
in  whole  or  in  part  out  of  the  capital  stock,  corporate  creditors, 
being  such  when  the  dividend  was  declared,  or  becoming  such  at 
any  subsequent  time,  may,  to  the  extent  of  their  claims,  compel 
the  shareholders  to  whom  the  dividend  has  been  paid,  to  refund 
whatever  portion  of  the  dividend  was  taken  out  of  the  capital 
vstock.^     In  this  country  shareholders  are  bound  to  take  notice  of 


^ent   V.    Franklin    Ins.   Co.,    8  Pick.    90  How.    304  (1853);  Railroad  Company  ?;. 

(1829);  Bates  v.   New  York  Ins.  Co.,   3  Howard,  V  Wall.  392  (1868) ;  Johnson  v. 

Johns.  Cas.  238  (1802).    But  in  Merchants  Laflin,  5  Dill.    65    note  (1878);  Wood?'. 

Bank  of  Easton  v.  Shouse,  102   Penn.  St.  Dummer,  3  Mason,  308  (1824);   Gratz  v. 

488  (1883),  where  a  stockholder  of  the  Read,  4  B.  Mon.  178(1843);  Bank  of  St. 

bank  died  indebted  to  the  bank  and  in-  Mnrys  j>.  St.  John,  25  Ahi.   566  (1854); 

solvent,   and    after  his    death   the  bank  Barilett  ?;.  Drew,  57  N.  Y.   587  (1874); 

went   into    liquidation,   and    declared   a  Osgood  w.  Laytin,  48  Barb.  463  (1867); 

pro  rata  distribution  of    its  assets  to  its  s.  c.  3  Keyes,  521  ;  Heman  v.  Britton,  5 

stockholders,  it  was  held  that  the  bank  West.    Rep.    330    (Mo.     1886);  Ranee's 

had  ni)  right,  either  by  charter  or  under  Case,  L.  R.  6  Chan.  104  (1870)  ;  Story's 

the  general  banking  act  of  1850,  to  re-  Equity  Juris.  (13th  ed.,  1886),  §  1252. 

tain,    by    way   of    lien,    or    set-off,   the  In  Lexington  Life,  &c.  Ins.  Co.  v.  Page, 

amount  appoitionable  to  the  decedent's  17  B.  Mon.  412,  (1856),  it  is  held  that  the 

stock,  on  account  of  his  indebtedness  to  action  to  recover  the  dividend,  in  such  a 

the  bank,   and  that    his    administratrix  case,  may    be  maintained    by  the  direc- 

mi"ht  recover  the  amount  for  administra-  tors.     The  shareholders  oi'  a  corporation 

tion  and  distribution  to  the  general  credit-  have  in  Louisiana,  no  right  to   appropri- 

ors  of  the  deceased.     Ace.  Brent  ".  Bank  ate  any  part  of  its  assets  to  pay  salaries 

of  Washington,  2  Cranch  C,  C.  517(1824).  due  them  as  officers  of  the  company,   or 

And  in  Ex  parte  Winsor,  3   Story  C.  C.  due  them  on  any  other  account,  until  all 

411  (1844),  an  a[>plication  of  a  dividend  creditors  who  are  not  stockholders,  have 

to  the  payment    of  an   unpaid  call  was  been  paid.     Cochran  v.  Ocean  Dry  Dock 

held  illegal.     The  soundness  of  this  de-  Co.,  30  La.  Ann.  1365  (1878).     Cf.    Hol- 

.cision  may,  however,  well  be  questioned.  lister   v.   Hollister   Bank,   2  Abb.    App. 

1  See  g  539,  supra.  Dec.  367  (1865);  Skrainka  v.  Allen,  7Mo. 

'  See  §  199,  supra.  -A-PP-  434  (1S79) ;  AVard  y.  Sittingbourne, 

3  Currau  v.   State    of   Arkansas,    16  &c.  Ry.   Co.,   L.   R.    9    Ch.    488   (^1874). 

546 


CH.  XXXII.]  DIVIDENDS.  ("§  548. 

the  true  character  and  condition  of  the  capital  stock,  and  they 
cannot  escape  liability  by  reason  of  their  ignorance.  Actual  no- 
tice is  not  necessary,  and  if  a  dividend  has  been  paid  out  of  the 
capital  stock  they  are  conclusively  presumed  to  have  known  it. 
and  are  liable  to  an  action  to  enforce  a  repayment.  They  cannot 
claim  to  occupy  the  position  of  innocent  or  ho7ia  fide  holders.^ 
But  in  England  the  doctrine  that  the  capital  stock  is  a  trust  fund 
for  the  benefit  of  corporate  creditors  is  not  recognized,  and  both 
the  courts  and  the  legislature  proceed,  in  fixing  the  liability  of 
shareholders  to  creditors,  upon  an  entirely  different  theory  from 
that  which  obtains  in  this  country.  Neither  the  Winding  up  Act 
of  1848  nor  the  Companies  Act  of  1862  make  any  special  pro- 
vision for  the  protection  of  the  corporate  creditors  as  against  the 
stockholders.  And  by  the  courts  neither  shareholders  nor  direc- 
tors are  held  bound  to  examine  entries  in  any  of  the  corpo- 
rate books,  and  a  knowledge  of  their  contents  is  not  imputed  to 
them.  The  doctrine  of  constructive  notice  is  not  extended  so  as 
to  impute  to  shareholders  a  knowledge  of  the  condition  of  the 
corporate  finances.^  However,  upon  tlie  theory  that  a  reduction 
of  the  capital  stock  is  ultra  vires^  the  English  courts,  where  divi- 
dends have  been  paid  out  of  the  capital  stock,  have  sustained  ac- 
tions to  compel  shareholders  to  whom  the  dividend  was  paid,  to 
repay  the  same  to  the  corporation.^  And  when  it  appears  that  a 
dividend  declared  is  likely  to  be  paid  out  of  something  else  than 
net  profits,  such  a  payment  may  be  enjoined.* 

In  Massachusetts  at  an  early  day,  there  Chan.  466  (1846) ;  Hastings  v.  Drew,  76 

existing  no  general  system  of  equity  jur-  N.  Y.  9,  19  (1879);  Osgood  v.  Laytin,  3 

isdiction  in  that  State,  corporate  credit-  Keyes,  521  (1867);  Gratz  v.  Redd,  4  B. 

ors  would  seem  to  have   been  remediless  Mon.    178   (1813);  Lexington   Life,   <fec. 

■when  dividends  had  been   declared   and  Ins.  Co.  v.  Page,  17  Id.  412  (1856).     See 

paid  to  their  prejudice  out  of  the  capital  Main  v.  Mills,  6   Biss.   98,  and  the  note 

stock,  because  it  was  the  rule  there   that  (1874).     Cf.  Sawyer  d.  Hong,    17  Wall, 

an  action  at  law  to  compel  the  sharehold-  61(»(1873);  Railroad  Co.  v.   Howard,    7 

era  to  refund   would    not   lie.     Vose  v.  1(1.392(1868);  Cnrranw.  Stateof  Arkan- 

Grant,  15  Mass.  505,   517  (1819);  Spear  sas,  15  How.  304  (1853);  Wood  ii.  Dura, 

v.  Grant,  IG  Id.  9,  15   0819).     Cf.    Pas-  mer,  3  Mason,  308  (1824). 
chall  V.  Whit.sett,  11  Ala,  472  (18J7),  to  ''  In  re  Denliam  &.  Co..  L.  R.  25  Chan, 

the  point  that  after  dis-olution  of  the  cor-  Div.  752  (1883i. 

poration,  a  shareholder  is   not   liable    to  '■'•  Holmes  v.  Newcastle-upon-Tyne  Ab- 

tlie  process  of  garnishment  at  the  suit  of  a  attoir  Co.,  45  L.  J.  Chan.    383    (1875). 

corporate  creditor.  See  also  The  Queen  v.  Liveijiool,  &c.  Ry. 

'Peterson   v.   Illinois  Land    <fe   Loan  Co.,  21  L.  J.  ((2.  H.)  2S4  (1852). 
Co.,  6  Bradw.  257(1K80);  (iapj)  v.  Peter-  *  McDougidl  v.  .Jersey  Imperial  Hotel 

son,    104    111.    26    (1882);    Bank    of    St.  Co.,  2  Hem.  <fe  M.    52S  (1864).     But  seo 

Marys  JA  St.  John,  25  Ala.   566   (1854);  Ward    v.    Sittingbourne,     «fec.    Ry.    Co., 

Kational  Trust  Co.  /-.  Miller,  33  N.  J.  Kq.  L.  R.  9  Chan.  488  (1874). 
155(1880);  Sagory  v.  Dubois,  3  Sandf. 

547 


§  549.]  DIVIDENDS,  [cfi.  xxxir. 

§  549.  Proceedings  to  recover  bacTc  such  a  dividend. — It  is, 

in  general,  the  practice  where  dividends  have  been  paid  out  of 
tlie  capital  stock,  in  prejudice  of  the  rights  of  corporate  credit- 
ors, for  a  judgment-creditor,  upon  the  return  of  his  common  law 
execution  against  the  corporation  wholly  or  partly  unsatisfied,  to 
eommence  an  action  in  equity  on  behalf  of  himself  and  all  other 
creditors  who  may  come  in,  in  the  nature  of  a  creditor's  bill, 
against  the  stockholders,  to  whom  the  dividend  was  unlawfully 
paid,  to  recover  back  so  much  thereof  as  was  paid  out  of  the  capi- 
tal stock.^  In  such  a  suit  the  private  property  of  the  shareholder 
may  be  reached  to  satisfy  the  claim  of  a  creditor  of  the  corpora- 
tion, at  least  to  the  extent  that  the  dividend  received  by  that  stock- 
holder impaired  the  capital  stock  of  the  corporation.^  It  is  a  neces- 
sary condition  precedent  to  the  right  to  bring  this  action,  that  a 
valid  judgment  shall  have  been  obtained  against  the  corporation, 
and  that  execution  thereon  shall  have  been  returned  wholly  or  part- 
ly unsatisfied,  and  this  judgment  is  conclusive  as  to  the  merits  of 
the  creditor's  claim.^  In  New  York  the  receiver  of  an  insolvent 
corporation  may  maintain  an  action  for  the  benefit  of  the  creditors 
against  the  shareholders  to  recover  the  sums  received  by  them  as 
dividends  at  the  time  the  company  was  insolvent,  and  in  such  an 
action  the  creditors  of  the  corporation  are  proper  parties,  for  the 
purpose  of  restraining  them  from  proceeding  individually  against 
the  shareholders  separately  to  recover  the  unlawful  dividends.'* 
But  a  receiver's  suit  cannot  in  such  a  case  be  brought  for  the  bene- 
fit of  the  stockholders.^  The  corporate  creditors  caimot  call  upon 
the  shareholders  to  account  for  dividends  made  in  good  faith,  in 
the  regular  order  of  business,  when  the  concern  was  prosperous 
and  before  the  distribution  of  its  property,  although  the  corpora- 


'  Hastings  ?'.  Drew,  76' N.Y.  9  (ISVg);  517(1819);    Spear  v.  Grant,  16  Id.  !),  ]5 

Barllett  t>.  Drew,  57  N.  Y.   587   (1874);  (1819). 

08o;ocd  r.  Lavtin,  48  Barb.  463;   s.   c.  3  '^  Bartholomew  i'.  Bentley,  15  Ohio,G59- 

Ke\es,  521  (1867);  McLean  r.   Eastman,  (1846). 

21  Hun,  312  (1880) ;  Bank  of  St.  Marys  ^  stnrgcs  v.  Vanderbilt,  73  K  Y.  384 

V.  St.  John,  25  Ala.  666  (1854);    Taylor  (1878);  Hastings  i'.  Drew,  76  Id.  9  (1879). 

V.   Miami  Exporting    Co.,   5    Ohio,   162  See  Brewer  ?■.  Michigan  Salt  Association, 

(1831);  Gratzv.  Kedd,  4  B.   Mou.    178  58  Mich.  351  (1885). 
(1843);  Curran  ?i.  State  of  Arkansas,  15  ■*  Osgood    v.    Laytin,    5    Keyes,    521 

How.  304  (1853) ;  Ranee's  Cnse,  L.  R.  6  (1867).  "See  al?o  Lexington  Lif(%  <fec.  Ins. 

Chan.  104  (1870).      Cf.  Brewer  v.  Michi-  Co.  v.  Rage,  17  B.  Mou.  412  (1856). 
gan  Salt  Association,  58  Mich.  351  (1885).  *  Butterworth  v.   O'Brien,   39   Barb. 

And  see  Vose  v.   Grant,   15   Mass.    606,  192(1863);  s.  c.  24  How.  Prac.  438.   Cf. 

McLean  v.  Eastman,  21  Hun,  312  (1880). 

548 


CH..  XXXII.]  DIVIDENDS.  [§550. 

tion  subsequently  becomes  insolvent  and  is  dissolved.^  In  the 
creditor's  suit  all  the  stockholders  who  can  be  reached,  should  be 
made  parties  defendant,  and  as  to  those  unknown,  or  insolvent,  or 
beyond  the  jurisdiction,  there  should  be  a  proper  averment  in  the 
bill.^  The  corporation  also  should  be  made  a  party  defendant  to 
the  bill.^  The  shareholder,  who  is  compelled  to  pay  more  than 
his  equitable  proportion  of  any  unpaid  corporate^debt  may,  in  a 
proper  proceeding,  resort  to  his  associates  for  contribution.*  And 
a  transferee  of  stock  against  which  creditors  have  this  claim, 
takes  it  subject  to  its  proportional  share  of  the  burden,  and  may 
be  held  liable  to  respond  in  a  creditor's  suit,  in  the  same  way  and 
to  the  same  extent  as  his  transferrer.^  The  Statute  of  Limitations 
runs  in  favor  of  shareholders  who  receive  such  dividends  in  good 
faith  and  without  actual  notice,  from  the  time  they  are  declared, 
as  against  the  corporation  and  its  creditors.** 

§  550.  The  liaMliUj  herein  of  the  corporate  officers. — The 
liability  of  the  corporate  officers  as  to  dividends  paid  out  of  the 
capital  stock  is  not  definitely  determined.  That  they  are  liable 
for  the  amount  of  any  such  dividend  that  they  themselves  receive 
as  shareholders  cannot,  perhaps,  be  questioned.''  Many  cases  go 
to  the  full  extent  of  holding  the  directors  liable  absolutel}'  for  all 
dividends  paid  out  of  capital  stock.  But  it  may  be  stated  as  the 
more  discriminating  rule  that  when,  in  the  absence  of  a  statutory 
accountability,  the  directors  act  in  good  faith  and  there  is  no  im- 
putation of  negligence  on  their  part,  they  are  not  to  be  charged 

'  lleid  V.  Eatonton  Manfg.  Co.,  40  Ga.  in  Dormitzor  v.  Illinois,  tkc.  Bridge  Co.,  6 

98  (18(59).  Fed.  Rep.  217  (1881). 

'  Wood   V.   Da:nmer,    3    Mason,    3  )8  •*  Bartlctt  v.  Drew,  supra. 

1821);  Bartlett  w.  Drew,  57  N.   Y.   587  '  jlasin-r^  v.  Dr-;w,  76  N.   Y.    9,    18 

1874).     In  the  case  last  cited— a  loading'  (1879);     Cm'r  t,   Ilurlbut    v.   Taylor,  62 

aiith'irity  in  New  York— it  is  held  th m  Wis.  007  (1885). 

the  creditor  is  not  required  to  brin^  his  *  Lexin;jton  Life,  &c.  Ins.  Go.  v.  Pago, 

suit  on  behalf  of  otii'T  creditors  wlio  may  17  B.  Mon.    412   (1856).     Cf.    Scott    v. 

ohoose  to  come  in,  but  may  sue  alone  and  l''a,'lo  Firo  Ins.  Co.,  7  Paige,  193  (1838); 

for  his  own  benefit  cxdusiv.dy,  ami  that  DcfPoy.stor  v.  Am  "rican  Fire   Ins.   Co.,  6 

h'j  need   not   make  all   the    stockholdor.s  Id.  48(). 

parties,  but  may  pur.suo  one,  any,  or    all  '  Main  v.  Mills,   6    Biss.   98,    and   the 

as  he  may  elect,  ujjon   the   tlioory    that  not(!(lH7l);    ilanco's  Oaso,  L.  R.  6  (Mian, 

with  the  equities  between  the  .stockhold-  101  (lS7n).     But  see,  ap|)aroiitly  fo;i//vi, 

crs  themsjlves  he  has  nothing  to   do  un-  In  re  Deidum  ik  Co.,  L.  R.  25  Chan.  Div. 

les 4  he  choose  to  intervene  to  settle  tliem.  7')2   (18S3),    wherein    b')tli    offiiscrs  and 

C'/.  I'acifi:;   R.  R.   Co.  v.  Cutting,  Jr.,  27  ineml)ers  of  a  corporation  wore  ahsidvod 

Fed.  Rep.  638  (1886);    Williams  n.  Hoice,  from  liability  to  refund  .i  dividend  which 

38  N.  .J.  Eq.  364  (issr,).  ha  1  been  paid  in  good  fiith,  nlthou:,Hi   in 

^  First  National  Bank  of  ILinnibal  v.  fact  it  impaired  tlio  capital  stock, 
fjnith,  6  Fed.  Rep.  215  (1879),   followed 

54'.) 


\ 


§  550.] 


DIVIDENDS. 


[CII.  XXXII, 


merely  because  the  dividend  they  authorize  impairs  the  capital 
stock.^  But  where  the  directors  willfully  and  knowingly  declare 
and  pay  a  dividend  out  of  the  capital  stock,  tliey  are  personally 
liable  to  refund  that  dividend.^  Frequently  also  when  a  dividend 
is  paid  out  of  the  ca})ital  stock,  the  directors  are  made  liable  there- 
for by  statute  without  reference  to  any  fraud  or  fraudulent  intent 
on  their  part,^  In  Iventucky  it  is  doubted  whether  directors  are 
liable  to  creditors,  the  courts  of  that  State  seeming  to  incline  to 
hold  them  liable  only  to  the  corporation  or  the  stockholders.* 
While  in  Massachusetts  the  liability  of  the  directors  in  these  cases 
has  been  held  enforceable  by  corporate  creditors  only.^  In  Eng- 
land the  directors  are  not  liable  to  the  shareholders  as  a  body, 
upon  a  bill  in  equity,  but  where  the  directors  have  fraudulently 
misrepresented  the  affairs  of  the  company,  and  paid  dividends 


'  Excelsior  Petroleum  Co.  v.  Lacey,  63 
N.  T.  422  [1815).  Cf.  Gillett  v.  Moody, 
3  N.  Y.  479  (1850).  In  Stringer's  Case, 
L.  R.  4  Cban.  475  (1869),  it  was  held,  in 
accordance  with  this  view,  that  where  the 
action  of  a  board  of  directors  in  making 
a  dividend  was  bona  fide,  they  are  not  li- 
able for  errors  of  judgment  in  prepnring 
a  balance  sheet  showing  the  assets  of  the 
concern.  In  this  case  it  appears  that  the 
directors  included  among  the  corpoiate 
assets  a  debt  due  the  company  by  the 
Government  of  the  Confederate  States  ; 
some  cotton  owned  by  the  company  but 
stored  within  the  limits  of  the  Confede- 
racj',  and  certain  merchant  ships  engnged 
in  running  the  blockade,  all  which  were 
estimated  at  their  full  value.  These  as- 
sets being  subsequently  destroyed  and 
lost  to  the  company,  its  bankruptcy  fol- 
lowed. Cf.  Reid  V.  Eatonton  Manfg.  Co., 
40  Ga.  98  (1869) :  Scott  v.  Central  R.  R. 
tfe  Banking  Co.  of  Georgia,  52  Barb.  45 
(1868);  Keppel's  Admrs.  v.  Petersburg 
R.  R.  Co.,  Chase's  Dec.  167  (1868). 

*  Gratz  V.  Redd,  4  B.  Mon.  178,  194 
(1843);  Hill  v.  Frazier,  22  Penn.  St.  320 
(1853);  hi  re  Alexandra  Palace  Co.  L.  R. 
21  Chan.  Div.  149  (1882);  Salisbury  v. 
Metropolitan  Rv.  Co.,  22  L.  T.  (N.  S.) 
839  (1870);  Flitcroft's  Case,  L.  R.  21 
Chan.  Div.  519  (1882)  ;  Evans  v.  Coven- 
try, 8  De  G.,  M.  &  G.  835  (1857);  Tar- 
quand  v.  Marshall,  L.  R.  4  Chan.  376 
(1869).  In  Burnes  v.  Pennell,  2  House  of 
Lords  Cases,  497,  531  (1840),  Lord 
Brougham,  said:  "I  beg  to  be  under- 
stood as  going  with  those  who  view  with 

550 


the  greatest  severity  the  conduct  of  rail- 
way directors  in  declaring  dividends 
wliich  can  only  be  paid  out  of  capital, 
because  I  consider  that  that  is,  of  itself,  a 
most  vicious  and  fraudulent  course  of 
conduct.  It  is  telling  the  world  that 
their  profits  are  large,  when  it  may  be 
tiiat  their  profits  are  w?7,  or  that  their 
losses  are  large,  with  no  profits.  It  is  a 
false  and  fraudulent  representation  by 
act  and  deed,  much  to  be  reprobated,  and 
I  go  to  the  full  length  of  what  my  noble 
and  learned  friend  has  laid  down,  that  it 
would  be  a  just  ground,  if  a  course  of 
conduct  of  this  sort  were  pursued,  coup- 
led with  such  circumstances  as  clearly  to 
show  a  fraudulent  intent,  for  proceedings 
of  a  graver  nature  against  these  parties." 

^  In  Massachusetts,  officers  of  a  cor- 
poration can  be  charged,  under  the  stat- 
ute in  force  upon  the  subject  in  that 
State  [Stat.  1862,  chap.  218,  §  3  ;  Stat. 
1870,  chap.  224,  §§  40.  42],  with  corpo- 
rate debts  after  a  judgment  against  the 
corporation,  and  after  a  demand  and  I'e- 
turn  upon  the  execution.  Chamberlin  v. 
Huguenot  Manufacturing  Co.,  118  Mass. 
532,  536  (1875);  Priest  v.  Essex  Manu- 
facturing Co.,  115  Id.  380  (1874).  So  in 
New  Jersey,  directors  are  similarly  liable 
by  statute.  Rev.  of  N.  J.  (1877),  p.  178; 
Williams  v.  Boice,  38  N.  J.  Lq.  364 
(1885).  And  in  New  York,  1  Rev.  Stat, 
chap.  XVIII,  tit.  2,  art.  1,  §§  1,  10. 

■*  Lexington,  (fee.  R.  R.  Co.  v.  Bridges,. 
7  B.  Mon.  566,  559  (1847). 

'  Smith  V.  Hurd,  12  Mete.  371  (1847), 
and  the  cases  in  note  3,  supra. 


en.  XXXII.]  DIVIDENDS.  [§  550, 

when  none  were  earned,  each  shareholder  has  his  remedy  at  law 
against  the  directors.^  Under  certain  circumstances,  in  the  absence 
of  actual  fraud,  the  directors  who  have  been  compelled  to  pay 
the  claims  of  corporate  creditors,  may,  in  turn,  recover  what  they 
have  paid,  in  an  action  against  the  shareholders.^  But  a  director 
from  whom  a  recovery  is  had  under  the  Pennsylvania  statute,^  a& 
a  wrong-doer,  has  no  right  of  subrogation  as  against  the  corpora- 
tion.^ And  claims  against  directors  who  are  made  liable  by  stat- 
ute in  these  cases  may,  in  the  absence  of  actual  fraud  on  their 
part,  be  barred  by  laches.*^ 


'  Turquandv.  Marshall,  L.  R.  4  Chan.  (1S53).     In  this  case  it  was  held  that  in 

376  (1869).     Cf.   Lexington,    <fec.   R.  R.  the  creditor's  suit   against  the  director, 

Go.  V.  Bridges,  7  B.  Mon.  556,559(1847).  the  corporation  itself  is  not  a  necessary 

'  Salisbur}'  v.  Metropolitan  Ry.  Co.,  co-defendant. 
22  L.  T.  (X.  S.)  839  (1870).     /^i  ?•«  Alex-  ^  In   re    Mammoth    Copperopolis    of 

andra  Palace  Co.,  L.  R.  21  Chan.  Div.  149  Utah,  50  L.  J.  Chan.  11  (1880).     This  is 

(1882).  a  decision  construing  §  166   of  the  Com- 

3  Act  of  7th  April,  1849,  §  9.  panies  Act  of  1862.     See  also  Williams 

*  Hill    V.  Frazier,    22    Penn.    St.    320  v.  Boice,  38  N.  J.  Eq.  364  (1885). 


551 


CHAPTER  XXXIII. 

LIFE-ESTATES  AND  REMAINDERS  IN  SHARES  OF  STOCK. 


§  551.  Questions  arising  herein. 

552.  Cash  dividends  belong  to  tlie  life 
tenant. 

553.  Stock  or  property  dividends. 

554.  (a.)  The  Pennsylvania  rule. 

555.  (6.)  The  Massachusetts  rule. 


;  557.  The  intent  of  the  creator  of  the 
trust. 

558.  The  apportionment  of  dividends. 

559.  The  right  to  subscribe  for  new 
shares,  as  between  life-tenant  and 
remainderman. 


556.  (c)  The  English  rule.  |     560.  Miscellaneous  incidents  herein. 

§  551.  Questions  arising  herein. — It  is  well  settled  tlmt 
shares  of  stock  may  be  the  subject  of  a  legacy,  gift,  sale,  or  trust.^ 
It  frequently  happens  that  the  stock  passes  to  the  purchaser,  leg- 
atee, or  donee,  not  absolutely  and  as  an  entirety,  but  divided  into 
two  estates — a  life-estate,  and  a  remainder  over.  Important 
questions  then  may  arise  as  to  the  respective  rights  and  duties  of 
the  owners  of  the  two  estates.  These  questions  sometimes  in- 
volve the  right  of  custody  and  similar  other  incidental  rights. 
But  the  difficulty  which  has  involved  the  courts  in  far  the  greater 
perplexity,  is  tlie  question  to  whom,  as  between  liPe-tenant  and 
remainderman,  do  the  dividends  belong.  Upon  tliis  subject  the 
courts  have  not  been  able  to  agree  upon  a  uniform  rule.  In  gen- 
eral, a  dividend  declared  during  the  existence  of  the  particular 
estate,  being  strictly  income,  belongs  to  the  tenant  for  life.  But 
whenever  an  unusually  large  or  extraordinary  dividend  is  declared, 
whether  it  is  to  be  paid  in  money  or  in  stock,  the  interests  of  the 
life-tenant  and  remainderman  conflict,  and  very  considerable 
difficulty  has  been  experienced  in  finding  a  satisfactory  solution 
of  the  problems  that  have  arisen. 

§  552.  Cash  dividends  helong  to  the  life-tenant. — In  the  case 
of  an  ordinary  cash  dividend  there  is,  in  general,  very  little  diffi- 
culty. By  an  ordinary  or  regular  cash  dividend  is  meant  one 
which  is  declared  at  regular  intervals,  in  the  ordinary  course  of 


'  Perry  on  Trusts  (3d  ed.),   g§  544,     (2d  cd.)  g  405  ;  Angell  <fe  Ames  on  Corp. 
545,  and  the  notes;  Morawetz  on  Corp.     (Uth  ed.;  §  557,  note  a. 

552 


CH.  XXXIII.]  LIFE-ESTATES    AND   REMAINDERS. 


[§  553. 


business,  by  the  corporation,  the  receipt  of  which  is,  under  ordi- 
nary circumstances,  looked  for\yard  to  by  tlie  stockholders  as  a 
natural  incident  of  their  ownership.  Such  dividends  are,  accord- 
ing to  the  settled  rule,  income,  and  so  many  of  them  as  are  de- 
clared during  the  continuance  of  the  life-estate  go  to  the  life-ten- 
ant.^ With  respect  to  these  dividends  it  is  not,  as  a  rule,  material 
when  they  were  earned.  Dividends  declared  during  the  exist- 
ence of  the  particular  estate  belong  to  the  tenant  for  life,  even 
though  they  are  not,  by  their  terms,  payable  until  after  his  death. 
But  dividends  declared  before  the  life  tenancy  begins,  even 
though  they  are  payable  after  the  commencement  thereof,  do  not 
belong  to  the  tenant  for  life,  but  go  to  the  corpus  of  the  estate. 
The  life-tenant  is  entitled  to  only  such  dividends  as  are  declared 
during  the  lifetime  of  his  estate.^  This  rule  applies,  even  though 
it  may  be  shown  that  the  dividend  in  question  was  earned,  wholly 
or  in  part,  before  the  commencement  of  the  life-estate,^  or  that 
the  amount  of  it  is  unusually  or  extraordinarily  large.* 

§  553.  Stoclc  or  liropertif  dividenfls.—^\hen  a  stock  or  prop- 
erty dividend  is  declared  upon  shares  held  in  trust,  or  owned  in 
such  a  way  that  one  person  has  an  estate  therein  for  life,  and  an- 


'  Barclay  »'.  Wainewri;ht,  14  Ves.  66 
(1S071;  Norris  v.  Harrison,  2  Madcl. 
268  (1817);  Clive  v.  Olive,  Kay,  600 
(1854);  Murray  v.  Glisse,  17  Jur.  816 
(1853);  Preston  v.  Melville,  16  Sim.  163 
(1848);  Cuming  v.  Bos  well,  2  Jur.  (N. 
S.)  1005  (1856).  This  is  by  all  the  au- 
thorities assumed  to  be  a  rule  beyond 
dispute.  See  the  cases  generally  cited 
hereafter,  and  cf.  ^Vave  v.  McCandlish, 
11  Leigh  (Va.),  595  (1841). 

2  De  Gendre  v.  Kent,  L.  R.  4  Eq.  283 
(1867).  The  facts  in  this  case  aptly  illus- 
trate the  rule  declared  in  the  text.  Div- 
idends were  declared  in  June,  1865, 
and  made  payable  July  15,  1865,  and 
January  15,  1866.  Tlie  stock  from  whicti 
the  dividends  arose  was  bequeathed  to  A 
for  life,  with  remainder  over  to  B.  The 
testatrix  died  December  31,  1865,  nnd  it 
was  held  as  to  the  January  dividend  that 
it  belonged  to  the  estate  and  not  to  the 
life-tenant,  upon  the  ground  that  it  had 
not  been  declared  during  the  existence  of 
the  life-estate.  Cf.  iJrowne  v.  Collins,  L. 
R.  12  Eq.  586,  5'J4  ;  Locke  v.  Venablcs, 
27  Beav.  508  (18.')0).  See  also  Cogswell 
«.  Cogswell,   2    Edw.  Chan.   231    (1834); 


Abercrombie  v.  Riddle.  3  Md.  Chan.  320 
(1850);  Wriglit  v.  Tuckett,  1  Johns.  <fe 
llem.  266  (1860);  Furley  v.  Ilydes,  4'2  L. 
J.  Chan.  626.  But  in  ^Massachusetts  it 
has  been  held  that  sometimes  dividends 
declared  after  the  life-tenant's  death  will, 
nevertiieless,  go  to  his  estate.  Thus,  a 
life  tenancy  in  stock  for  the  support  of 
the  testator's  widow  and  children  was 
held  to  entitle  the  widow's  estate  to 
a  dividend  declared  after  her  d  ■ath,  but 
for  a  period  which  expired  before  that 
event.  Johnson  v.  Bridgewater  Manfg. 
Co.,  14  Gray,  274  (185'J).  See  also  Ellis 
V.  I'roprietors  of  Essex  Merrimack  Bridge, 
2  Pick.  243  (1821)  ;  GiftorJ  v.  Thompson, 
115  Ma-^s.  478  (1874). 

3  Richardson  v.  I'.icliardson,  75  Me. 
570  (1884);  s.  c,  4  Am.  Prob.  Rep.  352  ; 
Bates  V.  Mackinlcy,  31  Be;iv.  280  (1862); 
Jones  V.  Ogle,  L.  R.  8  Chan.  102  (1872); 
(Joldsmith  I'.  Swift,  25  Ilun,  201  (1881); 
Jcrmain  v  Lake  Shore,  ttc,  R.  Ix.  Co.,  01 
i\.  V.  483  (1883). 

■•  Price  V.  Anderson,  15  Sim.  473 
(1847);  Barclay  r.  Wainewright,  14  Ves. 
(■)6  (1807)  ;  Witt  V.  Steere,  13  Id.  263 
(1807). 


§  554.]  LIFE-ESTATES   AND   REMAINDERS.  [CH.  XXXIII. 

other  person  tlie  remainder  over,  there  at  once  arises  a  contest 
between  life-tenant  and  remainderman.  Their  interests  neces- 
sarily conflict,  because,  if  such  a  dividend  is  held  to  be  income,  it 
belongs  to  the  tenant  for  life;  whereas,  if  it  is  held  to  be  a  part 
of  the  corpus,  or  principal,  it  inures  to  the  benefit  of  the  remain- 
derman's estate.  We  find  three  well-defined  rules  npon  this 
subject,  which  may  be  denominated  respectively  the  Pennsylva- 
nia, the  Massachusetts,  and  the  English  rule.  They  lead  to  essen- 
tially contrary  conclusions,  and  will  be  considered  in  order. 

§  554.  («.)  The  Pennsylvania  rule. — This  rule,  inasmuch  as 
it  obtains  in  every  State  in  the  Union,  excepting  Georgia  and 
Massachusetts,  might  well  be  called  the  American  rule.  It  pro- 
ceeds upon  the  theory  that  the  court,  in  disjjosing  of  stock  or 
property  dividends,  as  between  life-tenant  and  remainderman, 
may  properly  inquire  as  to  the  time  when  the  fund  out  of  which 
the  extraordinary  dividend  is  to  be  paid  was  earned  or  accumulat- 
ed. If  it  is  found  to  have  accrued  or  been  earned  before  the  life- 
estate  arose,  it  is  held  to  be  principal  and  to  belong  to  the  cotpus 
of  the  estate,  and  not  to  go  to  the  life-tenant,  without  reference 
to  the  time  when  it  is  declared  or  made  payable.  In  this  way  it 
inures  to  the  benefit  of  the  remainderman's  estate.  But  when 
it  is  found  that  the  fund  out  of  which  the  dividend  is  paid,  ac- 
crued, or  was  earned,  not  before  but  after  the  life-estate  arose, 
then  it  is  held  that  the  dividend  is  income,  and  belongs  to  the 
tenant  for  life.^      This  salutary  rule  prevails  not  only  in  Pennsyl- 

'  This  rule  was  first  declared  in  Earp's  Earp,  the  540  shares  ofstock  then  held  were 
Appeal,  28  Penn.  St.  368  (1857).  In  this  worth  over  $67,500,  and  that  at  the  time 
case  it  appears  that,  by  the  will  of  Robert  the  new  certificates  wei-e  issued  for  1350 
Earp,  the  appellants  were  entitled  to  re-  shares,  the  latter  were  worth  |1 08,000. 
ceive  during  their  lives  the  "rent,  in-  The  difference,  S40,500,  is  the  amount  of 
come,  and  interest"  of  540  shares  in  the  profits  arising  since  the  death  of  the  tes- 
Lehigh  Crane  Iron  Works.  At  the  tes-  tator.  The  profits  arising  since  the  death 
tator'd  death,  in  1848,  a  surplus  had  accu-  of  the  testator  are  'income,'  within  the 
mulated  out  of  the  regular  profits  of  the  meaning  of  the  will,  and  should  be  dis- 
business  which  increased  the  value  of  the  tributed  among  the  appellants.  Tliese 
stock  at  that  time  from  $50  per  share,  the  profits  amounted  at  tiie  time  of  the  issue 
sum  originally  paid  for  it,  to  $125  per  of  the  new  certificates  of  stock  to  $40, (hiO, 
share.  This  surplus  continued  to  increase  exclusive  of  the  current  semiannual  divi- 
until  1854,  when  it  was  converted  into  dends  which  had  previously  been  declared 
new  stock,  and  a  stock  dividend  declared,  and  paid.  That  sum  is  tlie  rightfui  prop- 
By  this  proceeding  the  number  of  shares  erty  of  the  appellants.  The  managers 
in  the  hands  of  the  trustee  was  increased  might  withhold  the  distribution  of  it  for 
from  540  to  1350,  and  the  value  pev  share,  a  time  for  reasons  beneficial  to  the  infer- 
after  the  issue  of  new  stock,  was  about  ests  of  the  parties  entitled.  But  they 
$80.  "It  thus  appears,"  say  the  court,  could  not,  by  any  foi'm  of  procedure  what- 
*'  that,  at  the  time  of  the  death  of  Robert  ever,  deprive  the  owners  of  it  and  give  it 

554 


CII.  XXXIII.]  LIFE-ESTATES   AND   REMAINDERS. 


[§  554. 


vania,  wliere  it  seems  to  have  first  been  clearly  declared/  but  also> 
iu  many  other  jurisdictions.^ 


to  others  not  entitled.  The  omission  to 
distribute  it  semi-annually,  as  it  accumu- 
lated, makes  no  change  iu  its  ownership. 

.  .  Standing  upon  principle,  and 
upon  the  intention  of  the  testator,  as 
plainly  expressed  in  his  will,  we  have  no 
difficult}'  whatever  in  making  this  dispo- 
sition of  the  fund." 

In  Wiltbank's  Appeal,  64  Penn.  St. 
266  (1870),  the  facts  were  that  the  testa- 
tor bequeathed  his  residuary  estate  in 
trust  for  life  with  remainder  over.  This 
residuum  included  ROO  $2.5  shares  of  the 
stock  of  the  New  Hampshire  Gas  Com- 
pany, and  20  $100  shares  of  the  stock  of 
the  New  Hampshire  Ry.  Co.  Subsequent- 
ly to  tlie  testator's  death  the  railroad 
company  increased  its  stock,  selling  the 
new  shares  to  its  stockholders  at  $75  per 
share,  and  the  gas  companj'  did  the  same, 
selling  its  shares  at  par.  The  trustees 
did  not  take  the  new  shares,  but  sold  the 
privilege  of  subscribing  for  them,  and  the 
court  held  that  the  proceeds  of  the  sale 
were  income  of  the  tru.st  and  belonged  to 
the  life-tenant.  See  also  the  following 
later  Pennsylvania  cases  in  point:  Moss's 
Appeal,  83  Penn.  St.  264(1877);  Biddle's 
Appeal,  99  Id.  278  (1882);  s.  c.  3  Am. 
Prob.  Rep.  442  ;  Vinton's  Appeal,  99 
Penn.  St.  434  (18821;  s.  c,  3  Am.  Prob. 
Rep.  231  ;  In  re  Thompson's  Estate,  1 1 
Week.  Notes  Cas.  482  (1882).  Cf.  Rob- 
ert's Appeal,  92  Penn.  St.  407  (1880); 
Thomson's  Appeal,  89  Id.  36  (1879). 

'  Vide  preceding  notes. 

'  So  in  New  Jersev.  Van  Doren  i'. 
Olden,  19  N.J.  Eq.  176'(1S68);  Ashhurst 
V.  Field's  Admr.,  26  Id.  1  (1875).  In  the 
ormer  case,  where  shares  of  stock  were 
held  in  trust  for  life,  and  an  extra  stock 
dividend  was  declared  by  the  corporation, 
the  new  shares  being  sold  to  the  share- 
holders at  fifty  per  cent,  of  their  face 
value,  it  was  held  that,  so  far  as  the  fund 
from  which  the  stock  dividend  was  made 
had  been  accumulated  hefore  tiip  testa- 
tor's death,  the  siiarcs  taken  by  the  trus- 
tees went  to  augment  the  corpus  of  the 
trust,  and  that  the  rest  was  income  be- 
longing to  the  life-tenant.  This  seems 
to  be  exactly  toe  Pennsylvania  rule.  The 
court,  in  that  case,  say:  "Where  trust 
funds,  of  which  the  income,  ititereBf.  or 
profits  are  i,'-i\en  to  one  person  for  life, 
and  the  ])riiMipal  beqiu-athcd  over  ui)oii 
the  deatli  of  the  life-tenant,  are  invested. 


either  by  the  trustee  or  at  the  death  of 
the  testator,  in  stock  or  shares  of  an  in- 
corporated company,  the  value  of  which 
consists  in  part  of  an  accumulated  surplus 
or  undivided  earnings  laid  up  bj'  the  com- 
pany, as  is  frequently  the  case,  such  addi- 
tional value  is  part  of  the  capital;  this, 
as  well  as  the  par  value  of  the  shares, 
must  be  kept  by  the  trustees  intact  for  the 
benefit  of  the  remainderman,  but  the 
earnings  of  such  capital,  as  well  as  upon 
the  par  value  of  the  shares,  belongs  to 
the  life-tenant." 

Van  I'oren  v.  Olden,  supra. 

New  Hampshire — Lord  v.  Brooks,  52 
N.  H.  72  (1872).     Here  it  appeared  that 
the  plaintiff,  in  1839,  as  trustee  under  the 
marriage  settlement  of  Mrs.  Brooks,  held 
forty  shares  in  the  P.  Bank.     The  charter 
of  tliis  banic  expired  in  1845,  and  the  liq- 
uidator paid  to  the  trustee  the  $4,000  of 
capital  invested,  and  $1,260   out  cf  the 
surplus.     The  trustee  employed  the  fund 
to  buy  fifty-three  shares  in  the  P.  Ex- 
change Bank,  which  in  turn  dissolved  in 
1864,  paying  to  the  trustee,  in  capital  and 
surplus,  s<miething  over  $8,000.     Of  this 
sum  the  trustee  invested  $4,000  in  forty 
shares  of  the  First  National  Bank  of  P. 
Mrs.  Brooks  died  in  1869,  at  which  time 
the  forty  National  Bank  shares  were  w'orth 
more  than  the  forty  shares  of  the  P.  Bank 
at  the  time  of  the  creation  of  the  trust  in 
18.39.     The  balance  not  invested  in  1864 
in  bank   shares  was  claimed   by  the  re- 
mainderman and  also  by  the  administra- 
tor of  Mrs.  Brooks,  and   the   court  held 
that  this  balance  clearly  belonged  to  the 
administrator  as  income  of  the  trust  upon 
the  ground  that  net  earnings  remain  the 
l)ropeity  of  the  corporation  until   a  divi- 
dend is  declared,  but  that,  while   it  is  of- 
ten  advisable  to  reserve   earnings,  their 
character  is  not  chan::eJ  by  the  delay  in 
distributing  them,  and  that  when  the  neces- 
sity or  ))ropriety  of  reserving  tiicm  ceases, 
and    the  reserve  is  divided,  the  qmstion 
whether  it  is  income  or  ca])ital  will  depend 
on  its  oriy;in,  it  being  income  if  originally 
derived   from    net  earnings.     In    \Vheel- 
er  V.  Perry,  18  N.  II.  307  (1H4  0),  a  testa- 
tor left  in  trust  for  life  with  renniinder 
over  two  shares  of  the  par  value  of  $500 
each,  wortii,  however,  $l,5t)0  each  to  tlie 
testator's  knowledge  :it  the  date   of  liie 
will.     Sul)S(  quently  the  corporation   dis- 
solved,   and    paid    to    its    shareholders 


i).)D 


§  554.] 


LIFEE-STATES   AND   REMAINDERS.  [CH.  XXXIII. 


In  New  York  the  Court  of  Appeals  has  not  been  called  upon 
to  consider  this  question,^  But  it  has  frequently  arisen  in  the 
lower  courts,  and  there  the  rule,  as  announced  by  the  courts  of 
Pennsylvania,  has  been  strenuously  insisted  upon.'^  The  principle 
upon  which  this  class  of  cases  proceed  is  that  the  corpus  of  the 
trust  must  not  on  the  one  hand  be  impaired  by  the  declaration  of 
a  dividend,  and  that,  on  the  other  hand,  it  must  not  be  augmented 
at  the  expense  of  the  life-estate;  that  the  life-tenant  is  entitled 
to  all  the  increase  or  earnings  of  the  fund  when  declared,  as  divi- 
dends;  that  the  trustee  must  maintain  intact  the  value  of  the 
corpus  as  it  existed  at  the  time  of  the  creation  of  the  trust,  appor- 
tioning dividends  if  necessary  between  life-estate  and  remainder 
to  that  end,  but  that  whatever  the  trust  fund  earns  during  the 


$1,525  on  each  sliare.  It  was  held  that 
these  dividends  were  ol  capital,  and  went 
wholly  to  the  corpus  of  t'ne  estate.  See 
also  Peirce  v.  Burroughs,  58  N.  H.  302 
(1878). 

Maine — Richardson  v.  Richardson,  75 
Maine,  570  (1884);  s.  c,  4  Am.  Prob. 
Rep.  352.  In  this  case  the  court,  in  de- 
-cidins:  that  a  cash  dividend  of  fifty  per 
cent,  belonged  to  tlie  life-tenant,  intimat- 
ed strongly  that  it  would  not  have  reached 
a  contrary  conclusion  if  the  dividend  had 
been  pnid  in  stoct  instead  of  money,  it 
appearing  that  it  was  made  out  of  profits, 
and  said  :  "  Although  the  dividend 
amounts  to  fifty  per  cent,  on  the  capital 
shares,  our  opinion  is  that  it  and  all  the 
•dividends  made  or  to  be  made  like  it 
must  be  paid  to  tlie  life-tenant.  If  in  this 
she  is  fortunate  to-day,  she  may  have 
been  exceedingly  less  so  in  the  pa?t,  and 
no  one  can  anticipate  what  may  come  of 
the  morrow.  The  declaration  of  this 
dividend  is  a  confession  by  the  company 
that  her  previous  annual  income  has, 
from  the  caution  of  its  officers,  been  too 
small,  and  is  now  made  up  to  lier.  The 
present  atones  for  the  past." 

'  "  The  right  to  stock  dividends  as 
between  tenant  for  life  and  remainder- 
mar,  has  not  been  considered  by  the 
court  of  last  resort  in  this  Stale."  Riggs 
V.  Cragg,  89  N.  Y.  479,  487  (1882),  by 
Andrews,  C.  J. 

*In  Riggs  V.  Cragg,  26  Hun,  89,  103 
(1881),  it  was  decided  by  Daniels,  J.,  that 
in  New  York,  stock  dividends  created  by 
and  declared  from  the  surplus  earnings 
of  a  comp:m3'  are  as  between  a  tenant  for 
life  and  those  interested  in  the  remainder, 

556 


to  be  treated  as  income  and  not  as  an  ad- 
dition to  the  capital,  but  where  the  fund 
from  which  the  stock  dividend  is  declared 
has  been  created,  not  by  the  earnings  of 
the  company  but  by  a  sale  of  a  portion 
of  its  real  estate,  the  rule  is  otherwise. 
It  is  true  that  this  case  was  reversed  on 
appeal,  but  the  reversal  was  upon  another 
point.  See  the  preceding  note.  In  the 
earliest  case  in  ■which  this  question  came 
before  the  Supreme  Court — Clarkson  v. 
Clarkson,  18  Barb.  646  (1855)— it  was 
held  that  a  stock  dividend  of  sixty  per 
cent,  belonged  to  the  life-tenant,  where  it 
appeired  that  such  a  disposition  of  it 
would  not  im))air  the  capital  of  the  trust 
fund,  left  by  will  to  be  invested  in  shares, 
"the  interest,  dividends,  and  proceeds" 
to  be  paid  to  A  for  life,  with  remainder 
over  to  B.  This  case  was  followed  in 
Simpson  V.  Moore.  30  Barb.  637  (1859); 
Estate  of  Woodruft',  1  Tucker  (New  York 
Surrogate  Ct.),  58  (1865),  and  Goldsmith 
V.  Sw'ift,  25  Hun,  201  (1881).  Cf.  Cragg 
V.  Riggs,  5  Redf.  82  (1880);  Scovil'v. 
Roosevelt,  5  Id.  121  (1881).  Profits  upon 
the  sale  of  stock  are  principal  and  not  in- 
come in  New  York.  Whitney  v.  Fho3nix, 
4  Redf.  180  (I8S0).  In  Hyatt  ).  Allen, 
56  N.  Y.  553,  557  (1874),  the'^Court  of  Ap- 
peals intimated  plainly  its  disapproval 
of  the  rule  prevailing  in  England  upon 
this  subject,  and  a  review  of  all  the  re- 
ported cases  jjossibly  indicates  that  when 
the  question  shall  come  before  the  court 
of  last  resort  in  this  State  it  will  not  re- 
verse what  has  already  been  established 
in  the  inferior  coxirts.  Cf.  Farwell  v. 
Tweddle,  10  Abb.  N.  C.  94! 


ClI.  XXXIII.]  LIFE-ESTATES    AND   REMAINDERS. 


[§555. 


continuance  of  the  life-estate,  whether  it  be  paid  in  cash  divi- 
dends or  stock  dividends,  is  to  go  to  the  tenant  for  life.  Accord- 
ingly a  trust  fund,  under  the  operation  of  this  rule,  will  be 
neither  increased  nor  diminished  by  the  declaration  of  dividends 
during  the  continuance  of  the  life-estate;  dividends  from  surplus 
earnings  accumulated  during  the  life-tenant's  time  will  go  to  him 
as  income,  and  dividends  from  surplus  earnings  accumulated  be- 
fore his  estate  commenced,  will  remain  as  jDrincipal  in  the  hand 
of  the  trustee.  The  court  will  therefore  go  behind  the  mere 
formal  declaration  of  the  dividend  to  investigate  the  matter,  and 
will  apportion  the  dividend,  if  it  be  necessary,  between  life-tenant 
and  remainderman,  preserving  the  corpus  intact,  and  paying  the 
increase  to  the  owner  of  the  particular  estate. 

§  555  (Z>.)  The  Massacliusetts  ruZe.— This  rule,  which  pre- 
vails only  in  Massachusetts  and  Georgia,  is  sometimes  called  "the 
rule  in  Minot's  Case."  It  regards  cash  dividends,  whether  large 
or  small,  as  income,  and  stock  dividends,  whenever  earned  and 
however  declared,  as  capital,  and  the  rule  accordingly  is  a  simple 
one.  Cash  dividends  belong  to  the  tenant  for  life  and  stock  divi- 
dends to  the  corpus}    It  is  argued  in  defense  of  this  theory  that 


'  Minot  V.  Paine,  99  Mass.  101  (1868). 
In  this  case  the  principle  is  thus  stated  : 
"  A  simple  rule  is  to  regard  cash  divi- 
dends, however  large,  as  income,  and 
stock  dividends,  however  made,  as  capi- 
tal." In  subsequent  cases  this  rule  has 
been  affirmed  and  elaborated.  Daland  v. 
Williams.  101  Mass.  .571  (1869);  Leland 
V.  Havden,  102  Id.  542  (1869);  Heard  v. 
Ehlridge,  lO'J  Id.  258  (1872):  Rand  v. 
Iluhbell,  115  Id.  461  (1874);  Gifford  ?>. 
Thompson,  115  Id.  478  (1874);  Ilemen- 
way  i;.  llemenway,  134  Id.  446  (1883); 
s.  c.  3  Am.  Frob.  Rep.  429;  New  Eng- 
land Trust  Co.  V.  Eaton,  140  Mass.  532 
(1886);  8.  c.  4  Am.  Prob.  Rep.  368.  While 
the  rule  in  the  text  waf.  as  has  been 
shown,  first  declared  in  Minot  v.  Paige, 
iiqjra,  there  was  a  tendency  toward  it  in 
tlie  earlier  cases.  In  Harvard  College  v. 
Amory,  !•  Pick.  446  (1830),  the  earliest 
case  m  which  the  question  seems  to  huve 
come  before  the  Massachusetts  court,  it 
appears  that  funds  left  in  trust  for  life 
with  remainder  over  to  Harvard  College, 
were  by  the  trustees  invested  in  the 
shares  (if  an  insurance  company  and  a 
manufacturing  company.     The  insurance 


company  declared  an  extra  dividend  of 
fourteen  per  cent,  from  money  received 
under  a  Spanish  treaty  in  satisfaction  of 
spoliation  claims  pending  at  the  time  of 
the  investment;  the  manufacturing  com- 
pany declared  an  extra  dividend  from  the 
proceeds  of  tlie  sale  of  patent  rights  and 
machinery,  which  facts  were  kniAvn  at 
the  time  of  the  investment.  The  court 
held  that  exti-aordinary  dividends  of  this 
character  were  not  a  distributii'U  of  capi- 
tal stocks,  but  of  profits,  and  were  tliere- 
fore  properly  set  off  to  the  life  tenant. 
The  next  case  is  Balcli  v.  Ilallet,  Id  Gray, 
402  (1858),  where  shares  of  stock  in  a 
wharf  and  building  company  were  held  in 
trust  for  life  witli  remniiu'cr  over.  Divi- 
d(  nds  were  dechired  from  tiic  piocecds  of 
the  sale  of  land,  (fee,  and  it  was  hehl  that 
tiiese  were  not  extraordinary  dividends, 
and  that,  if  they  did  not  inq>  lir  the  corpm, 
thev  must  go  as  income  to  the  c(s/ui  que 
truxt.  Cf.  Atkins  v.  Albree,  94  Mass.  359 
(1866).  The  case  of  Minot  v.  Paige,  supra, 
is  next  ill  chronological  order.  The 
opinion  in  that  case,  wherein  the  Mas'ia- 
chusetts  rule  upon  this  subject  was  fir^it 
formulated,   deals  simply  with    distribu- 

or>7 


§  555.1  LIFE-ESTATES   AND   REMAINDERS.  [CH.  XXXIII. 

money  in   the  hands  of  the  directors,  while  it  is  income  to  the 
corporation  is  not  income  to  the  stockholders  until  a  dividend  is 
declared,  and  that  when  the  corporation  invests  it  in  permanent 
improvements  or  additions  to  the  corporate  property,  or  expends 
it  in  increasing  the  corporate  capacity  to  do  business,  it  never  be- 
comes income  to  the    stockholder,   but  is  an  accretion    to   the 
capital,  and  that  this  is  equally  so  whether  the  directors  elect  to 
increase  the  number  of  the  shares,  or  the  par  value  of  the  shares,  or 
leave  the  shares  unaltered  ;    that  if  the  number  of  the  shares  be 
increased  merely  for  the  purpose  of  facilitating  speculation  it  is 
an  increase  of  capital  stock  and  not  of  income  ;  that  it  is  within 
the  proper  power  of  the  directors  either  to  withhold  dividends 
and  accumulate   a   surplus  to  be  expended  as  they  deem  best,^ 
subject  only  to  the  interference  of  a  court  of  equity  in  case  of  a 
gross  abuse  of  powers,^  or  to  pay  out  the  earnings  as  dividends  ; 
that  every  shareholder  takes  his  stock  with  knowledge  of  this 
fact,  and  subject  to  the  exercise  of  this  power  by  the  directors, 
and  that  when  dividends  are  declared  it  is  practically  unwise  for 
the  courts  to  go  behind  the  action  of  the  corporate  management 
and  attempt  to  ascertain  how  they   came  by  the  funds  out  of 
which  either  cost  or  stock  dividends  are  declared.^     The  court 
may,  however,  in  deciding  whether,  in  a  given  case,  the  distri- 
bution is  a  stock  or  a  cash  dividend,  consider  the  actual  and  sub- 
stantial character  of  the  transaction,  and  not  its  nominal  charac- 
ter merely.* 

tions   made   from   accumulated   earnings.  ^  ChapmaD,  C.  J.,  in   Minot  v.  Paine 

This  is  in  fact  the  only  matter  in  dispute  99  Mass.  101  (1868). 

between  life-tenant    and   remainderman,  •*  Thus    in  Daland    v.   Williams,    101 

for  it  has  never  been  questioned  that  dis-  Mass.  571   (1869),  the   court,  in  applying 

tributions  of  the  origiual  capital,  on  the  "the  rule  in  Minot's  Case,"  where  the  di- 

one  hand,  go  to  the   corpus,  or  to  the  re-  rectors,  having  voted  to  increase  tlie  cap- 

mainderman— except  possibly  in  the  case  ital   stock  by    3,000  shares,    declared    a 

of  certain  peci;liar  corporations,  like  the  cash  dividend  of  forty  per  cent.,  and  au- 

Boston    Water   Power  Company,    whose  thorized    the   treasurer  to  receive    that 

regular   and  only  means  of  making  divi-  dividend   in   payment    for    2.800  of  the 

dends  are  derive'd  from  the  sales  of  their  shares,  the  remaining  200   shares  to  be 

property  (Reed  v.  Head,    6    Allen,    1*74  sold,  held  tliat  the  transaction  was  virtu- 

1863), while  dividends  of  current  earn-  ally  a  stock  dividend  and  that  the  shares 

ino-s  on  the  other  hand,  go  to  the  tenant  must  go  to  the  remainderman's  fund.     Cf. 

for  life.  Rand  «.  Hubbell,  115  Mass.  461  (1874). 

>  Rand    v.    Hubbell,  115    Mass.   461  In    Leland  v.   Hayden,    102     Mass.     542 

(1874);  In  re  Barton's  Trust,  L.  R.  5  Eq.  (1869),  where  it   appeared  that  the  cora- 

238  (1868) ;  Gibbons  v.  Mahon,  4  Mackey,  pany  had  invested  its  surplus  earnings  in 

130  (1885);'  s.  c.  54  Am.  Rep.  262.  its  own  stock,  and  subsequently  declared 

2  Pratt  V  Pratt,  33  Conn.  446  (1866);  a  dividend  of  that  stock,  the  life-tenant 

Scott  V.  Eagle  Fire  Ins.  Co.,  7  Paige,  198,  was  held  absolutely  entitled  to  it.     And 

203(1838).  again,  in    Heard  v.   Eldridge,  109  Mass. 

558 


CH.  XXXIII.]  LIFE-ESTATES   AND   REMAINDERS. 


[§  555. 


This  rule  has  not  in  general  found  favor  outside  of  Massachu- 
setts ;  it  has  been  very  severely  criticised  as  unjust  and  unreason- 
able.^    It  has  not  been   followed  except  in  Georgia,  where  the 
principle  underlying  the  rule  is  incorporated  into  the  Civil  Code, 
and  possibly  by  the  Supreme  Court  of  the  District  of  Columbia.^ 


258  (1872),  the  facts  were  that  a  fund  held 
in  trust  for  life  consisted  of  shares  in  a 
wharf  company  whose  corporate  property 
consisted  of  real  estate,  audits  income  of 
rents  and  wharfage.  The  citj^  of  Boston 
condemned  and  took  part  of  its  property 
for  public  purposes,  paying  therefore 
$185,000,  of  which  the  directors  di.s- 
tributed  $75,000  among  its  shareholders, 
reserving  the  rest.  This  was  held  to  be 
clearly  a  division  of  part  of  the  capital 
stock,"^ which  should  go  to  the  corpus,  and 
not  to  the  income  of  the  trust.  Cf.  with 
this  case,  Balch  v.  Hallett,  10  Gray,  402 
(1858);  Reed  v.  Head,  6  Allen,  174 
(1863);  Harvard  College  v.  Araory,  9 
Pick.  446  (1830).  In  Gifford  v.  Thomp- 
son, 115  Mass.  478  (1874),  where  shares 
of  stock  in  a  railway  were  held  in  trust 
for  life,  and  the  railway  dissolved,  sold  its 
propertj'  and  declared  a  dividend  of  one 
huudreit  and  fifty  per  cent.,  fifty  per  cent, 
thereof  being  undivided  earnings,  the 
court  held  that  the  undivided  earnings 
were  part  of  the  capital  represented  by 
the  certificates  of  shares,  and  that  conse- 
quently no  part  of  the  dividend  was  in- 
come, but  that  the  whole  would  go  to  the 
corpus  of  the  trust.  Cf.  Henienway  v. 
Hemenway,  134  Mass.  446  (1883);  s.  o. 
3  Am.  Prob.  Rep.  429.  in  New  England 
Trust  Co.  I'.  Eaton,  140  Mass.  532;  s.  c.  4 
Am.  Prob.  Rep.  308  (18861,  it  was  held,  in 
an  elaborate  opinion  by  Devens,  J.,  that 
the  gain  or  loss  arising  from  the  sale  of 
stock  held  in  trust  is  the  gain  or  loss  of 
the  corpus,  and  that  the  sum  received  con- 
stitutes a  new  princijial.  Accordingly  a 
trustee  who  has  invested  in  bonds  at  a 
premium  may  retain  annually  from  the 
income  payable  to  the  life-tenant,  such 
sums  as  will  restore  to  the  fund  at  its 
maturity  what  was  taken  therefrom  at  the 
time  of  the  investment.  See  also  the  dis- 
senting opinion  of  Mr.  Justice  llolnies  in 
this  case,  and  rf.  IJowker  v.  IMerco,  1 30 
Mass.  262  (1881);  Dodd  v.  Winsliip,  133 
Id.  359(1882);  Wrijiht  !'.  White,  136  Id. 
470(1884);  l^arsona  v.  VVinslow,  10  Id. 
361  (1820);  Lovell  v.  Minot,  20  Pick.  116 
(1838). 

'  See  three  intore-.tin;:  an<l  valuable 
little  pamphlets,  by  a  layman,  wherein 


the  mei'its  of  the  question  are  fully  and 
learnedly  discussed,  published  by  G.  P. 
Putnam's  Son,  New  York,  and  entitled 
resjiectively  "  Common  Sense  versus  Ju- 
dicial Legislation,"  "  Stock  Dividends, 
the  Rule  in  Miuot's  Case  Restated,  with 
Variations  by  the  Supreme  Judicial  Court 
of  Massachusetts,"  and  "A  Third  Chapter 
on  the  Rule  in  Minot's  Case."  See  5  Am. 
Law  Rev.  720  (July,  1871);  Perry  on 
Trusts  (3d  edition),  ^§  544,  545,  and  the 
notes. 

'^  The  language  of  the  Code  is  as  fol- 
lows :  "  The  natural  increase  of  tlie  prop- 
erty belongs  to  the  tenant  for  life,  any 
extraordinary  accumulation  of  t!ie  corpus, 
such  as  issue  of  new  stock  upon  the  shares 
of  an  incorporated  or  joint  stock  company 
attaches  to  the  corpus,  and  goes  with  it 
to  the  remainderman."  Code  of  Georgia, 
i^  2256.  In  Milieu  v.  Guerrard,  67  Ga. 
284  (1881);  9.  c.  44  Am.  Rep.  720,  the 
persons  having  an  estate  in  remainder  in 
certain  railway  shares,  held  in  trust  for 
life,  claimed  from  the  trustee  as  part  of 
the  corpus  of  the  trust  fund,  an  extra  divi- 
dend declared  after  the  testator's  death, 
in  certificates  of  indebtedness  payable 
in  ten  years  or  later  with  interest,  from 
the  accumulated  earnings  of  past  years, 
during  which  no  dividends  were  declared. 
The  court  held  that,  under  §  2256  of  the 
Code,  the  whole  of  this  dividend,  how- 
ever large,  went  as  income  to  the  life- 
tenant;  that,  although  it  was  unusually 
large,  it  should,  because  the  earnings  of 
previous  years  had  for  prudential  rea- 
sons been  withheld,  be  regarded  as  "  nat- 
ural increase,"  and  not  an  "  extraordinary 
accunudation  of  the  corpus." 

'  Gibbons  v.  Mahon,  4  Mackoy,  130 
(1885);  8.  c.  54  Am.  Rep.  262.  Ilere  a 
will  left  shares  in  trust,  to  pay  dividends 
to  the  testator's  eliihl  for  life, '"without 
dinnnulion  of  the  principal."  The  court 
held,  without  citing  any  authorities,  that 
the  Ule-tenant  could  not  take  a  stock  divi- 
dend, when  the  company  having  aceumu- 
lated  a  .■sur|ilus,  equal  in  amount  to  its 
original  capital,  issued  additional  stock 
after  the  testator's  death,  to  the  amount 
of  this  surplus,  thereby  doul>ling  the 
capital,  and  divided  it  among  the  stock- 

550 


556.] 


LIFE-ESTATES    AND   REMAINDERS.  [CH.  XXXIII. 


In  Rhode  Island,  however,  the  courts  have  adopted  a  rule  some- 
what like  "  the  rule  in  Minot's  Case,"  without  the  modification 
engrafted  upon  it  by  the  subsequent  decisions  of  the  Massachu- 
setts courts.  It  is  a  rule  which  in  general  prefers  the  remainder- 
man to  the  life-tenant.^ 

§  55G  (c.)  The  Englisli  rule — In  England,  the  courts  have 
based  their  rule  upon  the  rather  vague  distinction  between  regular 
or  ordinary,  and  extra  or  extraordinary  dividends,^  holding  that 
"regular"  dividends,  even  if  increased  in  amount  beyond  what 
is  usual,  belong  as  income  to  the  life-tenant,  and  that  "extra" 
dividends,  whether  they  are  paid  in  cash  or  stock,  belong  to  the 
corpus  of  the  trust.^     This  rule  may  be  said  to  have  had  its  origin 


holders  in  proportion  to  the  amount 
originally  held  by  them.  It  does  not 
very  clearly  appear  in  the  opinion, 
whetlier  this  surplus  was  earned  wholly 
or  in  part,  before  or  after  the  testator's 
death,  and  the  reasoning  by  which  the 
Court  reaches  its  conclusion  is  not  satis- 
factory, but  it  seems  to  indicate  an  at- 
tempt to  follow  the  rule  in  Minot  v.  Paine, 
99  Mass.  101,  mpra. 

'  Thus  in  Parker  v.  Mason,  8  R.  I.  427 
(1867),  when  this  question  first  came  be- 
fore the  court  of  last  resort  in  that  State, 
where  bank  shares  were  held  in  trust  for 
life,  tlie  directors,  fearing  that  the  capital 
stock  had  been  impaire'l  by  some  bad 
debts,  reduced  the  par  v;due  of  the  shares 
from  $50  to  $25,  but,  this  fear  ultimately 
proving  to  have  been  grouudle^s,  they 
issued  one  new  share  as  a  dividend  upon 
each  old  one,  and  this  the  court  very 
properly  held  to  be  a  mere  replacement 
of  the  capital  which  should  go  to  the  cor- 
pus. In  Busbee  l\  Freeman,  11  R.  I.  149 
(1875),  it  was  held  that  new  shares  is- 
sued to  the  stockholders,  whether  gratis 
or  for  cash,  would  go  to  the  remainder- 
man of  sliares  held  in  trust,  because  by 
such  an  issue  the  corpus  of  the  trust  fund 
would  otherwise  be  impaired,  the  value 
of  the  old  shares  being  reduced  to  the 
extent  .of  the  new  issue.  In  the  latest 
case  that  has  been  handed  down  in  that 
court,  Petition  of  Brown,  14  R.  I.  371 
(1884);  s.  c.  51  Am.  Rep.  397,  it  is  held 
that  new  shares,  made  out  of  corporate 
earnings,  and  distributed  amorg  the 
stockholders,  are  not  income,  and  do 
not  go  to  the  life-tenants.  In  this  case, 
Minot  V.  I'aine  is  followed  expressly, 
and  the  court,  after  announcing  the  rule 
of  that  case  at  length,  declares  as  "  entire- 

560 


ly  inconsistent  with  this  view,"  the  later 
Massachusetts  cases  wherein  the  rigor  of 
the  rule  is  abated,  as  well  as  in  the  case 
of  Parker  v.  Mason,  supra. 

■^  The  courts  perhaps  uniformly  in- 
sists upon  this  distinction,  extraordinary 
dividends  may  be  either  of  cash  or  stock, 
and  appear  under  a  variety  of  names, 
such  as  "  participations,"  "  distributions," 
or,  more  commonly,  "bonuses."  See 
Witts  V.  Steere,  13  Vesey,  363  (1807); 
Norris  v.  Harrison,  2  Madd.  268  (1817); 
Hooper  V.  Rossiter,  McCleland,  527 
(1824);  Bates  v.  MacKinley,  31  Beav. 
280  (1862). 

"  To  the  point  that  regular  dividends, 
though  increased  in  amount,  go  as  in- 
come to  the  owner  of  the  life-estate,  see 
Barclay  v.  Waiuewright,  14  Vesey,  66 
(18ii7);  Price  v.  Anderson,  15  Sim.  473 
(1847).  There  is  no  question  that  regular 
dividends,  ordinary  in  amount,  go  to  the 
life-tenant.  See  §  552,  supra.  All  the 
authorities  assume  this  as  unquestioned. 
To  the  point  that  "  extra  '  or  unusual 
dividends,  whether  of  cash  or  shares,  go 
to  augment  the  principal  of  the  trust 
fund,  see  Irving  v.  Houstoun,  4  Paton's 
H.  of  L.  Cases,  521,  1803  (a  stock  divi- 
dend) ;  Hooper  v.  Rossiter,  McCleland, 
527,  1824  (a  stock  dividend);  7w  j-e  Bar- 
ton's Trust,  L.  R.,  5  Eq.  238,  1868  (a 
stock  dividend);  Paris  v.  Paris,  10  Vesey, 
185,  1804  (a  cash  dividend);  Clayton  v. 
Greshani,  10  Vesey,  288,  1804  (a  cash 
dividend) ;  Witts  v.  Steere,  13  Vesey,  363, 
1807  (a  cash  dividend);  Price  v.  Ander- 
son, 15  Sim.  473,  1847  (a  cash  dividend); 
Bates  V.  MacKinley,  31  Beav.  280,  1862 
(a  cash  dividend).  Cf.  Gillz;.  Burley,  22 
Beav.  619^(1856);  Straker  v.  Wilson,  L. 
R.,  6  Chan.  503. 


OH.  XXXIIl]  LIFE-ESTATES    AND   REMAINDER; 


[§  556. 


in  the  opinion  of  Lord  Chancellor  Loughborough,  in  the  leading 
case  of  Brander  v.  Brander/  and  in  the  concurring  opinions  of 
Lord  Eldon,  in  the  several  subsequent  cases.^  This  rule,  it  will 
be  perceived,  rejects  both  the  distinction  between  stock  dividends 
and  cash  dividends,  upon  which  the  rule  in  Massachusetts  is 
founded,  and  also  the  distinction  between  distributions  of  earn- 
ings accumulated  after  the  commencement  of  the  life  tenancy, 
and  those  accumulated  before  that  period,  upon  which  the  Penn- 
svlvania  rule  rests.  The  En<j;lish  courts  have  with  essential 
uniformity  adhered  to  it.     After  some  intermediate  vacillation,' 


•  4  Vesey,  800,  801  (1V99).  In  this 
case  a  life-tenant  held  Bank  of  England 
shares  under  a  will.  The  bank  having 
subscribed  £1,000,000  to  a  government 
loan,  and  receiving  therefor  £1,125  000 
of  annuities,  which  it  resolved  to  distrib- 
ute among  its  stockholders,  it  was  held, 
in  the  High  Court  of  Chancery,  tliat  this 
was  not  income  for  the  life-tenant,  but  an 
accretion  to  the  corpus. 

■  The  first  of  tliese  cases  is  Paris  v. 
Paris,  10  Vesey,  185  (1804),  where  a  tes- 
tator, who  died  previous  to  the  year 
1798,  left  the  dividends  on  his  bank 
stock  to  liis  wife  for  life,  with  reniaimler- 
over.  lu  September,  1804,  the  bank  de- 
clared a  regular  three  and  one-half  per 
■cent,  dividend  of  interest  and  profits  for 
the  preceding  half  year,  and  soon  after 
resolved  on  a  division  of  money  at  the 
rate  of  five  pounds  per  cent.  This  the 
life  tenant  claimed  as  a  dividend,  attempt- 
ing to  distinguish  the  case  of  Brander  v. 
Brander,  supra,  on  tlie  ground  that  this 
bonus  was  probably  paid  from  profits 
accruing  since  the  testator's  death,  be- 
cause three  similar  dividends  had  previ- 
ously been  paid;  and  upon  the  further 
ground  that  the  f(jrmer  case  was  a  distri- 
bution of  s'ock,  and  this  one  of  money, 
liut  the  Lord  (Jhanceilor  held  tiiat  tlie 
bonus  went  to  the  corpus,  as  an  extraor- 
dinary dividend.  It  is  interesting  i<>  note 
tluit,  in  the  opinion  in  tiiis  case,  the  court 
pointedly  disapproved  of  hoth  the  rules 
which  have  subsequently  grown  up  in  the 
United  States.  With  respect  to  what  wc 
now  call  the  Pennsylvania  rule.  Lord 
Eldon,  referring  to  tlie  case  of  Irving  v. 
Ilousloun,  4  I'aton's  II.  <jf  [j.  Cases,  521 
(180IJ),  which  had  just  been  handed  down 
in  the  House  of  Lords,  and  in  which  a 
distribution  of  stock  by  the  ]{arik  of  Scot- 
land had  been  h'-ld  to  aceruo  as  princi|)al 
to    the   trust   fund,   said :   "  The   decision 


having  been  made  in  the  House  of  Lords, 
the  onl}"  ground  of  distinction  in  this  case 
is,  that  there  is  great  probabilitj^  per- 
haps moral  certainty,  that  these  profits 
were  made  during  the  time  of  the  tenant 
for  life.  But  (hat  will  not  do;  for  it  comes 
to  this,  that  in  every  case  in  which  in- 
quiry can  determine  that  the  tenant  for 
life  ought  to  have  them,  the}-  ought  to 
go  according  to  that  inquiry;  and  that 
was'  much  considered  in  the  House  of 
Lords."  And,  with  leference  to  what  ia 
known  in  this  country  as  the  "  rule  in 
Minot's  Case,"  he  said,  immediately  fol- 
lowing what  has  just  been  quoted:  "  As 
to  the  distinction  between  stock  and 
money,  that  is  too  thin,  and  if  the  law  is 
tliat  this  extraordinary  profit  if  given  in 
the  shape  of  stock,  shall  be  considered 
capital,  it  must  be  capital  if  given  as 
money.  It  would  be  too  dangerous  to 
distinguish  this  case  upon  these  distinc- 
tions." Ace.  Cases,  temp.  Eldon,  cited  in 
the  preceding  notes. 

3  In  Preston  v.  Milville,  16  Sim.  163 
(1848),  the  tenant  for  life  was  iield  en- 
titled to  a"  bonus  "  of  one  per  cent,  in  ad- 
dition to  the  regular  dividend.  This 
seems  to  have  been  the  result  of  a  mis- 
interpretation of  the  decisions  in  Barclay 
V.  Wainewright,  14  Vesej',  66  (1807), 
wliich  was  cited  hy  Counsel.  In  Murray 
V.  Glasse,  17  Jur.  816  (1852),  the  life-ten- 
ant was  said  to  bo  entitled  to  "  bonuses 
if  they  Were  made  from  prafitK."  In  Plumbe 
V.  Ne'ild,  6  Jur.  (N.  S.)  52'J  (18G0;,  bonuses 
were  given  to  tlie  tenant  lor  life,  on  the 
ground  that  they  were  eleai-ly  tleelarcd 
•'  from  tiie  profits  of  IIk;  last  half  year." 
In  .Johnson  v.  Johnson,  15  Jur.  714  (1850), 
it  seems  that  the  corporation  jtasticd  a 
resolution  "  that  a  bonus  or  increased  divi- 
dend of  £10  per  share  be  added  (o  the 
usual  dividend  of  £';  per  share,"  and  the 
court,  taking  probably   the  ground   that 


[30] 


5G1 


§  557.] 


LIFE-ESTATES   AND   REMAINDERS.  [CH.  XXXni. 


which  is,  however,  more  an  apparent  than  a  real  departure  from, 
or  relaxation  of  the  rule  declared  at  the  commencement  of  the 
controversy  between  life-tenant  and  remainderman  concerning 
dividends,^  the  courts  of  that  country  have  taken  what  may  be 
believed  to  be  a  final  stand  upon  the  question,  which  is  fully  in 
accord  with  what  the  Chancellor  established  in  Brander  v.  Bran- 
der,  and  Paris  v.  Paris,  and  which  is  here  set  out  as  the  English 
rule.^ 

§  557.   The  intent  of  the  creator  of  the  trust. — It  is  a  familiar 
rule  of  construction  that  in  every  case  the  intention  of  the  testa- 


it  might,  in  construingj  the  words  of  the 
resolution,  regard  what  was  distributed 
either  as  a  bonus  or  a  dividend,  held  it  an 
"increased  dividend,"  and  gave  it  to  the 
tenant  for  life.  Lord  Eldon's  opinion  in 
Barclaj'  v.  Wainewright,  14  Vesey,  66 
(1807),  has  sometimes  laeen  niisunder- 
Btood,  and  that  case  is  cited  as  "  shaking 
the  authority  "  of  the  earlier  leading  cases. 
So,  for  example,  in  Clarkson  v.  Clarkson, 
18  Barb.  646  (1855);  Minot  v.  Paine,  99 
Mass.  101  (1868);  Earp's  Appeal,  28 
Penn.  St.  S68  ( 185'?),  but  this,  it  is  re- 
spectfully submitted,  is  an  entire  mis- 
conception of  what  the  case  decided. 
The  question  involved  was  the  dis- 
posal of  a  semi-annual  dividend  of  the 
Bank  of  England,  which  was  larger  than 
usual  by  two  per  cent.  This  the  court 
gave  to  the  life-tenant  as  an  increased 
regular  dividend  in  precise  consistency 
with  the  established  rule.  See  also  Witts 
V.  Steere,  18  Vesey,  363  (ISOV),  where 
the  facts  were  similar,  except  that  instead 
of  increasing  the  regular  dividend,  the 
bank  issuf  d  an  "  extra  dividend  "  of  five 
per  cent. 

This  was  disposed  of  by  Lord  Eldon  in 
strict  accord  with  the  rule.  In  the  ojiinion 
it  is  said  :  "The  ordinary  dividend  pro- 
ceeds as  usual.  T  he  question  is  how  this 
bonus  of  £5  per  cent,  out  of  the  interest 
and  profits  is  to  be  considered,  whether 
as  part  of  the  capital  or  to  go  to  the  ten- 
ant for  life.  It  is  not  for  me  to  say  how 
this  would  be,  if  it  were  7-cs  nova.  The 
only  principle  upon  which  it  can  stand  is 
the  principle  that  seems  to  have  gov- 
erned the  House  of  Lords  in  the  case  of 
Irving  V.  Houstoun,  that  whatever  con- 
duct or  language  the  bank  may  hold,  if 
they  do  not  increase  the  dividend,  but  take 
this  mode  of  distributing  the  prof  t,  it  is 
part  of  the  capital,  and  does  not  belong 

562 


to  the  tenant  for  life.  The  bank  may  so 
conduct  themselves  as  to  avoid  the  ques- 
tion altogether,  for  they  may  increase  the 
dividend,  and  that  increased  dividend 
would  be  the  ordinary  fruit  of  the  stock. 
But  if  they  do  not  take  that  course,  the 
manner  in  which  they  give  the  bonus 
cannot  make  a  difference.  Though  they 
may  express  it  differently,  the  thing  is  in 
fact  the  same." 

'  See  the  preceding  note. 

"^  In  re  Barton's  Trust,  L.  R.,  5  Eq. 
238  (1868).  In  this  case  one  was  en- 
titled to  receive  for  life  the  "interest, 
dividends,  shares  of  profits,  or  annual 
proceeds  "  of  certain  stock,  and  the  di- 
rectors, having  paid  out  a  portion  of  the 
net  profits  for  a  fixed  period  as  ordinary 
cash  dividends,  retained  and  applied  the 
remainder  of  jirofit  to  the  purchase  of  new 
property,  and  issued  new  shares  to  repre- 
sent what  had  been  so  expended.  Wood, 
V.  C,  in  holding  that  these  new  shares 
belonged  to  the  rorpiiR,  and  not  to  the  life- 
tenant,  said :  "  The  dividend  to  which  a 
life-tenant  is  entitled,  is  the  dividend 
which  the  company  chooses  to  declare. 
And  when  the  company  meet  and  say 
that  they  will  not  declare  a  dividend,  but 
will  carry  over  some  part  of  the  half 
years'  earnings  to  the  capital  account, 
and  turn  it  into  capital,  it  is  competent 
for  them  to  do  so ;  and  where  this  is  done 
everybody  is  bound  by  it,  and  the  life- 
tenant  of  those  shares  cannot  complain." 
Ace.  Bates  v.  MacKinley,  31  Beav.  280 
(1862).  See  also  In  re  Hopkin's  Trust,  L. 
R.,  18  Eq.  696  (1874);  Sproule  v.  Bouch, 
L.  R.,  29  Chan.  Div.  635  (1885)  [a  case 
in  which  it  was  held  that  the  rule  will  not 
apply  when  it  appears  that  the  testator 
intended  otherwise].  Lock  v.  Venables, 
27  Beav.  598  (1859);  Scholeficld  v.  Red- 
fern,  32  L.  J.  Chan.  627  (1863). 


CH.  XXXriI.]  LIFE-ESTATES   AND   REMAINDERS. 


[§  557. 


tor  or  of  the  grantor  of  the  trust  deed  is  the  pole  star,  and  that, 
as  far  as  it  can  be  ascertained,  it  shall  control  in  the  administra- 
tion of  the  trust. ^  So  also  the  court  will  take  into  consideration 
in  determining  the  question,  as  between  life-tenant  and  remain- 
derman, the  whole  character  of  the  transaction,  and  the  nature 
and  source  of  the  property  distributed,  with  due  regard  to  all  the 
facts  preceding,  attending,  and  resulting  from  the  declaration 
of  the  dividend.^  In  general  it  seems  to  have  been  the  tend- 
ency of  the  earlier  English  cases  to  favor  the  remainderman, 
but  in  the  later  cases  the  tendency  is  even  more  marked  to 
favor  the  life-tenant.^  Accordingly  it  is  a  settled  rule  that 
merely  calling  a  dividend  a  bonus  or  a  bonus  a  dividend,  will  not 
conclude  the  court  from  looking  into  the  facts,  and  from  reaching 
its  conclusions  without  reference  to  the  mere  names  applied  to 
the  fund  distributed.^  Accordingly,  where  it  is  shown  that  divi- 
dends have  been  fraudulently  retained,  in  prejudice  of  the  rights 


'  In  re  Bouch,  L.  R.,  29  Chan.  Div. 
635  (1885);  In  re  Hopkin's  Trusts,  L. 
R.,  18  Eq.  696  (1874);  Jones  v.  Ogle,  L. 
R.,  14  Eq.  419  (1872);  Re  Box's  trusts, 
9  L.  T.  (N.  S.)  372  (1863).  Cf.  Read  v. 
Head,  6  Allen,  174  (1863);  Clarkson  v. 
Clarkson,  18  Barb.  646  (1855);  Millen  v. 
Guerrard,  67  Ga.  284  (1881);  Thomson's 
Appeal,  89  Penn.  St.  86  (1879). 

'^  Deland  v.  Williams,  101  Mass.  571 
(1869);  Leland  v.  Hayden,  102  Id.  542 
(1869);  Rand  v.  Hubbell,  115  Id.  461 
(1874).  In  Minot  v.  Paine,  99  Mass.  101 
(1868),  the  rule  was  laid  down  that  the 
form  in  which  the  dividend  was  declared 
fthould  determine  to  whom  it  should  go. 
This  position  is  qualified  by  tlie  subse- 
quent cases.  So  in  Heard  v.  Eldriilge, 
109  Mass.  258  (1872),  it  is  said:  "The 
suggestion  that  the  intention  of  the  direc- 
tors sliall  determine  the  question  whether 
the  dividend  is  ca[)ital  or-  income  cannot 
be  correct.  .  .  .  It  is  more  safe  to 
look  at  tlie  diaracter  of  the  property  and 
the  transaction."  See  also  Hartley  v. 
Allen,  4  Jur.  (N.  S.)  50i»,  and  the  cases  in 
the  preceding  note.  Upon  tliis  theory,  as 
it  seems,  it  was  held  in  Lock  v.  Venables, 
27  Eeav.  598  (1859),  that  a  specific  be- 
quest of  "  tiiedividi-nds,  interest,  and  pro- 
ceeds "  of  shares  will  not  jtass  a  bonus  on 
the  shares.  In  .Mcock  v.  Slo[ier,  2  Mylne 
<k  K.  699  (1833),  the  "  income  of  the  tes- 
tator's long  annuities  "  was  given  to  tlie 
life-tenant.  Ace.  Wikiay  v.  SandyH,  L. 
R.,  7  Eq.  465  (1869).     in  Lane  v.  Lough- 


ran.  7  Vict.  L.  R.  Eq.  19  (1881).  it  was 
held  that  the  premium  on  a  lease  of  part 
of  a  trust  estate  belonged  to  the  tenant 
for  life  and  not  to  the  corpus.  An  execu- 
tor may  plainly  transfer  the  stock  to  pay 
the  decedent's  debts,  although  it  is  be- 
queathed for  life  with  remainder  over. 
Franklin  v.  Bank  of  England,  1  Russ.  575 
(1826).  In  Sproule  v.  Bouch,  L.  R.,  29 
Chan.  Div.  635(1885),  a  bonus  was  held 
to  belong  to  the  tenant  for  life,  it  appear- 
ing that  such  was  the  intention  of  the 
parties.  Cf.  Bostock  v.  Blakenev,  2 
Brown's  Chan.  653  (1788);  Re  Willciugh- 
by,  53  Law  Times  Rep.  926  (1886);  2 
Perry  on  Trusts,  gg  544,  545  ;  Mr.  Moak's 
note,"^  31  Eng.  Rep.  328,  332. 

^  This  may  be  seen  by  comparing  tiie 
opinions  in  the  cases  of  Brander  v.  liran- 
der,  4  Vesey,  800,  801  (1799);  Bostock 
V.  Blakeney,  2  Brown's  Chan.  653  (1788), 
and  Paris  v.  Paris,  10  "Vesey,  185 
(1804),  with  those  in  the  com])aiutively 
recent  cases  of  In  re  Bouch,  L.  R.,  29 
Chan.  Div.  635  (1885)  ;  In  re  Hopkin's 
Trusts,  L.  R.,  18  Eq.  696  (1874),  and 
Plumbe  V.  Neild,  6  Jur.  (N.  S.)  629  ( 186i>). 

■»  Ilallis  V.  Allan,  12  Jur.  (N.  S.)  638 
(1866);  Johnson  v.  Johnson,  15  Jur.  714 
(1851));  I'himbe  v.  Neild,  6  Jur.  (N.  S.) 
529(1860);  Sproule  t;.  Bouch,  L.  H.,  29 
Chan.  Div.  635  (1H85);  Hooper  v.  Rossi- 
ter,  13  Price,  774  (1824);  Millen  v. 
Guerrard,  67  Ga.  284  (1881);  Daland  v. 
WillianiH,  101  Mass.  571  (1809);  Rand  v. 
Hubbell,  115  Id.  461  (1874). 

50)3 


>:§  558.] 


LIFE-ESTATES    AND   REMAINDERS.  [CH.  XXXIII. 


of  the  life-tenant,  and  subsequently  a  bonus  is  paid  upon  the 
shares,  it  belongs,  as  income  deferred,  to  the  tenant  for  life,  even 
though  it  be  called  a  bonus.^ 

§  558.  The  api)ortionment  of  dividends. — When  a  life-tenant 
-dies  before  the  date  at  which  a  dividend  is  regularly  declared, 
the  question  arises  whether  the  dividend  declared  next  after  his 
<leatli,  for  the  period  of  time  partially  covered  by  the  life-estate, 
ought  or  ought  not  to  be  apportioned  between  the  reversioner  or 
remainderman  and  the  estate  of  the  life-tenant.  It  is,  in  general, 
the  rule  in  such  a  case,  in  the  absence  of  a  statutory  provision  to 
the  contrary,  that  the  dividend  is  not  apportionable,  but  belongs 
entirely  to  the  corpus  of  the  trust  fund.^  But  where  a  tenant 
for  life  dies  on  the  day  a  dividend  becomes  due,  his  estate  will  be 
entitled  to  the  whole  of  that  dividend.^  In  England,  however, 
binder  the  statute  known  as  the  Apportionment  Act  of  1870,* 
dividends  are  ajjportionable  in  these  cases  between  the  estate  of 
the  life-tenant  and  the  co/'^ms,^  and  in  this  country,  at  common 
law,  in  one  or  two  jurisdictions,  there  is  a  tendency  to  hold  that 
dividends  are  apportionable.^ 


1  Maclaren  v.  Staiiiton,  L.  R.  11  Eq. 
:382^  s.  c.  3  De  G.,  F.  &  J.  202  (1861); 
ireverang  s.  c.  27  Beav.  460  (1859); 
Edmondson  v.  Crosthwaite,  34  Beav.  30 
<(1864);  Dale  v.  Hayes,  40  L.  J.Chan. 
244(1871);  s.  c.  24  L.  T.  (N.  S.)  12;  19 
W.  R.  299.  Cf.  Lean  v.  Lean,  32  L.  T. 
(N.  S.)  305  ;  s.  o.  23  W.  R.  484  ;  Lam- 
bert V.  Lambert,  29  L.  T.  (N.  S.)  878; 
s.  c.  22  W.  R.  359 ;  In  re  Tinkler,  45  L. 
J.  (Chan.  Div.)  135. 

2  Pearly  v.  Smith,  3  Atk.  260  (1745); 
iSherrard  v.  Sherrard,  Id.  502  (1747); 
"Wilson  V.  Hurman,  2  Vesey,  Sen.  672 
,(1755);  H.irlley  t'.  Allen,  4  Jur.  (N.  S.) 
600  (1858);  Jn  re  Maxwell's  Trusts,  1 
Hem.  &  M.  610  (1863);  Scholefield  v. 
Redfern,  2  Drew.  &  Sm.  173  (1863); 
Foote,  Appellant,  22  Pick.  299  (1839); 
Granger  v.  Bassett,  98  Mass.  462(1868); 
Clap|.  V.  Astor,  2  Edw.  Chan.  379  (1834). 
Of.  Hyatt  V.  Allen,  56  N.  Y.  553  (1874) ; 
Brundage  v.  Brundage,  60  Id.  544,  551 
(1875);  Perry  on  Trusts,  §  556;  1  Wil- 
liams on  Executoi's,  §  836,  note  m. 

^  Baton  V.  Sheppard,  10  Sim.  186 
<1839). 

■t  33  &  34  Vict.,  chap.  35,  §  2. 

^  This  statute  provides  that  "  all  rents, 
-annuities,  dividends,  and  other  periodical 
payments  in  the  nature  of  income  shall, 

5G4 


like  interest  on  money  lent,'  be  considered 
as  accruing  from  day  to  day,  and  shall 
be  apportionable  in  respect  of  time  ac- 
cordingly." The  courts  construe  this 
statute  so  as  to  make  dividends  appor- 
tionable between  life-tenant  and  remain- 
derman. Pollock  •«.  Pollock,  L.  R.,  18 
Eq.  329  (1874),  qualifying  or  explaining 
Whitehead  ?;. Whitehead,  L. R.,  16  Eq.  528 
(1873);  Beavan  v.  Beavan,  53  L.  T.  Rep. 
245  (1885).  Of.  Capron  v.  Capron,  L.  R., 
17  Eq.  288  (1874).  And  see  Banner  v. 
Lowe,  13Vea.  135(1806);  Hay  w.  Palmer, 
2  P.  Wms.  501  (1727).  The  statute  applies 
only  to  dividends  upon  the  stock  of  cor- 
porations strictly  speaking,  and  not  to 
those  upon  the  shares  in  private  trading 
corporations.  Jones  v.  Ogle,  L.  R.,  8 
Chan.  192(1872).  And  does  not  apply 
to  stock  dividends.  Hartley  v.  Allen,  4 
Jur.  N.  S.  500  (1858). 

fi  In  Uz  parte,  Rutledge,  1  Harper's 
Eq.  (S.  C.)  65  (1824);  s.  c.  14  Am.  Dec. 
696,  a  dividend  was  apportioned  be- 
tween life-tenant  and  remainderman. 
This  is  regarded  a  leading  lease  in  favor 
of  apportionment.  In  Pennsylvania  the 
interest  on  municipal  bonds,  and  the 
bonds  of  private  corporations,  is  appor- 
tionable, but  quere  whetiier  or  not  the 
interest  on  orovernment  bonds  would  be. 


CH.  XXXm.]  LIFE-ESTATES   AND   REMAINDERS.         [§§  559, 560, 


§  559.  The  right  to  suhscribe  for  new  shares,  as  hetween 
life-tenant  and  remainderman. — The  right  to  subscribe  for  rmw 
shares  at  par  upon  an  increase  of  the  capital  stock,,  which  is  an 
incident  of  the  ownership  of  the  stock,  does  not  belong  as  a  privi- 
lege to  the  life-tenant,  but  such  an  increment  must  be  treated  as- 
capital,  and  be  added  to  the  trust  fund  for  the  benefit  of  the  re- 
mainderman. This  is  equally  the  rule  whether  the  trustee  sub- 
scribes for  the  new  stock  for  the  benefit  of  the  trust  or  sells  the 
right  to  subscribe  for  a  valuable  consideration,  in  either  event 
the  increase  goes  to  the  corpus}  The  subsequent  income,  how- 
ever, of  such  increase  belongs,  as  of  course,  during  the  continu- 
ance of  the  life  tenancy,  to  the  life-tenant  as  income  proper,  the 
new  shares  are  part  of  the  corpus,  and  the  life-tenant  being 
entitled  to  the  income  from  the  corpus,  takes  the  income  from 
the  accretions  thereto.^ 

§  560.  Miscellaneous  incidents  herein. — The  life-tenant  must 
pay  calls  which  are  made  ^  and  taxes  levied,*  during  the  contin- 


Wilson's  Appeal,  108  Penn.  St.  34-1  (1885); 
overruling  Earp's  Will,  1  Parson's  Eq. 
Cas.  553.  But  in  Massachusetts  the 
statute  of  apportionment  is  held  not  to 
apply  to  dividends,  upon  the  stock  of 
corporations.  Granger  v.  Bassett,  98 
Mass.  362,  469  (1868),  construing  Genl. 
Stat,  of  Mass.  chap.  97,  ^  24.  In  New 
York  an  apportionment  is  provided  for 
by  L;iws  of  1875,  ch.  542. 

'  Atkins  V.  Albree,  94  Mass.  359 
(1866);  Brinley  v.  Grou,  50  Conn.  66 
(1882);  8.  c.  4  Am.  Prob.  Rep.  324; 
Bidders  Appeal,  99  Penn.  St.  278  (1882) ; 
8.  c.  3  Am.  Prob.  Rep.  442 ;  Moss's  Ap- 
peal, 83  Penn.  St.  264  (1877);  Vinton's 
Appeal,  99  Penn.  St.  434  (1882);  s.  c.  3 
Am.  I'rob.  Rep.  231;  Gold-in)ith  v.  Swift, 
25  llun.  201  (1881);  Sanders  v.  Bromley, 
65L.  T.  (N.  S.)  Chan.  Div.  145  (1886). 
Profit  upon  the  sale  of  stock  is  corpus  and 
not  income  lor  the  life-tenant.  Whitnev 
V.  Phoenix,  4  Redf.  (X.  Y.  Surro.)  180 
(18S0).  Cf.  Leitch  v.  Wells,  48  N.  Y.  585 
(1872).  In  lienicnway  V.  Ilemenway,  134 
Mass.  446(1883);  s.  c.  3  Am.  Prob'  Kep. 
42!',  where  a  testator  bequeathed  a  fund 
to  trustees,  with  a  discretion  to  sell  cer- 
tain of  the  securities,  and  substitute  other 
investments,  paying  tlie  "  net.  rents  and 
income  "  to  one  for  life,  remainder  over, 
and  tiie  trustees  with  the  proceeds  of  cer- 
tain honds  worth  more  than  par  wliich 
fell  due   after  the    testator's    death,  had 


bought  other  bonds  at  par  and  at  par  and 
accrued  interest,  it  was  held  that  the  life- 
tenants,  as  against  the  reiuaindernian,. 
were  entitled  to  all  the  net  income  on 
the  bonds  owned  by  the  testator  or 
bought  by  tiie  trustees  at  a  premium,  and 
that  sums  paid  for  accrued  interest  should 
be  repaid  from  interest  subsequently 
received.  Ace.  New  England  Trust  Co. 
t;.  Eaton,  140  Mass.  532  (1886)  ;  s.  c.  4 
Am.  Prob.  Rep.  368.  Sometimes  certifi- 
cates of  new  stock  are  not  stock  dividends. 
Chicago,  &c.,  R.  R.  Co.  v.  Page,  1  Biss. 
461  (1864).  In  Londesborough  v.  Somer- 
ville,  19  Beav.  295  (1854).  where  consols 
were  sold  just  before  a  dividend  day,  and 
the  proceeds  invested  in  realty,  a  tenant 
for  life  was  held  entitled  to  be  paid,  as 
income  on  the  consols,  the  difference  be- 
tween the  price  obtained  and  the  valuo- 
exclusive  of  the  next  dividend. 

*  Moss's  Appeal.  83  Penn.  St  2C4 
(1877);  Biddle's  Appeal,  99  Penn.  St.  278 
(1882);  s.  0.  3  Am.  Prob.  Rep.  442,  and 
the  cases  generally  cited  in  the  preced- 
ing note.  /((,  re  Bromley,  56  L.  T.  (N. 
S.  Chan.  Div.)  145  (1880). 

•"  Jic  Box's  Trusts,  t  L.  T.  (N.  S.)  372 
(1863). 

*  Webb  p.  Town  of  Hurrnigton,  28  Vt. 
188  (1856):  Citizens'  Mutual'  Ins.  Co.  v, 
Lott,45  Ala.  185(1871).  Cf.  Nat.  Albany 
Exchange  liank  r.  Wells,  18  Blatchf.  478. 
(1880). 

505 


560.] 


LIFE-ESTATES   AND   REMAINDERS.  [CH.  XXXIII. 


nance  of  his  estate,  upon  shares  held  in  trnst  for  his  benefit.  And 
where  stock  to  produce  a  fixed  income  is  bequeathed  for  life,  a  sub- 
sequent increase  in  the  earnings  from  that  stock  inures  to  the  bene- 
fit of  the  life-tenant.^  But  the  enhanced  price  for  which  stock 
sells  by  reason  of  dividends  earned  but  not  declared,  belongs 
entirely  to  the  remainder.^  A  life-tenant  is  not  entitled  to  have 
the  stock  transferred  to  him  on  the  corporate  books.®  But  the 
corporation,  if  it  had  notice  of  the  trust,  may  be  held  liable  for 
transferring  shares  in  prejudice  of  the  rights  of  the  life-tenant.^ 
And  an  administrator  who  permits  an  irregular  transfer  in  fraud 
of  the  life-tenant's  rights,  makes  himself  personally  liable.^ 


'  Russell  V.  Loring,  3  Allen,  121 
(1861).  In  this  case  stock  to  produce 
$2,000  of  income  per  annum  subsequently 
produced  considerably  more  per  annum 
than  that  sum.  This  excess  was  held  to 
belong  to  the  life-estate.  But  when  a 
fixed  income  is  bequeathed  and  the  in- 
come fails,  or  falls  short,  the  principal 
must  be  resorted  to.  Bonham  v.  Bonham, 
33  N.  J.  Eq.  476  ;  Haydel  v.  Hurck,  72 
Mo.  253.  The  opposite  rule,  however, 
prevails  in  New  York.  Delaney  v.  Van 
Aulen,  84  N.  Y.  16  (1881);  reversing  s.  c. 
21  Hun,  274.  Cf.  Crawford  v.  Dox,  5 
Hun,  507  (1875.) 


'^  Scholefield  v.  Redfern,  32  L.  J.  Chan. 
627  (1863);  Abercrombie  v.  Riddle,  3 
Md.  Chan.  320  (1850);  Van  Blarcom  v. 
Daget,  31  N.  J.  Eq.  783.  Cf.  Londes- 
borough  V.  Somerville,  19  Beav.  295 
(1854);  Matter  of  Stutzer,  26  Hun,  481 
(1882). 

^Collier  v.  Collier,  3  Ohio  St.  369 
(1854).  (f.  State  v.  Robinson,  57  Md. 
486. 

*  Stewart  w.  Fireman's  Ins.  Co.,  53  Md. 
664  (1880). 

5  Keeney  v.  Globe  Mill  Co.,  39  Conn. 
145  (1872),  See  also  Ames  v.  Williamson, 
17  West  Va.  673. 


566 


CHAPTER  XXXIV. 


TAXA.TION  OF  SHARES  OF  STOCK. 


§661. 
562. 

,563. 
564. 

666. 

566. 


The  four  methods  of  taxing  corpo- 
rate interests. 

Rights  of  the  stockholders  in  re- 
gard to  the  first  three  methods  of 
ta.'^ation. 

Tax  on  sliares  of  stock  as  distin- 
guishsd  from  the  otlier  methods. 
Tax  on   stockholders  residing   in 
the    State    creating    the   corpora- 
tion. 

Tax  on  resident  stockholders  in  a 
non-resident    or   foreign    corpora- 
tion. 
Tax  on  non-resident  stockholders 


in  resident  or   domestic   corpora- 
tion. 
I  567.  Double  taxation. 
56S.  Exemptions  from  taxation  as  af- 
fecting tax  on  shares  of  stock. 

569.  Taxation  of  national  bank  stock. 

570.  Place  in  winch  shares  in  national 
bank  stock  may  be  taxed. 

571.  The  tax  must  not  be  greater  than 
that  imposed  on  other  "  moneyed 
capital." 

572.  The  bank  may  brins:  suit  to  res- 
train illegal  tax  on  its  stockhold- 
ers. 


§  561.  The  four  metlwds  of  taxing  corimrate  interests. — 
There  are,  in  general,  foar  methods  of  taxing  corporate  interests. 
These  are,  first,  by  a  tax  on  the  franchise ;  second,  on  the  capital 
stock  ;  third,  on  the  real  estate  and  personal  property  of  the  cor- 
poration ;  fonrth,  by  a  tax  on  the  shares  of  stock  in  the  hands  of 
the  stockholders.^  There  is  another  mode  of  taxation  which  is 
sometimes  adopted — a  tax  on  corporate  dividends;  but  since  this 
is  generally  construed  to  be  only  a  method  of  valuing  the  fran- 
chise or  capital  stock,  it  can  hardly  be  called  a  fifth  method  of 
taxing  corporate  interests.^  It  is  entirely  within  the  discretion  of 
the  legislature  to  say  which  one  of  these  four  methods  of  taxation 
shall  be  adopted,  where  the  matter  is  not  regulated  by  the  State 
•Constitution.     Not  only  this,  but  it  is  also  within  the  discretion 


'  Redfield  on  Railways,  vol.  II,  3(1 
cd.,  p.  453,  says:  "We  here  find  the 
clear  recognition  of  three  kinds  of  corpi)- 
rate  property  taxable  to  the  corporation, 
and  the  shares  in  the  hands  of  th(i  corpo- 
rators distinctly  defined  as  a  fouith  spe- 
cies of  corporate  property,  which  is  tax- 
able only  to  the  owner  or  holders — 1. 
The  capital  stock;  2.  The  corp')ratc  prop- 
erty; 3.  The  franchise  of  ihe  corpoi-aiioi). 
All  of  which  is  taxable  to  the  corporation; 
and  th-  shares  in  the  capital  stock, 
which    is    taxable    only   to    the    share- 


holders."    See  also  Id.  5th  od.  423.     In 

the  case  Ottawa  Glass  Co.  v.  McCaleb,  81 
111.  5ri6  (1876),  the  court  paid:  "  A  cor- 
l)oration  is  possessed  of  three  kinds  of 
property  subject  to  taxation — first,  the 
capital  stock  ;  secoml,  tlie  corporate 
property  ;  and  third,  the  franchisi* ;  and 
the  shares  may  bo  assessed  against  their 
owners."  See  also  Loui^ivillo.  <fe(\.  R.  H. 
Co.  V.  State,  8  Ileisk.  (Tenn.)  r,r,\\,  795. 
'  See  State  of  O.  v.  FianUlin  Rk.,  10 

0.91   (1810);  People   )>.  Home   Ins.  Co., 

92  N.  Y.  328(1883). 

r.07 


§§  562,  563.] 


TAXATION   OF   STOCK. 


[cH.  xxxrv. 


of  the  legislature  to  tax  the  corporation  in  two  or  more  of  these 
ways,  to  levy  a  double  tax  on  the  corporate  interests,  and  even  to 
levy  a  treble  or  quadruple  tax  thereon. 

§  562.  Rights  of  the  stockliolders  in  regard  to  tlie  first  three 
methods  of  taxation. — The  stockholders  in  a  corporation  have 
very  little  to  do  directly  with  any  of  the  first  three  modes  of  tax- 
ing corporate  interests.  The  tax  is  levied  directly  against  the 
corporation,  and  is  paid  by  the  corporate  ofiicers  out  of  the  treas- 
ury of  the  corporation.  If  the  tax  is  unauthorized  or  illegal,  or 
improperly  assessed,  or  is  based  on  too  high  a  valuation,  it  is  or- 
dinarily the  duty  of  the  corporate  officers  to  rectify  or  oppose 
such  tax.  The  stockholders  have  nothing  to  do  with  the  ordinary 
transaction  of  corporate  business,  of  which  this  forms  a  part. 
Where,  however,  the  corporate  officers  refuse,  upon  request  of 
one  or  more  stockholders,  to  oppose  or  decline  to  pay  an  unau- 
thorized tax,  levied  in  any  one  of  the  three  methods  mentioned 
above,  the  stockholder  himself  may  bring  a  suit  in  a  court  of 
equity,  in  behalf  of  and  for  the  protection  of  the  corporate  inter- 
ests, to  enjoin  the  payment  and  collection  of  such  unauthorized 
tax.i 

§563.  Tax  on  shares  of  stock  as  distinguished  from  the  other 
methods. — A  tax  on  shares  of  stock  is  clearly  different  from  a  tax 
upon  the  franchise,  the  corporate  property,  or  the  capital  stock.^ 


1  Dodge  V.  Woolsey,  18  How.  331 
(1856);  State  Bk,  of  0.  v.  Knoop,  16  Id. 
369  (1853);  Wilmington  R.  R.  Co.  v. 
Rc-ed,  13  Wall.  264  (1871);  Delaware  R. 
R.  Tax,  18  Id.  206  (1873) ;  Greenwood  v. 
freight  Co.,  105  U.  S.  13  (1881);  Paine 
V.  W^riiiht,  6  McClein,  395  (1855);  Foote 
V.  Linck,  5  McClein,  616  (1853),  holding 
also  that  the  corporation  is  a  necessary 
party,  and  that  if  the  complainant  is  a 
non-resident  he  may  bring  the  suit  in  the 
United  States  Circuit  Court.  Bailey  v. 
Atlantic,  &c.,  R.  R.  Co.,  5  Dill.  22  (1874); 
Parmley  v.  R.  R.  Cos.,  5  Dill.  13  and  25 
(1874).  But  the  stockholder  must  allege 
actual  tender  of  the  amount  of  tax  con- 
ceded to  be  due.  Allegation  of  readiness 
to  pay  is  insufficient,  Huntington  v. 
Palmer,  8  Fed.  Rep.  449  (1881).  See  also 
Trask  v.  Maguire,  18  Wall.  391  (1873); 
Wood  V.  Draper,  24  Barb.  187  (1857); 
London  v.  City  of  Wilmington,  78  N.  C. 

568 


190  (1878).  The  case  of  State  v.  Flavell, 
24  N.  J.  L.  370  (1854),  denies  this  right, 
and  says :  "  It  is  objected,  and  rightfully, 
on  the  part  of  the  defendants,  that  it  does 
not  lie  in  the  moutli  of  every  individual 
stockholder,  whether  his  interest  be  small 
or  great  in  a  corjjoration  aggregate,  to 
complain  of  an  illegal  assessment  against 
the  body  corporate.  The  exception 
should  be  made  by  the  corporation  itself 
which  is  wrongfully  assessed,  and  not  by 
the  individual  stockholders." 

'■'  Judge  Cooler,  in  his  learned  work 
on  Taxation,  2d  ed.,  231,  clearly  recog- 
nizes this  principle  of  law  when  he  says  : 
"  A  tax  on  the  shares  of  stockholders  in 
a  corporation  is  a  different  thing  from  a 
tax  on  the  corporation  itself  or  its  stock, 
and  may  be  laid  irrespective  of  any  taxa- 
tion of  the  corporation  where  no  contract 
relations  forbid."     Citing  cases. 


CII.  XXXIV.] 


TAXATION   OF    STOCK. 


[§  563. 


Especially  is  it  important  to  distinguish  a  tax  on  shares  of  stock 
from  a  tax  on  the  capital  stock. ^  The  latter  is  always  taxed 
against  the  corporation,  is  paid  by  the  corporation,  and  is  based 
on  a  valuation  which  does  not  necessarily  depend  on  the  value  of 
the  shares  of  stock.  A  tax  on  the  shares  of  stock  is  generally 
levied  directly  against  the  stockholders  themselves  at  their  place  of 
residence,  is  based  on  the  market  value  of  the  stock,  and  is  entirely 
distinct  from  the  location,  interests,  property,  or  taxes  of  the  cor- 
poration itself.  There  are,  however,  some  instances  of  taxation 
herein  which  are  on  the  borderline  between  the  two.  Thus  a 
statute  expressly  laying  a  tax  on  the  shares  of  stock,  but  requiring- 
the  corporation  to  pay  that  tax  from  the  corporate  funds,  has 
been  held  in  Iowa  to  be  a  tax,  not  on  the  shares  of  stock,  but  on 
the  capital  stock.  In  other  jurisdictions  it  has  been  held  to  be  a 
tax  on  the  shares  of  stock.  A  tax  laid  on  shai-es  owned  by  non- 
residents of  the  State  which  creates  the  corporation  and  which 
levies  the  tax,  is  a  tax  on  the  shares  of  stock  and  not  on  the  capital 


'  In  the  case  Porter  v.  Rockfor(1,  R.  I., 
<tc.,  R.  R.  Co.,  76  111.  561  (1875),  the 
court  clearly  recognized  this  distinction, 
and  said:  "The  lef^al  property  of  the 
shareholder  is  quite  distinct  from  that  of 
the  corporation,  althou;Q;h  the  shares  of 
stock  have  no  value  save  that  which  they 
derive  from  the  corporate  property  and 
franchise,  and  a  tax  levied  upon  the  prop- 
erty of  the  one  is  not,  in  a  les^al  sense, 
levied  upon  the  projjerty  of  the  otlier. 
See  also  Brad  lev  i'.  Bauder,  36  0.  St.  28 
(1880).  Cf.  Delaware  R.  R.  Tax,  18 
Wall.  206,  230  (1873);  Farrinston  v. 
Tennessee,  95  U.  S.  679,  where  the 
distinction  is  clearly  drawn;  Quincy 
Bridtre  Co.  v.  Adams  Co.,  88  HI.  615 
(187H).  In  the  case  North  Ward  National 
Bank  v.  City  of  Newark,  3!)  N.  J.  L.  380 
(1877),  the  court  .said:  "The  moneyed 
capital  of  a  bank  is  an  entirely  different 
tiiini^  from  its  capital  stock.  The  former 
is  the  property  of  the  corporation.  Jt 
may  consist  of  cash  or  of  bills  discounted, 
or  be  in  part  invested  in  real  estate  or  in 
the  secuiities  of  the  Federal  <(overnmerit. 
In  whatever  form  it  is  invested,  it  is 
owned  by  the  bank  as  a  corporate  entity 
and  not  by  the  stockholders.  Tho  stock 
or  shiirrs  represent  the  interests  of  the 
ehareholders,  which  I'ntitle  tlit-m  to  partic- 
ipate \r.  the  net  jjrofits  of  the  baidc  in  I  lie 
cmidoyment  of  its  caijital,  and  is  a  distitict 
and  ind'-pendent  interest  or  jiroperty  in 
the  shareholders,  held  bytheui  like  other 


property."  The  case  of  Porter  v.  Rock- 
ford,  &c.,  R.  R.  Co.,  supra,  holds  also  that 
a  tax  on  tlie  "  capital  stock  "  means  the 
property  of  the  corporation  and  not  the 
augregate  of  the  shares  of  stock.  See 
also  State  v.  Hamilton,  5  Ind.  310  (1854), 
where  the  word  "stock"  was  construed 
to  mean  the  tangible  property  of  the  cor- 
poration. But  see  Trask  v.  Magnirc,  18 
Wall.  391  (1S73).  And  even  though  the 
value  of  the  capital  stock  is  estimated  by 
the  aggregate  value  of  the  shares,  it  is 
still  a  tax  on  the  ca[)ital  stock.  New  0., 
etc.,  R.  R.  Co.  V.  Bd.  of  Assessors,  32  La. 
Ann.  19  (1880).  See  also  State  Bank  of 
Va.  V.  City  of  lUehmond,  79  Va.  113.  So 
also  where  the  rr.iiirhise  is  va!u;d  in  that 
maniior  lor  taxation.  Comnionwealtli  v. 
Hamilton  Mfg.  Co.,  94  Mass.  298  (1866); 
Atty.-Gen.  v.  Bay  State  Min.  Co.,  99 
Mass.  1 48  (1 86,8).  Hamill  on  Co.  v.  Massa- 
chusetts, 6  Wall.  6:i2  (1807),  holds  that  a 
t:ix  on  the  excess  of  the  mai'kct  value  of 
the  stock  over  the  value  of  the  O(jrporate 
rciilty  and  machirici'y,  is  a  franchise  tax. 
In  Indiana  it  is  Ik  Id  that  a  tax  on  the  shares 
of  stock  is  the  proper  mode  of  taxation, 
imless  the  statute  provides  otherwise. 
Whitney  v.  City  of  Madison,  23  Ind.  331 
(1864)  The  mere  fact  that  the  corpora- 
tion is  com])(dled  to  pay  the  tax  docs  not 
privciit  its  being  consiilered  a  tax  on  the 
shares.  National  Bank  v.  CoimnoMweaUii, 
9  Wall.  353,  360  (1869),  per  Miller  J. 


.169 


§564.] 


TAXATION   OF   STOCK. 


[CH.  XXXIV, 


stock,  even  though  the  corporation  is  required  to  pay  it  and  to 
collect  the  same  from  the  owners  of  those  shares. 


§  564.  Tax  on  stockliolders  residing  in  the  State  creating 
the  corporation. — The  right  of  the  State  to  tax  resident  stock- 
holders of  a  resident  corporation  on  their  shares  of  stock  is  un- 
doubted, and  has  been  unquestioned,  except  where  double  taxation 
would  result  therefrom,  or  a  constitntional  provision  restricts  this 
mode  of  taxation.^  Generally  such  a  tax  on  resident  stockholders 
is  levied  on  them,  not  in  the  municipality  where  the  corporation 
is,  but  in  the  cities,  counties,  or  towns  where  the  stockholders 
respectively  reside.  This  is  always  the  rule  if  the  statute  is  si- 
lent, and  is  the  rule  unless  the  statute  expressly  provides  other- 
wise.^ Controversies  sometimes  arise  as  to  the  power  of  a  munic- 
ipality to  tax  stockholders  living  in  the  State,  but  not  in  the 
municipality,  which  levies  a  tax  on  the  shares  of  stock  which 
they  own  in  a  corporation  located  witliin  that  municipality. 

The  law  plainly  is  that  such  a  tax  is  unauthorized,  illegal,  and 
not  collectible,  unless  the  municipality  is  authorized  by  statute  to 
levy  the  tax.^  A  mere  general  authority  to  the  municipality 
to  tax  all  proj)erty  within  its  boundaries,  will  authorize  a  tax  by  it 


'  In  Illinois,  under  the  act  of  18Y2, 
taxinp;  railroad  corporations,  resident 
stockholders  in  domestic  corporations 
are  not  taxed.  Porter  v.  Rockford,  <fec., 
R.  R.  Co.,  76  111.  561  (ISTb).  In  Iowa 
stock  is  taxed  under  §  813  of  the  Code. 
See  Cook  v.  City  of  Burlington,  59  Iowa, 
251  (1882).  As  to  the  valuation  of  the 
shares  of  stock,  see  St.  Charles,  Ac,  R.  R. 
Co.  V.  Assessors,  31  La.  Ann.  852  (1879). 
If  the  corporation  owns  shares  of  its  own 
stock,  it  is  taxable  the  same  as  though 
■owned  by  another.  Richmond,  Ac,  R. 
R.  Co.  V.  Alamance  Co.,  84  N.  C.  504. 

'■^  City  of  Evansville  v.  Hall,  14  Ind. 
27  (1859).  A  pledger  is  the  proper  per- 
son to  be  assessed  on  stock  which  has 
been  pledged.  Tucker  v.  Aiken,  7  N.  H. 
113(1834).  A  pledgee  of  stock  is  not 
subject  to  a  tax  levied  on  the  shares  of 
stock  held  by  him.  Waltham  Bank  v. 
Waltham,  51  Mass.  334  (1845).  In  Mas- 
sachusetts, shares  held  by  executors  or 
administrators  are  taxed  in  the  town  of 
which  the  deceased  was  an  inhabitant  at 
the  time  of  his  death,  and  shares  held  by 

570 


trustees  are  taxed  in  the  towns  in  which 
the  cestui s  que  trust  respectively  reside. 
Revere  v.  Boston,  123  Mass.  375(1877). 

^  Stetson  V.  City  of  Bangor,  56  Me. 
274  (1868),  the  court  saying:  "Munici- 
palities can  tax  shares  of  stock  only 
when  authorized  so  to  do  by  some  law 
of  the  State.  They  are  the  creatures  of 
State  law,  and  derive  their  powers  in 
this  respect  solely  from  State  enact- 
ments." Griffith  V.  Watson,  19  Kan.  23 
(1877);  City  of  Evansville  v.  Hall,  14 
Ind.  27  (1859);  Conwell  v.  Town  of  Con- 
nersville,  15  Ind.  150  (1860).  Such  a 
tax  may  be  levied  under  a  genera!  power 
of  the  municipality  to  tax  property. 
Gordon's  Ex'rs  v.  Mayor,  <fec.,  5  Gill 
(Md.),  231  (1847).  Cf.  Richmond  v.  Dan- 
iels, 14  Gratt.  385;  Augusta  v.  Nat.  Bk., 
37  Ga.  620.  Markoe  v.  Hartranft,  6  Am. 
L.  Reg.  N.  S.  487  (1867),  holds  that  in 
Pennsylvania  such  a  tax  is  unconstitution- 
al, and  that  a  tax  must  be  levied  where 
the  stockholder  resides.  See  also  Craft 
V.  Tuttle,  27  Ind.  332  (1866). 


OH.  XXXIV.] 


TAXATION   OF   STOCK. 


[§565. 


of  shares  of  stock  owned  by  persons  living  within  it.*  But  such 
authority  does  not  sustain  a  tax  on  stockliolders  residing  out  of  the 
municipality,  although  within  the  State.  The  location  of  such 
shares  of  stock,  as  property  for  purposes  of  taxation,  is  not 
where  the  corporation  is  located,  but  where  the  stockholder  lives.^ 
The  statutes  of  the  State  may  change  this  situs  of  the  stock,  so 
as  to  render  it  taxable  where  the  corporation  is,  but,  unless  there 
is  a  statute  to  that  effect,  such  a  tax  by  a  municipality  is  unauthor- 
ized and  void. 

§  565.  Tax  on  resident  stoclcholders  in  a  non-resident  or 
foreign  corporation. — It  is  undoubtedly  within  the  constitu- 
tional power  of  the  legislature  of  a  State  to  enact  a  statute 
that  persons  residing  in  that  State,  who  are  stockholders  in  a  cor- 
poration created  by  another  State,  shall  be  taxed  on  his  shares  of 
stock,  at  their  residence  within  the  former  State.^  This  principle 
of  law  is  based  on  the  fact  that  shares  of  stock  are  personal 
property ;  that  they  are  distinct  from  the  corporate  property, 
franchises,  and  capital  stock;  that  they  follow  the  domicile  of 
their  owner  like  other  personal  pro])erty,  and  that  consequently 
he  may  be  taxed  therefor  wherever  he  may  reside.  It  according- 
ly is  a  question  of  policy  and  expediency  with  a  State  whether  or 
not  it  will  tax  its  citizens  who  are  stockholders  in  foreign  corpo- 
rations.    A  few  of  the  States,  including  Pennsylvania,*  levy  such 


'  But  a  municipality  can  levy  a  tax 
only  when  specially  authorized  so  to  do. 
and  can  tax  only  such  property  as  the 
statute  permits  it  to  tax.  Cooley  on 
Taxation  (2d  ed.)  678.  Hence  power  to 
a  niuiiicijiality  to  levy  a  tax  for  watchmen 
purposes  will  not  authorize  a  tax  on 
shares  of  stock.  Bk.  of  Ga.  v.  Savan- 
nah, Dudley  (Oa.),  130  (1832). 

^  See  i^  50G. 

'  Worthington  v.  Sebastian,  25  O.  St. 
1  (1874);  Bradley  ,:  Bander,  30  O.  St. 
28  (1880),  holdinfr  it  valid  althou;;h  the 
corporation  is  taxed  in  the  State  where 
it  exists.  To  same  ofFfct  Seward  v.  f'ity 
of  RWwrr  Sun,  79  Ind.  351  (1881  ) ;  Dyer 
W.Osborne,  11  K.  F,  ."/il  (1876) ;  Mclveen 
V.  County  of  Nortliamptoii,  49  J'enn.  St. 
519(1805);  Dwijjlit  I'.  Jiostoti,  12  Allen, 
316(18(;C);  Whitesell  n.  Id.,  Id.  (526; 
Great  Barrinc^ton  v.  flounty  Com'rs,  33 
Mas".  672(1835);  Worth  v.  Com'rs,  82 
N.  C.  420  (18K0);  s.  c.  90  N.  C.  409 
(1884).     In  Illinois  also,  resident  stock- 


holders in  foreign  corporations  are  taxed 
on  their  shares  of  stock.  Porter  v. 
Rockford,  Ac.  R.  R.  Co.,  76  111.  561 
(1875);  Cooley  on  Taxation,  2d  ed.  57, 
221;  Holton  v.  Bangor,  23  Me.  264; 
Smith  V.  Exeter,  37  N.  H.  556. 

"  See  Act  of  April  29,  1844.  Lycom- 
ing County  V.  Gamble,  47  Penn.  St.  106 
(1864).  See  also  /«  re  Short's  Estate,  16 
Penn.  St.  63  (1851),  where  a  decedent, 
who  died  a  resident  of  I'ennsylvanin,  left 
a  fortune  in  stocks  of  nonresident  cor- 
porations. The  stocks  were  held  subject 
to  a  collateral  inheritanco  tax.  State  /'. 
Hannibal  &  St.  J.  H.  R.  Co.,  37  Mo.  265 
(18(Ui);  SI  urges  V.  Carter,  114  U.  S.  511 
(18.S4),  upholcling  siicli  a  tax  in  Ohio; 
Newark  City  Bk.  »•.  Assessor,  HO  N.  J.  L. 
1(1862).  Sec  also  Webb  J'.  Burlington, 
28  Vt.  188  (1856).  CaliComia  made  a 
wise  resoUition  when,  in  1881,  it  ro)ienled 
^5  3640  of  its  Political  Cr)ilc,  taxing  shares 
of  slock,  and  afldcd  tlu;  follf)wing,  i;  3608, 
to  that  Code:   "  Shares  of  .stock   in    cor- 

571 


§565.] 


TAXATION  OF  STOCK. 


[CH.  XXXIV. 


taxes.  But  New  York  pursues  the  more  broad  and  liberal  policy 
that  corporate  interests  should  be  taxed  where  the  corporation 
exists ;  that  the  State  which  creates,  protects,  and  furnishes  fa- 
cilities to  the  corporation  for  the  earning  of  dividends,  should 
have  the  sole  benefit  of  taxes  on  such  corporate  interests,  that  its 
tax  on  resident  stockholders  in  non-resident  corporations  would 
generally  result  in  a  double  taxation  of  stockholders  not  residing 
in  the  State  creating  the  corporation,  and  that  inter-State  comity, 
interests,  and  financial  investments  are  promoted  best  by  each 
State  taxing  its  own  corporations  directly,  and  no  State  levying  a 
tax  on  either  resident  stockholders  in  non-resident  corporations, 
or  resident  stockholders  in  resident  corporations.^  The  injustice 
of  a  tax  on  resident  stockholders  in  foreign  corporations  is  at 
once  apparent  when  it  is  considered  that  the  State  creating  the 
corporation  nearly  always  taxes  the  corporation  itself  or  all  its 
stockholders,  resident  and  non-resident,  and  that  if  stockholders 
residing  elsewhere  are  taxed  again   where  they   reside,   they  are 


porations  possess  no  intrinsic  value  over 
and  above  the  actual  value  of  the  proper- 
ty of  the  corporation  which  they  stand 
for  and  represent,  and  the  assessment  and 
taxation  of  such  shares  and  also  of  the 
corporate  property  would  be  double  tax- 
ation. Therefore  all  property'  belongins: 
to  corporations  shall  be  assessed  and 
taxed,  but  no  assessment  shall  be  made 
of  shares  of  stock,  nor  shall  any  holder 
thereof  be  taxed  therefor."  Sustained 
and  applied  in  Burke  v.  Badlam,  57  Cal. 
602  ;  Spring  Valley  W.  W.  v.  :<chottler, 
62  Cal.  69,  118  (1882).  Rut  the  tempta- 
tion to  tax  stockholders  in  non-resident 
corporations  was  yielded  to.  See  San 
Francisco  v.  Fry,  63  Cal.  470  (1883);  Id. 
V.  Flood,  64  Cal.  504  (1884).  As  to  Ohio 
see  R.  S.  1886,  §;?  2737,  2739,  2744,  con- 
strued in  Jones  i;.  Davis,  35  O.  St.  474 
(1880).  See  also  Worth  v.  Com'rs  of  Ashe 
County,  90  N.  C.  409  (1884);  Seward  v. 
City  o^f  Rising  Sun,  79  Ind.  351. 

■'  1  R.  S.  of  N.  Y.  ch.  XIII,  title  1, 
§  7  (p.  982,  7th  ed.),  provides  as  follows  : 
"  The  owner  or  holder  of  stock  in  any 
incorporated  company  liable  to  taxatinn 
on  its  capital,  shall  not  be  taxed  as  an  in- 
dividual for  such  stock."  See  also  Peo- 
ple V.  Cosn.  of  Taxes,  4  Hun,  595  (1875), 
affi'g  62  N.  Y.  630,  holding  that  residents 
of  this  State,  owning  shares  of  stock  in  a 
corporatiou  created  under   and   by   the 

572 


laws  of  this  State,  or  of  any  foreign 
State,  are  not  subject  to  be  personally  as- 
sessed and  taxed  thereon  under  the  laws 
of  this  State.  For  the  purpose,  how- 
ever, of  making  the  taxation  of  moneyed 
corporations  correspond  to  taxation  of 
shareholders  in  national  banks,  and  for 
the  purpose  of  taxing  the  latter,  the  fol- 
lowing statutes  were  passed:  Laws  of 
1866,  ch.  671;  Laws  of  1880,  ch.  140; 
Laws  of  1880,  ch.  596;  Laws  of  1881, 
■  ch.  477;  Laws  of  1882,  ch.  410,  §  848. 
The  tax  generally  levied  on  corporations 
in  New  York  is  held  to  be  a  tax  on  their 
franchises.  See  People  v.  Home  Ins.  Co., 
92  N.  Y.  328(1883);  Id.  v.  McLean,  80 
N.  Y.  254  (1880);  Id.  v.  Ferguson,  38  N. 
Y.  89(1868);  U.  v.  Williamsbursih  Gas 
Light  Co.,  76  N.  Y.  202.  Laws  of  1880, 
ch.  542,  as  am'd  by  Laws  of  1881,  ch. 
361 ;  also  Laws  of  1883,  ch.  359.  See 
People  V.  New  York,  die.  Co.,  92  N.  Y. 
487;  Id.  V.  Davenport,  91  N.  Y.  574; 
Nassau,  &c.  Co.  v.  City  of  Brooklyn,  89 
N.  Y.  409.  So  also  in  Missouri.  See 
Valle  V.  Ziegler,  84  Mo.  214  (1884  .  See 
also  People  ».  Bradley ,  39  Iowa,  1 3u  ( 1 866 ). 
Cf.  Bk.  of  Republic  v.  County  of  Hamilton, 
21  111.  54  (1858).  See  also  Smith  v. 
Exeter,  37  N.  H.  556  (1859),  and  Jersey 
City  Gas  Light  Co.  i;.  Jersey  City,  46 
N.  J.  L.  194  (1884). 


OH.  XXXIV.]  TAXATION   OF    STOCK.  [§  ^QQ. 

taxed  both  in  the  State  of  the  corporation,  directly  or  indirectly, 
and  also  in  the  State  where  they  reside  directly.  No  reduction 
need  be  allowed  in  the  latter  State  for  taxation  of  the  corporation 
levied  in  another  State.^ 

§  500.  Tax  on  non-resident  stocMolders  in  resident  or  do- 
mestic corporation. — "When  it  is  determined  by  a  State  that  it 
prefers  to  levy  a  tax  on  shares  of  stock,  rather  than  on  the  fran- 
chises, capital  stock,  or  tangible  property  of  the  corporation,  or 
to  levy  a  tax  on  both,  there  is  no  doubt  as  to  its  right  to  tax  the 
stockholders  residing  within  the  State.  But  more  difficulty  oc- 
curs as  to  the  right  of  the  State  to  tax  non-resident  stockholders 
in  corporations  created  by  the  State.  This  right  has  been  strenu- 
ously denied  on  the  ground  that  shares  of  stock  are  not  located 
at  the  domicile  of  the  corporation,  but  follow  the  domicile  of  the 
stockholder. 

It  is  the  well-established  rule,  however,  that  although  shares 
of  stock  have  at  common  law  no  situs  except  the  domicile  of  the 
shareholder,  yet  that  a  statute  enacted  by  the  State  creating 
the  corporation  may  give  to  the  shares  of  stock  a  situs  at  the  lo- 
cation of  the  corporation ;  that  such  a  statute  may  thus  determine 
the  situs  of  shares  of  non-resident  stockholders,  without  changing 
the  situs  01  shares  of  resident  stockholders  ;  and  that  consequent- 
ly, Hnder  a  statute  expressly  authorizing  such  a  tax,  non-resident 
stockholders  in  a  resident  corporation  may  be  taxed  thereon, 
where  the  corporation  has  its  domicile.'^     The  method  of  enforc- 

'  See  note  3,  page  571.  contrary,  follows  the  person  of  tlie  owner, 

'  In  the   case  of  Ottawa  Glass  Co.  v.  and  has  its  situs  at  his  domicile.     But, 

McCaleb,  81  111.  556  (1876),  the  court  siiid  for  the  purpose  of  taxation,  it   may    be 

that  the  legislature    might  "  require  the  scjiarated    from    him,    and    he   may    be 

taxes  to  be  paid   by  the  corporation,  and  taxed    on    its  account  at  the  place  where 

collected  by  tliem  of  the  shareholder,  by  it  is  actually  located.     Sec  also  Wliitney 

deducting  the  amount  from  Iiis  dividends  v.  Kagsdale,  33  liid.  107  (1870);  Tailman 

or  otherwise."     State  v.  Mayhew,  2  Gill  v.    JiuUer  Co.,   12   Iowa,  531 ;  Faxton  v. 

(Md.),  487  (1845),    wliei-e  the  corporation  McCarter,   Id.    527;   Mayor,  ttc.  of  lialti- 

was  to  pay  the  tax  from    dividends  if  dc-  more  v.  Baltimore,    A'C.    Kj'.  Co.,  57  Md. 

clared,  and  from  profits  if  no  dividends  31(1881).     The  last  case  holds  that  stock 

were   declared.     St.  Albans  v.    National  in  street  railways  in  Maryland  may  bo 

Oar  Co.,  57  Vt.  68  (1884),  holding   that  taxed,  althoui;]),  l>y  statute,  stock  in  steam 

the  statute  giving  shares  of  stock  a  situs  railways  cannot  be.     See,   however.  City 

at  the  location  of  the  corporation  may  be  of   llichmand   v.    Daniel,  14    Gratl.(Va.) 

passed   after    the  incorporation,  and  that  385(1858);  also  the  case  Oliver  ?•.  Wash- 

mandamus  lies  to  compel  the  corporation  ini;ton  Mills,  93  Mass.  268  (1865),  wliich 

to  pay  the  tax.     In  the  case  Tappan  v.  holds    such  a  t:ix  to  be  unconstitutional. 

Merchants    Nafl   Bk.,  19  Wall.   490,499  The  common  law  rule  is  well    expressed 

(1873),  the  court  said  :    "  Pergonal  prop-  in  Union    Bk.  v.    State,  9   Verg.  (Tcnn.) 

erty,  in   the  absence   of  any  law  to  the  490  (183C),  where  the  court  says:    "Tbo 

573 


§  ^QQ-] 


TAXATION    OF   STOCK. 


[CH.  XXXIV. 


ing  the  payment  of  this  tax  may  be  by  compelling  the  cor- 
poration to  pay  it  and  giving  it  a  lien  therefor  on  the  stock,  or 
authorizing  it  to  deduct  the  tax  from  the  non-resident  stock- 
holders' dividends  ;  or,  if  the  statute  is  silent  as  to  the  mode  of 
collection,  an  attachment  and  execution  therefor,  may  be  levied 
on  the  shares  of  stock.^     In  New  York,  where  neither  resident 


power  to  tax  non-resident  stockholders  is 
denied,  and  we  think  correctly  ;  fiom  its 
very  nature  it  must  be  a  tax  in  personam 
and  not  in  rem.    Stock  is  in  the  nature  of 
a  chose  in  action  and  can  have  no  locality; 
it  must,  therefore,  of  necessity  follow  the 
personof  the  owner.     .     .     .     Bank  stock 
is  not  a  thing  in  itself  capable  of  being 
taxeil  on  account  of  its  locality,  and  any 
tax  imposed  upon  it  must  be  in  the  nature 
of  a  tax  upon  income  and  of  necessity 
confined  to  the  person  of  the  owner,  and 
if  he  be  a  non-resident  he  is  beyond  the 
jurisdiction  of  the  State  and  not  subject 
to  her  laws."     See  also  Minot  v.  Railroad 
Co.,  18  Wall.  276;  City  of  Davenport  i>. 
Miss.  &   Mo.  R.    R.    Co.,    12    Iowa,   539 
(1861);   Howell  v.    Cassopolis,  36  Mich. 
471  (1877).     In  Bradley  v.  Bauder,  36  0. 
St.  28  (1880),  the  court  said,  "that  sliares 
of  stock  may  be  separated  from  the  person 
of  the  owner,  by  statute,  and  given  a  sittts 
of  their  own,  was  held  in  Tappan  v.  Mer- 
chant's Nat.  Bk. ,  1 9  Wall.  490.     But  when 
not   so   separated,    that    this    situs    fol- 
lows and  adheres  to  the  domicile  of  the 
owner,  is  supported  by  a  great  weight  of 
authority."     See  State  Tax  on  Foreign- 
held  Bonds,  15  Wall.  300   (1872).     See 
also  Jenkins   v.  Charleston,  6  S.  C.   393 
(1874).     In  Nat'l  Com.  Bk.  v.  Mobile,  62 
Ala.  284  (1878),  the  court  well  says  :  "  It 
may  be  made  the  duty  of  a  bank  to  pay  for 
its  "shareholders  the  tax  legally  assessed 
against  their   respective  shares,  whether 
the  stockholders  reside  in  the  State   of 
Alabama  or  not.  Contestations  upon  these 
points  have  been  made  time  and  again, 
sometimes  by  the   banks  and  sometimes 
by  the  shareholders,  to  avoid  this  liabil- 
ity.    But  it   is  established  by   repeated 
adjudications,  and  ought  to  be  considered 
definitely  settled."     And   in  First    Nat'l 
Bk.  V.  Smith,  65  111.  44  (1872),  the  court 
says  :  "The  separation  of  the  situs  of  per- 
sonal property  from  the   domicile  of  tl:e 
owner,  for  the   purposes    of  taxation,  is 
familiar    doctrine  in   the  courts   of  this 
country,  and  has  been  sanctioned  by  this 
court  in  various  cases.     .     .     .     The  act 
of  Congress  itself  contemplates  a  sever- 
ance of  the  situs  of   such  shares  from  the 

574 


person  of  their  owner,  by  providing  that 
they  should  not  be  taxed    except  in  the 
State    where   the    bank    is    established. 
But,    apart  from    this,  it  is  really  much 
more  reasonable  to  fix  .the  situs  oi  shares 
at  the  place  where  the  bank   is  located, 
and    where  it  must    continue  to    do    its 
business  or   wind  up  its  affairs,  than  to 
separate  by  legislation  tangible   personal 
property  from  the  person  of  its  owner." 
In  the  case  St.  Louis  Nat'l  Bk.  v.  Papin, 
4   Dili.   29  (1876),  the  following   statute 
was  sustained :      "  The  taxes  assessed  on 
shares    of  stock    cn.braced  in   such   list 
shall  be  paid  by  the  corporations  respec- 
tivel}',  and  they  may  recover  from    the 
owners  of  such  shares  the  amount  so  paid 
by  them,  or   deduct  the   same  from   the 
dividends  accruing  on   such  shares,  and 
the  amount  so  paid  shall  be  a  lien  on  such 
shares  respectively,  and  shall  be  paid  be- 
fore a   transfer  thereof    can   be    mnde." 
And  again  in  American  Coal  Co.  v.  Coun- 
ty Com'rs,  59    Md.  185  (f!S82),  the  court 
says  :     "  The  State  may  give   the  shares 
of"  stock  held  by  individual  stockholders 
a  special  or  particular   situs  for  purposes 
of    taxation,    and    may   provide    special 
modes  for  the  collection  of  the  tax  levied 
thereon." 

^  In  Farrington  v.  Tennessee,  95  U.  S. 
679,  687  (1877),  the  court  says:  "The 
bank  maybe  required  to  pay  the  tax  out 
of  its  corporate  funds,  or  be  authorized  to 
deduct  the  r.mount  paid  for  each  stock- 
holder out  of  his  dividend."  And,  in 
general,  under  the  act  of  Congress  allow- 
ing taxation  of  shares  of  stock  in  national 
banks,  a  situs  is  given  by  statute  to  the 
shares  so  as  to  locate  them  where  the 
bank  is  located,  even  though  the  share- 
holders be  non-resident.  But  collections 
cannot  be  enforced  against  the  corpora- 
tion unless  the  statute  specially  authorizes 
it.  First  Nat'l  Bk.  v.  Fancher,  48  N.  Y. 
524  (1872).  Collection  by  execution,  see 
Gordon's  Ex'rs  v.  Mayor,  &c.  5  Gill 
(Md.),  231  (1847).  But  a  levy  of  execu- 
tion on  stock  can  only  exist  when  the 
statute  allows  stock  to  be  so  taken. 
Barnes  v.  Hall,  55  Vt.  420(1883);  or  under 
a  tax  warrant,  McNeal  v.  Mechanics,  &c. 


CH.  XXXIV.] 


TAXATION   OF   STOCK. 


[§  567. 


nor  non-resident  stockholders,  in  either  foreign  or  domestic  corpo- 
rations, excepting  banking  corporations,  are  taxed  on  their 
shares  of  stock,  these  inter-State  complications,  hardships,  and 
jealousies  do  not  arise.^ 

§  5()7.  Double  taxation. — The  most  objectionable  feature  of 
a  tax  levied  on  shares  of  stock,  is  that  almost  inevitably  it  oper- 
ates to  impair  a  double  tax  on  a  part  or  all  of  the  stockholders.^ 
Such  a  double  tax  exists  where  either  the  corporate  realty  or  per- 
sonalty, or  franchise  or  capital  is  taxed,  and  a  tax  is  also  levied 
on  the  shares  of  stock  without  any  deduction  for  the  former  tax- 
ation.^ There  has  been  some  controversy  as  to  the  right  of  a 
State  to  levy  a  double  tax  on  property.  Sometimes  the  State 
constitution  prohibits  snch  taxation.*     But  aside  from  constitu- 


Ass'n,  12  Am.  &  Eng.  Corp.  Cas.  181  (N. 
J.  1885).  See  also  Chapter  on  Attach- 
ment and  Execution.  In  the  case  of  State 
V.  Thomas,  26  K  J.  L.  181  (1857),  the 
court  refused  to  compel  the  corporation 
to  pay  the  tax  on  stock  of  non-residents 
and  said  :  "  It  has  been  decided  by  this 
court  that  the  bonds  and  stocks  of  corpo- 
rations in  this  State  held  by  non-resi- 
dents are  not  liable  to  taxation,  though 
they  are  clearly  within  the  letter  of  the 
act."  A  State  may  collect  a  non-resident 
Btockliolder's  tax  from  the  coiporatiou 
and  give  it  a  lien  therefor  on  liis  stock. 
North  Ward  Nat'l  Bk.  v.  City  of  Newark, 
39  N.  J.  L.  380  (IS*??);  but  see  Raleigh, 
Ac.  R.  R.  Co.  V.  Conner,  87  N.  C.  414. 
Cooley  on  Taxation,  2d  ed.  4S3.  clearly 
upliolds  the  rule  that  the  State  may  levy 
a  t,ix  on  shai'cs  of  stock  and  compel  the 
cori  oration  to  pay  it,  citing  Maltby  v. 
Reading  R.  R.  Co.,  52  Penn.  St.  140; 
Ilaighti'.  Railroad  Co.,  C  Wall.  15;  Na- 
tional BMuk  V.  Commonwealth,  9  Wall. 
353;  United  States  v.  Railroad  Co.,  17 
Wall.  :i22  ;  Minot  o.  llailroad  Cc,  IS 
Wall.  200  ;  Ottawa,  etc.  v.  McCaieb,  81 
111.  656 ;  New  Orleans  v.  Saving,  .tc. 
Co.,  31  La.  Ann.  826;  Baltimore  w.  City 
Passenger  R.  Co.  57  Md.  31 ;  St.  Albans 
V.  National  Car  Co.,  57  Vl.  08;  American 
Coal  Co.  V.  Allegany  County,  5;t  Md.  185; 
Barney  v.  State.  42  Md.  480;  McVeagh 
11.  Chicago,  4'.>  111.  318;  First  Nat'l  Bk. 
t;.  Fancher,  48  N.  Y.  524  ;  Leonberg-r  v. 
Rowse,  43  Mo.  67  ,  Relfo  v.  Life  Ins.  Co., 
11  Mo.  App.  374. 
'  See  §  566,  note. 


^  In  Ohio  such  double  taxation  is 
boldly  advocated  and  recommended.  In 
Frazer  v.  Scibern,  10  O.  St.  614(1866), 
the  court  said,  iu  advocating  an  equitable 
system  of  taxation  :  "  That  object  is  best 
attained  in  case  of  a  corporation,  or  joint- 
stock  company,  by  taxing  the  stock- 
holders, the  persons  who  own  its  prop- 
erty, upon  the  full  value  of  their  sliares 
therein,  including,  of  course,  their  inter- 
est in  the  franchise  or  privilege,  and  in 
all  tangible  property  owned  by  the  com- 
pany; and  by  taxing  the  corporation  also 
upon  the  value  of  such  tangible  pr()i)erty. 
The  stockholders  are  thus  taxed,  as  all 
other  individuals  who  own  tangible  and 
intangible  property  are  sometimes  un- 
avoidably taxed,  once  upon  all  he  is 
worth,  and  a  second  lime  upon  that  part 
of  his  property  which  is  tangible." 

2  This  is  practically  the  result.  In  the 
case  Farrington  v.  Tennessee,  95  U.  S. 
679,  687  (1877),  however,  the  court  says 
in  a  (llclum:  "The  capital  stock  and  the 
sh.ires  may  both  be  taxed,  and  it  is  not 
double  taxation."  Cf.  Ryan  v.  Comrs., 
30  Kan.  185  (1883). 

•*  County  Comrs.  v.  Farmers  Natl.  Bk., 
48  Md.  117  (1877),  the  constitution  say- 
ing that  each  persun  shall  ])ay  a  tax  "  ac- 
cording to  his  actual  worth  in  real  or  per- 
sonal jiroperty."  Seo  also  City  of  San 
Francisco  v.  Mackey,  21  Fed.  llep.  639 
(1881);  Burke  v.  Badlam,  57  Cal.  694 
(1881),  relative  to  tiie  ('alifcirnia  Consti- 
tution, Art.  XIF,  J4  1,  that  "all  property 
shall  be  taxed  in  proportion  to  its  value." 

575 


§  508.] 


TAXATION   OF   STOCK. 


[CU.  XXXIV. 


tional  restrictions,  it  imquestionably  is  within  the  power  of  the 
State,  to  levy  not  only  a  double  tax,  but  even  a  treble  or  quad- 
ruple tax,  if  it  so  chooses/  The  injustice  of  such  taxation,  how- 
ever, generally  prevents  its  occurrence.  The  courts  also  do  their 
utmost  to  prevent  double  taxation,  and  will  construe  a  taxation 
statute  so  as  to  avoid  such  a  result,  and  sometimes  even  in  oppo- 
sition to  the  plain  words  of  the  statute  itself.'"^ 

§  568.  Exemptions  from  taxation  as  affecting  tax  on  shares 
of  stoclc. — An  exemption  of  shares  of  stock,  is  a  contract  pro- 
tected by  that  provision  of  the  Constitution  of  the  United  States, 
which  prevents  a  State  from  passing  a  law  which  will  impair  the 
validity  of  contracts.^  Aside  from  questions  of  this  nature,  there 
are  two  classes  of  cases  of  exemptions  from  taxation  which  affect 
the  taxation  of  shares  of  stock.  The  first  class  involves  the  ques- 
tion whether  an  exemption  of  the  corporate  property,  franchises, 
or  capital  stock  from  taxation,  exempts  also  the  shares  of  stock 


'  Salem  Iron,  &c.,  Co.  v.  Danvers,  10 
Mass.  514  (1813),  where  corporate  realty 
was  taxed,  altliough  the  share.s  of  stock 
were  also  taxed.  See  also  Belo  v.  Comrs. 
of  Forsjth,  82  N.  C.  415  (1880).  In  the 
remarkable  case  of  Tall  Bridge  Co.  v.  Os- 
born,  35  Conn.  V  (1868),  it  seems  that  the 
realty,  capital  stock,  aud  shares  of  stock 
of  a  corjioration  were  taxed,  and  that  the 
chief  stockholder,  a  raih'oad,  was  taxed 
on  its  capital  stock  and  shares  of  stock, 
making  four  or  five  taxations  of  the  same 
property.  Evidently  corporations  were 
not  popular  in  Connecticut  in  1868,  ex- 
cept for  taxation  purposes.  Cf.  Jones, 
<fec.,  Co.  V.  Coramonwealtli,  69  Penn.  St. 
137.  See  also  Cook  v.  City  of  Burling- 
ton, 59  Iowa,  251  (1882) ;  State  v.  Branin, 
23  N.  J.  L.  484  (1852);  Id.  ?;.  Bentley, 
Id.  532;  City  of  Memphis  v.  Ensley,  6 
Bax.  fTenn.)  553  (1873);  Prov.,  <fec.,  R. 
R.  Co'.  V.  AVright,  2  R.  I.  459,  464  (1853), 
holding  that  a  tax  on  the  stock  does  not 
raise  a  presumption  that  a  municipality 
is  thereby  prevented  from  taxing  the  cor- 
porate realty.  See  also  Hannibal,  &c., 
R.  R.  Co.  V.  Shacklett,  30  Mo.  550,  560 
(1860). 

■^  Thus  in  Illinois,  in  cases  where  the 
capital  stock  is  taxed  by  the  State,  the 
shares  of  stock  are  held  to  be  free  from 
taxation.  Republic  Life  Ins.  Co.  v.  Pol- 
lok,  75  111.  292  (1874).  See  also  County 
of  Lackawanna  v.  First  Natl.  Bk.,  94 
Penn.  St.  221  (1880),  holding  that  under 
the  Act  of  March  31,  1870,  releasing  cor- 

576 


porations  from  all  other  taxes,  if  they 
pay  a  one  per  cent,  tax  on  the  par  value 
of  the  stock,  the  corporate  realty  cannot 
be  taxed,  after  such  one  per  cent,  has 
been  paid.  State  v.  Hannibal  <fe  St.  J. 
R.  R.  Co.,  37  Mo.  265  (1866) ;  Jersey  City, 
<fec.,  Co.  V.  Jersey  City,  46  N.  J.  L.  194 
(1884);  Cheshire,  &c.,  Telephone  Co.  v. 
State,  63  N.  H.  167  (1884) ;  Valle  v.  Zeig- 
ler,  84  Mo.  214  (1884);  Tax  Cases,  12  G-. 
&  J.  (Md.)  117(1841);  Prov.  Inst,  for 
Sav.  V.  Gardiner,  4  R.  I.  4S4  (1857);  Me- 
chanics  Bk.  v.  Thomas,  26  N.  J.  L.  181 
(1857);  American  Bk.  v.  Mumford,  Id. 
478(1857);  State  ?;.  Tunis,  23  N.  J.  L. 
646  (1852);  Smith  v.  Burley,  9  N.  H.  423 
(1838);  Frazer  v.  Siebern,  16  O.  St.  614; 
Savings  Bk.  v.  Nashua,  46  N.  H.  389 
(1866),  the  court  saying ;  "  It  is  a  funda- 
mental principle  in  taxation,  that  the  same 
property  shall  not  be  subject  to  a  double 
tax,  payable  by  the  same  party,  either 
directly  or  indirectly,  and  where  it  is 
once  decided  that  any  kind  or  class  of 
property  is  liable  to  be  taxed  under  one 
provision  of  the  statutes,  it  has  been  held 
to  follow  as  a  legal  conclusion,  that  the 
legislature  could  not  have  intended  the 
same  property  would  be  subject  to  an- 
other tax,  thougii  there  may  be  general 
errors  in  the  law,  which  would  seem  to 
imply  that  it  was  to  be  taxed  a  second 
time." 

'  Farrington   v.   Tennessee,   95  U.  S. 
679  (1877). 


CH.  XXXIV.J 


TAXATION   OF   STOCK. 


[.§  568. 


from  any  tax ;  the  second,  whether  an  exemption  of  the  shares 
of  stock  from  taxation,  exempts  the  corporate  property,  fran- 
chises, and  capital  stock.  As  regards  tlie  former  exemption,  the 
effect  thereof  depends  largely  on  the  words  used  in  tlie  statute 
or  charter  granting  the  exemption.  The  question  has  given  rise 
to  a  diiierence  of  opinions.  In  the  Federal  courts,  New  Jersey, 
Indiana,  and  Kentucky,  it  has  been  decided  that  an  exemption 
of  the  corporation  from  taxation  on  one  or  more  of  the  lirst  three 
methods  of  taxation  exempts  by  implication  the  shares  of  stock. ^ 
But  in  Tennessee,  North  Carolina,  and  Maryland,  a  contrary  rule 
prevails.""^ 

As  regards  the  second  class  of  exemptions,  it  seems  to  be  es- 
tablished by  the  great  weight  of  authority  that  an  exemption  of 
the  shares  of  stock  from  taxation  exempts  also,  by  implication, 
the  corporate  franchises,  capital  stock,  and  tangible  property  from 


1  State  V.  Braain,  23  N.  J.  L.  484 
(1852);  Id.  V.  Uentley,  Id.  532;  Johnson 
V.  Commonwealth,  7  Dana  (Ky.),  338 
(1838) ;  King  v.  City  of  Madison,  17  Ind. 
48  (1861),  holding  that  an  exemption  of 
the  capital  stock  exempts  shares  of  stock. 
Gordon  v.  Appeal  Tax  Court,  3  How.  133 
(184">),  keld  tliat  an  exemption  prohibit- 
ing any  "  further  tax  or  burden  upon 
them  "  the  banks,  exempted  the  shares  of 
-stock.  Again,  where  the  charter  provided 
tliat  "  the  capital  stock  of  said  company 
shall  be  forever  exempt  from  taxation,  ihe 

eliares  of  stock  cannot  be  taxed 

Each  share  is  a  part  of  the  whole,  and, 
as  tlie  whole  is  exempt  from  taxation,  it 
follows  that  each  part  or  .«hare  nmst  also 
be  exempt."  State  of  Tenn.  v.  Whit- 
worth,  22  Fed.  Rep.  75  (1884).  And  the 
purchaser  and  successor  of  a  railroad,  tak- 
ing by  statute  all  its  rights  and  privileges, 
is  also  exempt  in  same  maimer.  1<1.,  81; 
afli'd,  117  U.  S.  13y(18S6).  An  exemp- 
tion of  shares  of  stock  from  taxation  is 
waived  by  tlie  acceptance  of  subsequent 
statutes  im])0sinir  a  tax.  Hannibal  &  St. 
J.  II.  U.  Co.  v.  Shacklett,  3i)  Mo.  550 
(1860);  Cooley  on  Taxation,  2d  ed.  212. 
''  Union  Bk.  v.  State,  9  Yerg.  (Tenn.) 
490  (1836),  holding  thai,  an  exemption  of 
the  capital  stock  did  not  exempt  aliares 
of  stock.  To  same  effect,  (Jity  of  Mem- 
phis V.  Farrington,  8  I'.axtci'  (Teim.  i,  fiS'.t 
(1876),  the  court  saying:  "The  rapital 
stock  and  shares  of  stock  are  two  distinct 
properties,  and  an  exemiition  of  the  one 
does  not  tiiereby  necessarily  exempt  the 
other,  nor  the  taxation  of  the  latter,  oper- 


ate as  a  tax  on  the  former,  so  as  to  inter- 
fere with  its  exemption  from  such  bur- 
dens." Belo  V.  Comrs.  of  Forsyth,  82  N.  C. 
415  (1880),  holding  that  an  exem|)tion  of 
tlie  corporate  realty  does  not  exempt  the 
shares  of  stock.  Appeal  Tax  Court  i<.  Rice, 
50  Md.  302  (1878);  Tax  Cases,  12  G.  <fe  J. 
(Md.)  117  (1841).  In  the  case  County 
Comrs.  V.  Annapolis,  ic.  R.  R.  Co.,  47  Md. 
592  (1877),  the  court  says:  "To  make  out 
the  claim  to  this  exemption  from  the  tax- 
ing power  of  the  State,  so  essential  to  the 
support  of  its  government,  it  is  incum- 
bent upon  corporation  to  show  that  the 
power  to  tax  has  been  clearly  relinquished 
by  the  Stats;  and  if  this  has  not  been 
done  in  clear  and  explicit  terms,  or  by  nec- 
essary implication,  the  question  whether 
or  cot  the  exemption  has  been  granted, 
must  be  resolved  in  favor  of  the  Slate." 
Citing  I'rov.  Bk.  v.  r.illings,  4  Pet.  514; 
Wilmini^ton  R.  R.  Co.  i'.  Reid,  13  Wall. 
264;  Phil.  <fe  AVilmington  R.  K.  Co.  v 
State,  10  Plow.  376.  Hut  a  clear  exemp- 
tion of  tiie  shares  of  stock  is  a  contract 
which  is  ])rotected  by  the  United  States 
Constitution.  State  xt.  Baltimore  it  O.  K. 
R.  Co.,  48  Md.  40  (1877).  A  charter 
provision,  however,  that  a  certain  tax 
shall  be  paid  by  the  corporation,  docs 
not  prevent  a  subsrqui'nt  change  in  that 
tax.  Delaware  Raih-oad  Tux,  18  Wall. 
206  (187:i).  And  an  exemption  by  the 
State  has  been  h'/ld  lujt  to  exempt  from 
ta.\ation  of  the  shares  by  a  municipality. 
(!ord(jn's  Fxrs.  v.  Mayor,  drc,  5  (iill 
(Md.),  231  (1847). 


[37] 


577 


•S  569.] 


TAXATION   ON   STOCK. 


[CH.  XXXIV. 


•■any  tax.^  Exemptions,  however,  have  no  effect,  and  are  of  no 
;avail  beyond  the  boundaries  of  the  State  granting  them  ;  and.  ac- 
cordingly, a  non-resident  stockholder,  who  is  taxed  on  his  stock 
in  the  State  where  he  resides,  cannot  defeat  that  tax  by  reason  of 
■exemptions  enjoyed  within  the  State  creating  the  corporation.'^ 

§  509.  Taxation  of  national  hanli  stock. — It  is  one  of  the  es- 
tablished principles  of  constitutional  law  in  this  country  that  the 
instruments  of  government  by  the  United  States  shall  not  be 
taxed  by  any  State,  and  also  that  those  of  a  State  shall  not  be 
taxed  by  the  United  States.  Accordingly,  the  bonds  issued  by 
the  United  States  government  cannot  be  taxed  by  any  State.^ 
So  also,  when  the  old  United  States  Bank  was  in  existence,  it  was 
held  that  neither  the  bank  nor  its  capital  stock  could  be  taxed  by 
.a  State.  But  it  was  also  held  that,  inasmuch  as  the  interest  of 
the  stockholders  in  the  bank  was  ditferent  from  the  franchises, 
property,  capital  stock,  and  United  States  bonds  held  by  the 
;bank,  such  interest  of  the  shareholder  could  be  taxed  by  a  State, 
.and  that  such  taxation  would  be  constitutional  and  legal.*  The 
^ame  rules  apply  to  the  present  national  banks.  A  State  tax  on 
ihe  capital  stock  of  the  bank  is  illegal  and  void.^     But  a  tax  on 


'  Scotland  Co.  v.  Mo.,  Iowa,  <fec.,  Ry. 
■Co.,  65  Mo.  123  (1877),  the  court  saying: 
■"  It  is  clear  that  a  tax  on  the  property 
represented  by  the  stock  is  substantially 
a  tax  on  the  stock."     See  also  County 
Comrs.  V.  Annapolis,  <fec.,  R.  R.  Co.,  47 
Md.  592   (1877),    where  the   court   says: 
"  It  is  settled  by  repeated  decisions  of 
this  court,  -which  we  are  not  disposed  to 
disturb,  that  the  exemption  of  the  shares 
of  the  capital  stock  operates  as  an  exemp- 
tion of  the  property  of  the  corporation, 
or  so  much  of  it  as  the  corporation  is 
fairly  authorized  to   hold  for  the  proper 
•exercise  of  its  franchises;   and  this  upon 
the  principle  that  the  shares  of  the  stock 
in  the  hands  of  the  shareholders  represent 
the  property  held  by  the  corporation." 
Bk.   of  Cape  Fear   v.   Edwards,    5   Ired. 
Law  (N.  C),  516  (1845),  where  the  charter 
said:  "  the  said   bank  shall  not  be  liable 
to  any  further  tax."     Mayor,  <fec.,  of  Bal- 
timore V.   Baltimore  <fe   O.   R.   li.  Co.,  6 
Gill  (Md.),  288  (1848);  Tax  Cases,  12  G. 
<fe  J.  (Md.)  117  (1841);  Gordon's  Exrs.  v. 
Mayor,  &c.,  of  Baltimore,  5   Gill  (Md.), 
231    (1847).      In   the    case,  however,   of 
Wilmington  &  W.  R.  R.  Co.  v.  Reid,  64 
B.  C.  226  (1870),  it  was  held  that  an  ex- 

578 


emption  of  shares  of  stock  does  not  ex- 
empt ^he  corporate  franchise  from  taxa- 
tion. And  in  State  v.  Petway,  2  Jones' 
Eq.  (N.  C.)  396  (1856),  it  was  held  that 
a  charter  provision  that  the  shares  of 
stock  should  be  taxed  a  certain  amount, 
did  not  prevent  a  tax  on  dividends. 

'^  Appeal  Tax  Court  v.  Patterson,  50 
Md.  354  (1878);  Id.  v.  Gill,  Id.  377.  See 
also  Railroad  Co.  v.  Pennsylvania,  15 
Wall.  300  (1872). 

^  Cooley  on  Taxation,  2d  ed.,  84,  85. 
Formerly  government  bonds  were  called 
stock,  both  in  Englind  and  in  this  coun- 
try. This  use  of  the  term,  however,  has 
become  practically  obsolete.  See  Bk.  of 
Commerce  v.  New  York,  2  Black.  620 
(1862);  Weston  v.  City,  &c.,  of  Charles- 
ton, 2  Peters,  449  (1829). 

■*  National  Bk.  i\  Commonwealth,  9 
Wall.  353  (1869).  per  Miller,  J.;  M'CuI- 
loch  V.  State  of  Maryland,  4  Wheat.  316, 
436  (1819);  Bulow  v.  City  of  Charleston, 
1  Nott  &  McCord  (S.  C),  527  (1819).  See 
also  Berney  v.  Tax  Collector,  2  Bailey  (S. 
C),  654(1831). 

=  Bk.  of  Omaha  v.  Douglas  County,  3 
Dill.  298  (1873);  Salt  Lake,  Ac,  Bk.  v. 
Goldiug,   2  Utah,  1  (1876);  Mayor,  etc, 


en.  XXXIV,] 


TAXATION  OF  STOCK. 


[§  569. 


its  real  estate  or  on  its  shares  of  stock  is  upheld  as  legal  and  en- 
forceable.^ This  is  the  law,  although  a  large  part  or  all  of  the 
tank's  capital  stock  is  invested  in  United  States  bonds.^  The 
authority  of  a  State  to  tax  shares  of  stock  in  national  banks  is 
-express]}'  conferred  by  the  statutes  of  the  United  States,  which 
create  and  regulate  these  banks.^      The  only  questions  of  impor- 


of  Macon  v.  First  Natl.  Bk.,  59  Ga.  648 
<1877);  Bradley  v.  Illinois,  6  Am.  L.  Resj. 
N.  S.  456;  Bk.  of  Commerce  v.  N.  Y. 
€ity,  2  Black.  620 ;  reversiocf  People  v. 
€omrs.of  Assessments,  23  N.  Y.  192;  s.  c, 
32  Barb.  509,  and  declaring  unconstitu- 
tional the  Xew  York  statutes,  under  which 
the  national  banks  were  taxed.  New 
York  has  been  exceedingly  unfortunate  in 
its  eff<jrt3  lO  tax  national  banks.  After  the 
decision  in  Bk.  of  Commerce  v.  N.  Y. 
City,  supra,  came  Bank  Tax  Case,  2  "Wall. 
200  (1864),  dechiring  unconstitutional  the 
New  York  statute  of  29th  April,  1863, 
for  the  taxation  of  national  banks,  the  tax 
still  being  on  the  capital  stock.  Next 
came  Van  AUen  v.  The  Assessors,  3 
Wall.  573  (1865)  (reversing  City  of  Utica 
V.  Churchill,  33  N.  Y.  161.  See  also 
First  National  Bk.  v.  Fancher,  48  N.  Y. 
624, 1872),  declaring  unconstitutional  the 
New  York  statute  of  9th  March,  1865, 
taxing  the  shareliolders  in  national  banks, 
because  the  act  did  not  prescribe  express- 
ly that  the  tax  should  be  no  greater  than 
the  tax  on  other  shares  of  stock,  and  be- 
cause taxes  in  New  York  on  other  corpo- 
rations were  not  on  shares  of  stock  but 
on  the  capital  stock.  New  York  then 
passed  the  Act  of  23d  April,  1866,  which 
was  sustained  in  People  v.  Comr?.,  4 
Wall.  244  (1866).  Still  later  came  the 
case  of  People  v.  Weaver,  100  U.  S.  539 
(1879),  declaring  void  the  New  York  tax 
of  national  bank  stock,  for  the  reason  that 
the  New  York  Court  of  Appeals  construed 
the  New  York  taxation  statute  to  allow 
persons  taxed  on  ordinary  securities  a 
deduction  for  debts,  while  a  similar  de- 
duction was  not  allowed  to  stockholders 
in  banks,  State  or  National.  Supervisors 
V.  Stanley,  105  U.  S.  305  (1881)  [see 
People  t;."l)olan,  :i6  N.  Y.  59,  1867],  prac- 
tically modified  the  preceding  case,  how- 
€ver,"by  holding  that  a  stocklioMcr  who 
owed  no  debts  could  not  omplain,  and 
that  those  who  did  owe  debts  were  en- 
titled, not  to  a  release  from  tlie  tax  alto- 
f  ether,  but  only  to  the  extent  of  wliat  the 
tate  ought  to  have  allowed  as  a  di'duc- 
tion.     The  last  case  in  New  York  was 


decicJed  bj'  Judge  Wallace,  in  November, 
1886,  sustaining  the  State  tax  of  shares 
of  stock  in  national  banks.  It  has  been 
held  that  a  State  may  tax  bank  notes,  but 
not  treasury  notes — i.  e.,  "greenbacks." 
Bd.  of  Comrs.  v.  Elston,  32  lud.  27  (1869). 

'  Austin  V.  Boston,  96  Mass.  359 
(1867);  First  Natl.  Bk.  v.  Douglas  Coun- 
ty, 5  Dill.  330  (1874),  upholding  the  Ne- 
braska statute  herein  of  27th  February, 
1873.  Stetson  v.  City  of  Bangor,  5^  Me. 
274  (1868). 

'^  Van  Allen  v.  Assessors,  3  Wall.  573 
(1865);  People  v.  Comrs.,  4  Wall.  244 
(1866). 

^  Rev.  Stat.  U.  S.  t^  5219  (taken  from 
act  of  3d  June,  1864.  as  amended  by  act 
of  February  10th,  1868):  "  Nothing  here- 
in shall  prevent  all  tlie  shares  in  any  as- 
sociation from  being  included  in  the  valu- 
ation of  the  personal  property  of  the  own- 
er or  holder  of  such  shares,  in  assessing 
taxes  imposed  by  authority  of  the  State 
within  which  the  association  is  located; 
but  the  legislature  of  each  State  may  de- 
termine and  direct  the  manner  and  place 
of  taxing  all  tlie  shares  of  national  bank- 
ing associations  located  within  the  State, 
subject  onJy  to  the  two  restrictions,  that 
the  taxation  shall  cot  be  at  a  greater 
rate  than  is  assessed  upon  other  moneyed 
capital  in  the  hands  of  individual  citizens 
of  such  State,  and  that  the  shares  of  any 
national  banking  association,  owned  by 
non  residents  of  any  State,  shall  be  taxed 
in  the  city  or  town  where  the  bank  is  lo- 
cated, anil  not  elsewhere.  Nothing  here- 
in shall  be  construed  to  exempt  the  real 
property  of  associations  from  either  State, 
county,  or  municipal  taxes,  to  the  same 
extent,  according  to  its  value,  as  other 
real  property  is  taxed."  The  case  of 
People  V.  Weaver,  100  U.  S.  639,  543 
(1879),  says  that  tiie  cflfect  of  the  Act  of 
Congress,  as  regards  the  taxation  of  na- 
tional banks,  is  that  Congress  says  to  the 
States:  "  You  may  tax  the  real  estate  of 
tiie  banks  as  other  real  estate  is  taxed, 
and  you  m.iy  tax  the  shares  of  the  bank 
as  the  personal  property  of  the  owner  to 
the  same  extent  you  tax  other  moneyed 

579 


§  570.]  TAXATION    OF   STOCK.  [CH.  XXXIV. 

tance  that  are  still  unsettled,  turn  upon  the  meaning  and  applica- 
tion of  that  statute,  and,  according-ly,  the  law  is  stated  most 
clearly  when  it  is  connected  with  the  various  provisions  of  these 
statutes. 

§  570.  Place  in  wliich  shares  of  national  banTc  stoclc  may  he 
taxed. — The  Revised  Statutes  of  the  United  States  expressly  de- 
clare that  non-resident  stockholders  in  a  national  bank  are  to  be 
taxed  at  the  place  where  the  bank  is  located.^  Under  this  statute, 
a  non-resident  of  the  State  within  which  the  bank  is  situated  can 
be  taxed  on  his  stock  only  where  the  bank  is  located.^  The  State 
where  he  resides  cannot  also  tax  him  on  such  stock.  As  regards 
residents  of  the  State  within  which  the  bank  is  located,  the  State 
itself  determines  where  the  tax  is  to  be  levied.^  If  the  State 
statute  requires  that  the  whole  tax  shall  be  paid  in  the  city, 
county  or  town  where  the  bank  is  lo(;ated,  even  though  some  of 
the  stockholders  reside  in  other  counties  or  cities,  the  statute 
must  be  obeyed.^  Generally,  however,  the  statute  requires  that 
stockholders  residing  in  the  State  shall  be  taxed  at  their  place  of 
residence  on  stock  owned  by  them  in  a  national  bank  within  that 
State.^     If  the  statute  is  silent  herein,  then  the  State  statutes 

capital  invested   in  your  State.     It  was  ier  of  tlie  bank  may  be  required  by  stat- 

conceived  that  by  tliis  qualification  of  tlie  ute  to  send  to  the  clerks  of  the  various 

power  of  taxation  equality  would  be  se-  towns  the  names  of  such  stockholders  as 

cured  and  injustice  prevented."     In  Was-  reside  in  those  towns.     Waite  v.  Dowley, 

son  V.  First  Natl,  bk.,  8  Northeast.  Kep.  94  U.  S.  527  (1876). 

97  (Ind.,  1886),  tlie  court  says:   "  It  has  ■*  National  Bank  v.  Conumonwealth,  9 

been  many  times  held  by  the  Supreme  Wall.  S5o  (1869);  Tappan  -.  Merchants' 

Court  of  the  United  States  that  the  au-  Nat.  Bk.,    19   Wall.    490    (1873);  Prov. 

thority  of  the  States  to  tax  the  shares  of  Inst.   v.  City  of  Boston,   101    Mass.   575 

national   bank   stock   is  derived  wholly  (1869);  McLaughlin  i;.  Chadwell,  7  Heisk. 

from  the     .     .     .     Act  of  Congress,  and  (Tenn.)  389  (1872);  Craft  t'.  Tuttle,   27 

that   without   the    consent    of    Con2,Tess  Ind.  332  (1866),  holds  that  if  a  municipal- 

these   bank   stock   shares   could    not   be  ity  has  no  power  to  tax  shares  in  State 

taxed  by  State  authorities  at  all,"  banks,  it  cannot  tax  national  bank  shares. 

»  Such  was  the  effect  of  the  amend-  ^  Clapp  v.  City  of  Burlington,  42  Vt. 

ment  of  1866.      Previous  to   that   time  579(187o).     See  Trustees  of  Eminence  i>. 

there  was  controversy  herein  as  to  the  Deposit  Bk.  12  Bush,  538;  Farmers'  Nat. 

meanino-  of  the  act  of  1863.     See  Austin  Bk.  v.  Cook,  32  N.  J.  L.  347  (1&67).     Cf. 

V  Boston,  96  Mass.  359  (1867).  State  v.  Hart,  31  N.   J.  L.  434  (1866); 

5   See  Mclver  v.   Robinson,   53   Ala.  State  v.  Haight,  31  N.  J.  L.  399  (1866),  ob- 

456*  Weaver  v.  Weaver,  75  N.  Y.   30;  jectionable  and  unfortunate  decisions  in 

Kyle  f.  Fayettevillc,  75  N.  C.  445;  Natl,  all    respects.      The    decision    in    Tenth 

Bk.  V.  Commonwealth,  9  Wall.  353  ;  Lion-  Ward  Nat.  Bk.  v.  City  of  Newark,  39  N. 

ber"er  v.  Rowse,  9  Wall.  4G8.  J.  L.    380  (1877),  however,  placed  New 

3  Austin  V.  Aldermen,  7  Wall.  694  Jersey  among  the  States  which  levy  the 
(1886).  The  tax  maybe  levied  on  resi-  tax  in  the  most  approved  manner,  resi- 
dent stockholders  in\he  city,  county,  or  dents  being  taxed  where  they  reside, 
town  where  they  reside.  Austin  v.  lio>-  non-residents  being  taxed  at  the  domicile 
ton,  96  Mass.  359  (1867).     And  the  cash-  of    the  corporation.     See  also   Kyle   v. 

580 


CH.  XXXIV.] 


TAXATION  OF  STOCK. 


[§  571. 


regulating  the  taxation  of  stockholders  in  other  corporations  are 
to  apply  to  stockholders  in  national  banks  situated  within  the 
State. 

§  571.  The  tax  must  not  le  greater  than  that  imposed  on 
other  ''moneyed  capitaV'—The  most  difficult,  unsettled,  and 
litigated  questions  connected  with  the  taxation  ot  shares  of  stock, 
in  national  banks,  arise  from  the  meaning  and  application  of  that 
provision  of  the  statutes  of  the  United  States  requiring  that  the 
taxation  of  national  bank  shares  of  stock  shall  not  be  at  a  higher 
rate  than  the  taxation  of  other  ''  moneyed  capital "  within  the 
State.  The  words  "moneyed  capital"  has  been  construed  to 
mean,  "  not  only  bonds,  stocks,  and  money  loaned,  but  all  credits 
and  demands  of  every  character  in  favor  of  the  tax-payer."  ^ 
Accordingly,  it  is  not  enough  that  the  tax  levied  on  shares  in  na- 
tional banks  is  the  same  as  that  levied  on  shares  in  other  banks 
or  other  corporations.  It  must  be  no  greater  than  that  levied  on 
other  forms  of  moneyed  capital.'^  A  different  view,  however, 
has  been  taken  in  a  few  cases.^  The  method  of  taxing  shares  of 
stock,  it  has  been  held,  should  correspond  to  that  followed  in  tax- 


Mayor,  (fee,  15  N.  C.  445  (1876);  Buell 
V.  Com'rs  of  Fayetteville,  79  N.  C.  267 
(1878);  Austin  v.  City  of  Boston,  96 
Mass.  .'559  (1867);  First  Nat.  Bk.  v.  Smith, 
<55  ill.  44  (1872) ;  Baker  v.  First  Nat.  Bk. 
67  111.  297  (1873) ;  Clapp  v.  City  of  Hur- 
lington,  42  Vt.  579  (1870);  Howell  v. 
Oassopolis,  35  Mich.  471  (1877).  Cf. 
Mintzer  v.  County  of  Montgomery,  .54 
Penn.  St.  139(1867). 

'  Wasson  v.  First  Nat.  Bk.,  8  North 
east.  Hep.  87  (Ind.  1886);  Boyer  v.  Boyer, 
1  {■'>  U.  S.  689  ;  see  also  Hepburn  v.  School 
Directors,  23  Wall.  480  (1874). 

'^  In  the  cass  People  v.  Commissioners, 
4  Wall.  256,  this  statutory  provision  is 
held  to  mean  "  thai  the  rate  of  taxation 
upon  the  shares  should  be  the  same  or 
not  greater  than  upon  the  moneyed  capi- 
tal of  the  individual  citizen  which  is  lia- 
ble to  ta.xation  ;  that  is,  no  greater  in 
proportion  or  percentage  of  tax  in  the 
valuation  of  shares  should  be  levied  than 
upon  other  moneyed  taxable  cai)ital  in 
tli(!  hands  of  the  citizen."  In  Adams  r. 
Nashville,  95  U.S.  19  (1877),  the  court 
said  that  the  statute  "simply  required 
that  capital  invested  in  national  banks 
should  not  be  taxed  at  a  greater  rate 
t!ian  like  property  similarly  invested." 


5  A  recent  case  in  New  York,  In  re 
McMahon,  102  N.  Y.  176  (1886),  hold.s 
that  shares  of  stock  in  railroad,  manufac- 
turing, and  other  corporations,  are  not 
"  moneyed  capital  "  in  the  sense  in  which 
these  terms  are  used  in  the  Act  of  Con- 
gress. See  also  First  Nat.  Bk.  v.  Waters, 
19  Blatch.  242;  Prov.  Inst.  v.  City  of 
Boston,  101  Mass.  575  (1869),  holds  that, 
the  comparison  is  to  be  made  with  other 
moneyed  capital  in  the  same  town  or  city 
where  the  tax  is  levied.  So  also  People  v. 
Moore,  Idaho,  504  (187^!).  Subject  to  this 
rule  the  shares  of  national  hanks  may  bo 
assessed  at  their  value,  oven  above  par. 
Hepburn  v.  School  Directors,  su/n-a  ; 
People  V.  Commissioners,  <fec.,  94  U.  S. 
415  (1876);  Id.  67  N.  Y.  516  (1876)  ; 
nffi'g  8  Hun,  536.  St.  Louis  National 
Bk.  V.  Papin.  4  Dill.  29  (1876),  the 
court  >aying  also  that  tiie  assessors  may 
ascertain  that  value  by  including  "all 
reserve  funds,  profits,  earnings,  and  oth- 
er values"  when  the  intent  of  the  stat- 
ute is  to  base  the  tax  "upon  an  inquiry. 
inter  alia,  uito  the  actual  value  of  th<'  jirop- 
erty  of  the  banks,  so  far  as  this  imparls 
or  confers  a  value  upon  the  shares." 


oSl 


§  571.] 


TAXATION   OF   STOCK. 


[CH.  XXXIV. 


ing  other  corporations  in  the  State.^  Thus,  it  has  been  held  that 
a  tax  cannot  be  levied  on  national  bank  stock,  where  there  is  no 
tax  on  stock  in  other- corporations,  the  tax  being  upon  the  capital 
stock  or  franchises  of  the  latter,^  The  material  point,  however,, 
is  that  national  bank  stock  must  not,  as  a  result,  be  taxed  higher 
than  otlier  moneyed  investments.  If  this  rule  is  observed,  it  is  of 
little  consequence  whether  the  tax  on  national  bank  stock  is  levied 
and  assessed  in  the  same  way  as  other  corporations  are  taxed. 

If  the  State  laws  allow  a  deduction  to  a  person  taxed  on  bonds, 
notes,  and  similar  property,  for  debts  due  from  him  to  others,  a 
similar  deduction  must  be  allowed  to  stockholders  taxed  on  their 
shares  in  a  national  bank.^  If  the  statute  does  not  allow  the  same 
to  the  latter,  and  the  courts  of  the  State  refuses  to  allow  the  de- 
duction, then  the  tax  is  illegal.  Such  was  the  result  of  a  tax  in 
New  York  on  national  bank  stock.^     A  refusal  to  allow  a  deduc- 


'  The  mode  of  collection  need  not  be 
the  same.  The  State  may  compel  the 
bank  to  pay  the  tax.  National  Bk.  r. 
Commonwealth,  9  W\ill.  853,  363  (1869), 
per  Miller,  J.  But  if  the  assessment  is  ille- 
gal in  that  no  notice  and  opportunity  is 
given  to  the  shareholder  to  appear  and  re- 
sist the  tax,  it  cannot  be  enforced.  Albany 
City  Nat.  Bk.  v.  Maher,  20  Blatch.  341 
(1882). 

-  Van  Allen  v.  Assessors,  3  Wall.  5*73 
Bradley  v.  People,  4  Wall.  459  (1866); 
Hubbard  v.  Johnson  County,  23  Iowa, 
130  (1867);  People  v.  Assessors,  29  How. 
Pr.  371  (1865);  Wright  v.  Stelz,  27  Ind. 
838  (1866),  overruling  Whitney  v.  Madi- 
son, 23  ind.  231,  on  certain  points. 
Cooley  on  Taxation,  2d  ed.  390.  Contra, 
People  V.  Bradley,  39  111.  130  (1866). 
See  also  Frazier  v.  Siebern,  16  0.  St.  614, 
Smith  V.  First  Nat.  Bk.,  17  Mich.  479. 
Where  a  State  and  also  a  local  tax  is  lev- 
ied on  shares  of  stock  in  a  State  bank, 
and  the  local  tax  is  declared  illegal,  the 
same  local  tax  is  illegal  as  regards  shares 
in  national  banks,  it'  such  local  tax  is 
larger  than  the  State  tax.  City  Nat.  Bk. 
V.  Paducah,  2  Flippin,  61  (1877). 

3  Evansville  Bk.  v.  Britton,  105  U.  S. 
322  (1881).  affi'g  8  Fed.  Rep.  867. 
But  a  deduction  to  individuals  for 
United  States  bonds  held  by  them 
■will  not  invalidate  a  tax  on  the  na- 
tional bank  stock  without  a  similar 
dp.luction.  People  ?'.  Comrs.,  4  Wall.  244 
(1866).  In  the  recent  case  Wasson  v. 
First  Natl.  Bk.,  8  Northeast.  Rep.  97 
(1886),   the  court    held    that    deduction 

5S2 


allowed  to  others  is  fatal  to  a  tax  on  na- 
tional bank  shares  without  that  deduction 
only  when  it  is  "material  and  serious,'' 
and  that  that  depends  on  the  propoition 
of  mtneyed  capital  which  is  allowed  the 
deduction  to  that  moneyed  capital  which 
is  not  allowed  it.  If  material,  the  na- 
tional bank  share  tax  is  to  be  allowed  a 
similar  deduction.  Where  a  tax  on  stock 
is  nut  illegal,  except  in  that  the  asses^sors 
have  proceeded  in  a  wrong  manner,  the 
court  will  not  <  njoin  its  collection,  unless 
the  plaintiff  stcckholders  pay  in  such  a 
tax  as  would  have  been  legal.  Frazer  v. 
Seibern,  16  O.  St.  614  (1866)  ;  Cummings 
V.  Merchants  Natl.  Bk.,  101  U.  S.  153 
(1879);  Supervisors  x.  Stanley,  105  U. 
S.  305  (1881);  reversing  Hills  v.  Ex- 
change Bk.,  105  r.  S.  319  (1881);  revg. 
Natl.  Albany  Exchange  Bank  v.  Wells, 
18  Blatch.  478  (1880);  5  Fed.  Rep.  S48. 
Cf.  City  Natl.  Bk.  v.  Paducah,  2 
Flippin,  61  (1877).  And  a  deduc- 
tion to  other  moneyed  corporations 
for  their  real  estate  must  be  allowed  in 
taxing  national  bank  shares.  Pollard  v. 
State,  65  Ala.  528  (1880);  overruling 
Mclver  v.  Robinson,  53  Ala.  456,  and 
Sumbre  County  v.  Natl.  Bk.,  62  Ala.  4  64. 
In  general,  see  also  Ruggles  v.  City  of 
Fond  de  Lac,  53  Wis.  436  (1881);  Miller 
V.  Heilbron,  58  Cal.  133(1881);  St.  Louis 
Natl.  Bk.  V.  Papin,  4  Dill.  29;  Covington, 
&Q.,  Bk.  V.  Covington,  21  Fed.  Rep.  4!:4; 
Exchange  Natl.  Bk.  v.  Miller,  19  Id.  872. 
•»  People  V.  W^eaver,  100  U.  S.  539 
(1879).  The  New  York  court  held  that 
"  the  effect  of  the  State  law  is  to  permit  a 


cii.  xxxrv.] 


TAXATION   OF   STOCK. 


[§  571. 


tion  to  stockholders  in  national  banks  similar  to  a  deduction 
allowed  on  a  tax  levied  on  other  ''  moneyed  capital  "  was  held  to 
be  a  discrimination  in  contravention  of  tlie  statute.  Special  ex- 
emptions, however,  of  certain  stocks  or  other  forms  of  "  moneyed 
capital "  do  not  require  that  a  similar  exemption  should  be  made 
on  national  bank  stock.^ 

Again,  the  National  Bank  Act  cannot  be  evaded  by  an  unfair 
assessment  of  the  shares  in  national  banks,  as  compared  witli  the 
assessment  of  other  moneyed  capital.  It  is  a  well  known  fact 
and  an  understood  matter  in  nearly  all  localities,  that  no  kinds  of 
property  are  valued  at  their  actual  selling  worth,  in  making  the 
valuation  for  taxation  purposes.  Consequently  if  other  moneyed 
capital  is  valued,  in  the  assessment  rolls,  at  a  certain  proportion  of 
the  actual  value,  and  national  bank  stock  at  a  higher  proportion, 
the  tax  is  illegal  and  cannot  be  collected.^ 


citizen  of  New  York,  who  has  moneyed 
capital  invested,  otherwise  than  in  banks, 
to  deduct  from  that  capital  the  sum  of  all 
his  debts,  leaving  the  remainder  alone 
subject  to  taxation,  while  he  whose  money- 
is  invested  in  shares  of  bank  stock  can 
make  no  such  deduction."  The  Sui)reme 
Court  of  the  United  States  declare  the 
tax  on  the  national  bank  shares  to  be 
invalid.  But  the  case  of  Supervis- 
ors V.  Stanley,  105  U.  S.  305,  315 
(1881),  holds  that  the  tax  is  not  void 
absolutely.  If  the  stockholder  owed  no 
debts  he  is  not  injured.  And  even  if  he 
owes  debts,  he  cannot  defeat  the  tax 
alt')"-ether,  but  is  allowed  a  similar  de- 
duclion. 

'  Thus  a  special  contract  exemption  of 
a  few  State  bonds  froin  taxation,  will  not 
exempt  the  national  bonds.  Lionberger 
V.  Rowse,  9  Wall.  468  (1869);  Hepburn 
T.  School  Directors,  23  Wall.  480  (1874), 
where  an  exemption  of  mortgages,  judg- 
ments, and  contracts  lo  sell  land  were 
immaterial  herein.  See  also  Adams  v. 
Nashville,  95  U.  S.  19  (1877):  Super- 
visors V.  Stanley,  105  V.  S.  805,  317 
(1881);  In  re  McMaiion,  102  N.  Y.  170 
(1886) ;  McLoughlin  )'.  Chadwell,  7  Heisk. 
(Tenn.)  889  (1872);  lioyer  v.  Boyer,  113 
U.  S.  689;  Evoritl's  Appeal,  77  I'enn.  St. 
216;  Albany,  &c.,  Bk.  v.  Malu-r,  19 
Elatch.  175. 

«  Pelton  V.  National  Bk,  101  U.  S.  143 
(1 879),  the  court  saying  that  "  any  system 
of  assessment  of  taxes  which  exacts  from 


the  owner  of  the    shares   of  a  national 
bank  a  larger  sum  in  proportion  to  their 
actual  value  than  it  does  from  the  owner 
of  other  moneyed  capital  valued  in  like 
manner,  does  tax  them  at  a  greater  rate 
within   the  meaning  of  tlie  Act  of  Con- 
gress."    Where,  however,  the  assessors 
assess  ordinary  securities  at  three  fifths 
of  their  actual   value,  and   assess    bmk 
stock  at  its  full  actual   value,  and  such 
method  of  unequal  assessments  is  contrary 
to  the  Constitution  of  the  State,  the  court 
will  relieve  the  stockholders  oidy  upon; 
payment  by  tliem  of  such  a  tax  as  would 
have   been  legal.     Cummings  v.   Mercli- 
ants  National  Bk.  ofToleilo,''l01  U.S.  153 
(1879);  Supervisors  y.  Stanley,  105  U.  S. 
305  (1881).     A  case  similar  to  the  above 
is    reported    to   have    been    decided    in 
Cleveland   by  the  Circuit    Court  of  the 
United  State's,  in  November,  1 886.    When 
the   national  bank  stock  is  assessed  too 
low,  the  fact  that  another  bank  is  assessed 
still  lower  will    not  invalidate  the    tax 
(igainst  the  former.     People  v.  Assessors, 
(fee,  2   Hun,  583    (1874).     In  the  recent 
case,  First  Natl.  Bk.  of  Toledo  v.  Treas- 
urer,   25  Fed.   Rep.  749    (1885),    wliere 
ordinary  moneyed  capital  \^'as  assessed  at 
six  tenths  of  its  actual  value,  while  sliares 
in  national  banks  was  assessed  at  a  higiu^r 
pro])ortii>n  of   the  ri-al   value,  tlio  collec- 
tion thereof  was  enjoined,   upon  tiie  com- 
plainant paying  the   tax  admitted   to  be 
due. 


583 


§572.] 


TAXATION   OF   STOCK. 


[CH.  XXXIV. 


§  572.  The  hank  may  bring  suit  to  restrain  illegal  tax  on 
its  stockholders. — There  has  been  some  doubt  as  to  whether  a 
national  bank  could  bring  suit  to  restrain  an  illegal  tax  on  its 
stockholders.  Ordinarily  a  corporation  cannot  do  so.  Each 
stockholder  must  protect  his  own  interests.  But  where,  as  in  the 
case  of  national  banks,  the  tax  is  paid  by  the  bank  itself  and  col- 
lected by  it  from  its  stockholders,  if  the  latter  refuse  to  pay  the 
bank  or  recognize  its  payment  as  legal,  many  suits  would  result. 
Accordingly,  in  order  to  avoid  a  multiplicity  of  suits,  it  is  now 
well  established  that  the  bank  itself  may  file  a  bill  in  equity  to 
prevent  and  enjoin  the  collection  of  an  illegal  tax  on  its  stock- 
holders.^ 


'  City  Natl.  Bk.  v.  City  of  Paducah,  2 
Flippin,  61  (1877),  where  the  court  eays  : 
"The  bank  is  so  far  the  trustee  of  the 
stockholders,  and  the  custodian  of  the 
dividends,  that  it  is  entitled  to  maintain 
the  bill.  It  might  be  subjected  to  grfat 
annoyance  by  stockholders  who  denied 
the  legality  of  the  tax,  and  gave  the  bank 
notice  that  it  would  pay  at  the  peril  of 
being  sued  by  them.  It  is  certainly  no 
hardship  to  permit  the  whole  question  to 
be  litigated  in  a  single  action."  This 
case  holds  also  that  an  injunction  against 
the  collection  of  the  illegal  tax  will  be 
granted.  In  general,  see  also  Albany 
City  Natl.  Bk.  v.  Maher,  20  Blatch.  841 
(1882) ;  North  Ward  Natl.  Bk.  ».  Newark, 
40  N.  J.  L.  558  (1878).  Cf.  Dows  v.  City 
of  Chicago,  11  Wall.  108;  Tappan  v. 
Merchants  Natl.  Bk.  19  Wall.  490; 
Pelton  V.  Natl.  Bk.  101  U.  S.  143  ;  Cum- 


mingsr.  Natl.  Bk.,  101  U.  S.  153.  Contra, 
First  Natl.  Bk.  of  Hannibal  v.  Meredith, 
44  Mo.  500.  See  also  Union  Natl.  Bk.  v. 
Chicago,  3  Biss.  82.  The  same  rule  does 
not  a]>ply  to  a  corporation  which  brings 
suit  to  prevent  the  levy  upon  and  sale  of 
a  nonresident  stockholder's  stocks  for  non- 
payment of  his  tax.  Waseca  County 
Bk.  V.  McKenna,  32  Minn.  468  (1884); 
The  case  of  Farmers  Natl.  Bk.  v.  Cook, 
32  N.  J.  L.  347  (1S67),  denies  the  right 
of  the  bank  to  bring  the  action,  and  says, 
"  The  corporation  is  not  the  agent  of  the 
stockholders  for  any  such  purpose."  It 
is  clear,  where  shares  of  stock  are  sold 
under  a  tax  warrant,  that  the  corpora- 
tion is  not  obliged  to  oppose  the  sale. 
McNeal  v.  Mechanics  Building,  <fec., 
Assn.,  12  Am.  &  Eng.  Corp.  Cas.  131  (N. 
J.  1885). 


584 


CHAPTER   XXXV. 


FORMS  OF    ACTIONS   AND    MEASURE    OF    DAMAGES    WHERE   A 
STOCKHOLDER   HAS   BEEN   DEPRIVED   OF   HIS   STOCK. 


§  573.  Pleading  and  practice  in  general 
in  actions  relative  to  stock. 

574.  Assumpsit. 

575.  Trespass  on  the  case. 

576.  Trover. 

57*7.  Detinue  and  replevin. 
578.  Money  had  and  received. 
679.   Bill  in  equity. 
580.  Special  action  on  the  case. 
681.  The  measure  of  damages,  (a)  The 
first  rule. 


§  582.  {b)  The  second  rule. 
58.3.  (c)  The  third  rule. 

584.  Interest,    dividends,    and     accre- 

tions. 

585.  Special  damages. 

586.  Nominal  damages. 

587.  Id   actions  between  stock-brokers 

and  their  customers,  (a)  Actions 
against  the  broker. 

588.  [b)  Actions  against  the  customer. 


§  573.  Pleading  and  ])ractice  in  general  in  actions  relative 
to  stock. — When  an  owner  of  stock  who  is  out  of  possession  brings 
an  action  for  its  recovery,  or  for  the  recovery  of  the  certificate, 
or  for  damages  for  the  detention  or  conversion  of  either  the  stock 
or  the  certificate,  it  is  imjjortant  to  determine  what  action  will  lie, 
in  what  court  the  action  is  to  be  prosecuted,  and  what  is  the 
measure  of  damages.  Similar  questions  arise  when  suits  are 
brouijht  for  breach  of  contract  to  subscribe  for  stock,  or  of  con- 
tracts  to  sell  and  convev  stock.  There  are  certain  well  settled 
rules  as  to  the  form  of  the  action  in  these  cases,  which  are  deduced 
from  the  older  common  law  practice  and  pleading.  Tiiese  rules, 
even  in  the  Code  States,  where  forms  of  action  are  little  regarded, 
and  where  the  old  actions  have  been  abolished  in  name,  are  still 
at  least  partially  applicable.  Some  knowledge,  therefore,  of  the 
procedure  at  common  law  in  stock  cases  is  necessar^^  in  order  to 
frame  pleadings  correctly  under  the  modern  codes  of  procedure, 
since,  although  the  form  of  the  action  may  have  been  changed 
and  the  name  abandoned,  the  substance  of  it  remains  and  is  ma- 
terial in  the  modern  practice, 

§  574.  Assumpsit. — An  action  of  assumpsit,  or  indehitatus  as- 
sumpsit at  common  law,  lies  against  a  corporation  for  unjustly 
refusing  to  register  a  transfer,  or  iuv  refusing  to  issue  a  certilicitc 

585 


575,  576.]     REMEDIES  AND  MEASURE  OF  DAMAGES.      [CH.  XXXV- 


to  one  entitled  to  it.^  So  also  assumpsit  lies  for  breach  of  con- 
tract to  return  borrowed  bank  stock  on  demand.^  But  mandamus 
is  not  a  proper  remedy  in  these  cases,  and  it  will  not  lie  to  compel 
a  corporation  to  transfer.^ 

§  575.  Trespass  on  the  case. — An  action  of  trespass,  or  an 
action  of  trespass  on  the  case,  may  also  be  brought  against  the 
corporation  for  a  denial  to  a  stockliolder  of  a  certificate  of  stock,* 
and  an  action  on  the  case  lies  for  a  conversion  of  shares  of  stock.^ 

§  576.  Trover. — It  is  a  very  generally  accepted  rule  that  tro- 
ver will  lie  for  the  conversion  of  shares  of  stock,^     This  is  the 


'  The  Kino;  v.  Bunk  of  En2;land,  Doug. 
524  (nso);  Kortright  v.  Buffalo  Com- 
mercial Bank,  20  Wend.  90  (1838);  Ar- 
nold V.  Suffolk  Bank,  27  Barb.  424  (1857); 
Wynian  ?'.  American  Powder  Co.,  8  Cush. 
168  (1851);  Sargent  v.  Franklin  Ins.  Co., 
8  Pick.  90  (1829);  Hayd en  i;.  Middlesex 
Turnpike  Co.,  10  Mass.  397  (1813); 
Pinkertou  v.  Manchester,  <fec.  R.  R.  Co., 
4  2  N.  H.  424  (1861) ;  Hill  v.  Pine  River 
Bank,  45  Id.  300  (1864)  Cf.  Foster  v. 
Essex  Bank,  17  Mass.  479  (1821) ;  Eastern 
R.  R.  Co.  V.  Benedict,  10  Gray,  212 
(1857). 

^  McKenney  v.  Haines,  63  Me.  74 
(1873). 

■''  Freon  v.  Carriage  Co. ,  42  Ohio  St. 
30  (1884);  Gray  v'.  Portland  Bank,  3 
Mass  364,  381  (1807);  The  King  v.  The 
Bank  of  England,  Doug.  524  (1780),  by 
Lord  Mausiield.  Cf.  Curry  v.  Scott,  54 
Penn.  St.  270,  276  (1867).     See  §  390. 

•*  Bank  of  Ireland  v.  Trustees  of  Evans' 
Charities,  5  H.  of  L.  Cas.  389  (1855)  ; 
The  King  v.  Bank  of  England,  Doug.  524 
(1780);  Davis  v.  Banli  of  England,  2 
Bing.  393  (1824);  Coles  v.  Bank  of  Eng- 
land, 10  Ad.  <k  Ellis,  437  (1839);  Gray 
V.  Portland  Bank,  3  Mass.  364,  381  (1807); 
North  American  Building  Association  v. 
Sutton,  35  Penn.  St.  463  (1860);  Web- 
ster V.  Grand  Trunk  Ry.  Co.,  3  Lower 
Can.  Jur.  148  (1859);  s.  c.  2  Id.  291 
(ciinstruing  the  judicature  act,  12  Vict.  ch. 
38,  i?  87);  Protection  Life  Ins.  Co.  v.  Os- 
good. 93  III.  69  (1879);  Baker  if.  Wasson, 
53  Texas,  150  (1880);  Smith  v.  Poor,  40 
Me.  416  (1855);  Catchpolev.  Ambergate, 
&c.  Ry.  Co.,  1  Ellis  &  13.  Ill  (1852); 
Daly  t;.  Thompson,  Secty.  &c.  of  the 
Anti-Dry-Hot  Co.,  10  Mees.  &  W.  309 
(1842).  Cf.  Swan  v.  North  British  Aus- 
tralasian  Co.,  7  Hurl.   &   N.   603  (1862); 

586 


Kortright  v.  Buffalo  Commercial  Bank' 
20  Wend.  90  (1838).  Tort  with  a  count 
in  contract  for  conversion  by  refusal  to 
transfer.  Bond  v.  Mount  Hope  Iron  Co., 
99  Mass.  505  (1868). 

^  Daggett  V.  Davis,  53  Mich.  35  (1884) ; 
Ayres  i;.' French,  41  Conn.  142(1874); 
Bank  of  America  v.  McNeil,  10  Bush,  54  ; 
Parsons  v.  Martin,  11  Gray,  111  (1868); 
Boylan  v.  Huguet,  8  Nev.  345  (1873). 
Although  a  stockholder  whose  shares 
have  been  duly  transferred  on  the  corpo- 
rate books  as  security  for  a  debt,  may 
not  have  such  legal  title  as  will  enable 
him  to  maintain  trover  against  the 
pledgee  for  an  unauthorized  sale,  he  may 
maintain  a  special  action  on  the  case  and 
a  covmt  in  case  may  be  added  to  the 
complaint  in  trover  by  amendment.  Nab- 
ring  V.  Bank  of  Mobile,  58  Ala.  204 
(1877). 

«  Payne  r.  Elliot,  54  Cal.  339  (1880)j 
Kuhn  V.  McAllister,  1  Utah  273  (1875);  s. 
c.  96  U.  S.  87  (1877)  ;  Biink  of  America 
V.  McNeil,  10  Bush,  54  ;  Boylan  v.  Hugu- 
et, 8  Nev.  345  (1873);  Nabring  v.  Bank 
of  Mobile,  58  Ala.  204  (1877)  ;  Morton  v. 
Preston,  18  Mich.  60  (1869);  Jarvis  v. 
Rogers,  15  Mass.  389  (1810),  a  case  where 
trover  was  held  to  lie  for  the  value  of  Mis- 
sissippi scrip,  representing  150,000  acres 
of  land;  Anderson  v.  Nicholas,  28  N.  Y. 
600  (1864):  Freeman  v.  Harwood,  49  Me. 
195  (1859);  Ayres  v.  French,  41  Conn.  142 
(1874);  Connor  v.  Hillier,  11  Rich.  Law, 
193  (1857);  Sturges  v.  Keith,  57  111.  451 
(1870) ;  Budd  v.  Multnomah  Street  R.  R. 
Co.,  12  Oregon,  271  ;  s.  c.  22  Am.  &  Eug. 
R.  R.  Cas.  27  (1885).  Cf.  Atkins  v. 
Gamble,  42  Cal.  86,  TOO  (1871);  Mary- 
land Fire  Ins.  Co.  v.  Dalrymple,  25  Md. 
242,  267  (1866). 


ClI.  XXXV.]      REMEDIES   AND   MEASURE   OF   DAMAGES.  [§  576. 

favorite  remedy  when  the  shareholder  has  been  nnjnstl j  deprived 
of  his  stock,  and  it  is  nowliere  denied,  except  in  Pennsylvania,^ 
that  this  form  of  action  is  proper.  But  even  there,  for  the  con- 
version of  a  certificate  of  stock,  trover  will  lie.^  For  the  mainte- 
nance of  the  action  of  trover  there  must  be  title  in  the  plaintiff 
to  the  subject  of  the  action,  and  an  actual  conversion  by  the  de- 
fendant. If  either  of  these  elements  is  wanting,  the  action  will 
not  lie.  Thus,  trover  will  not  lie  for  the  conversion  of  a  certifi- 
cate where  the  title  to  the  shares  is  divested.^  Where  several 
shareholders  mutually  agree  to  contribute  a  number  of  shares 
each,  to  be  sold  for  the  benefit  of  the  corporation,  one  of  them 
cannot,  after  the  rest  have  contributed  their  proportion,  refuse  to 
allow  his  shares  to  be  sold,  as  agreed,  and  if  the  corporation  takes 
them  under  the  agreement  and  sells  them,  he  cannot  have  an  ac- 
tion of  trover.*  And  upon  the  other  hand,  withholding  posses- 
sion of  a  certificate  of  stock  cannot  amount  to  a  conversion  of  the 
stock  itself,  so  long  as  the  certificate  is  not  indorsed,  but  it  may 
amount  to  a  technical  conversion  of  the  certificate.^  It  is  well 
established  that  a  refusal  of  a  corporation  to  register  a  transfer 
in  the  name  of  one  entitled  to  the  stock  is  a  conversion  of  the 
shares."  And  likewise  a  failure  or  refusal  by  the  corporation  to 
issue  a  certificate  to  an  original  subscriber,  when,  by  the  terms  of 
the  contract  of  subscription,  it  ought  to  be  issued,  may  be  treated 
as  a  conversion."^  So  also  a  failure  to  deliver  stock  according  to  a 
contract  for  delivery,^  or  to  return  borrowed  stock  on  demand,  or 

1  In  Pennsylvania  it  is  held  that  tro-  for    money    liad    and     received.      Von 

ver  will  not  lie  for  the    conversion    of  a  Schmidt  t'.  Bourn,    50    Cal.    016    (1875). 

share  of  stock.     Sewall?;.  Lancaster  Bk,  For  an  example  of  an  insufficient    com- 

17  Serg.  &  K.  285  (1828);  Neiler  v.  Kel-  phiint  in  trover  for  shares,  in  that  there 

ley,  69  Penn.  St.  403  (1871).  was  no  sufficient  averment,  of  a  conver- 

'^  BidiUe  V.  Bayard,  13  Penn.   St.  150  sion,  or  of  facts  from  which  a  conversion 
(1850).      Cf.    Auli   V.   Colket,    2    Week,  might  be  inferred,  see    Kdwards  v.  Son- 
Notes  Cas."  322  (1875).     So  in  Michigan,  oma  Viilley  Bank,  59  Cal.  130  (1881). 
Daggett  w.  Davis,  53  Mich.  35  (1884).  "^  Nortli   America  Building  Assoc,  v. 

»  Broadbentw.  Farley,  12  C.B.  (N.S.)  Sutton,  35  Penn.  St.  463  (i860);    West 

214  (1862).  Branch,    &c.    Canal    Co.'s    Appeal,    81» 

4  Conrad     v.    LaRue,    52    Mich.     83  Penn.  St.  19  (1870) ;  Baltimore  City,  Ac. 

(1883)  Ry.  Co.  ».    Sewell,   35   Md.    238    (1871); 

'^  Daggett  i>,  Davis,  53  Mich.  35  (1884).  McMurricli  v.  Bond  Head  Harbour  Co.,  9 

Cf.  Morton  v.  Preston,  18  Id.    60  (1869).  Upp.  Can.  (Q.  B.)  333  (1852). 

Where    an    administrator     sells     stock  ''  See  ^71. 

pled2;ed  to  the  deceased  in  his  lifetime  as  *  Huntington,  &c.  Coal  Co.  i;.  English, 
security  for  a  loan  of  money,  and  recrives  86  I'enn  St.  247  ( 1878) ;  North  v.  Phil- 
the  proceeds  and  jjroperly  accounts  to  the  lips,  89  Id.  250  (1879) :  Ndonan  ?'.  Ilsley, 
estate,  tliis  is  not  a  conversion  of  the  1 7  Wis.  314  (1803);  Tinkerton  /'.  Man- 
shares,  and  the  pledgor  cannot  have  an  ciie.ster',  tfec.  R.  R.  Co.,  42  N.  11.  424 
action  of  trover.     If  any  action  lies,  it  is  (1801). 

587 


§§577,578.]    REMEDIES   AND   MEASURE   OF   DAMAGES.      [CH.  XXXV. 

at  the  time  when,  by  agreement,  it  ought  to  be  returned,^  and  an 
unauthorized  sale  of  stock  by  a  pledgee  in  violation  of  the  terms 
of  the  contract  of  bailment,^  or  by  a  broker  in  violation  of  his 
contract,^  are  examples  of  conversion  of  stock.  In  a  late  case  in 
Oregon  it  is  said  that  any  interference  subversive  of  the  right  of 
the  owner  of  stock  to  enjoy  and  control  it,  is  a  conversion.'*  In 
New  York,  a  transferee  may  try  his  right  to  registry  in  an  action 
for  dividends,^  but  not  after  commencing  an  action  for  conversion.® 
Where  there  are  conflicting  interests  in  and  contending  claimants 
for  the  same  stock,  the  corporation  is  not  liable  for  conversion  at 
the  suit  of  one  of  them  in  tort,  because  it  ma}^  refuse  to  transfer, 
pending  the  contest  between  the  claimants.''' 

§  577.  Detinue  and  re2)levin. — The  common  law  action  of 
detinue  will  lie  for  the  recovery  of  a  certificate  of  stock  unlaw- 
fully detained.^  In  this  action  the  judgment  is  conditional,  either 
to  restore  the  thing  detained,  or  pay  the  value  and  damages  for 
the  detention.  The  more  modern  action  of  replevin,  or  its  equiv- 
alent, will  doubtless  lie  for  the  recovery  of  a  certificate,  as  for  any 
other  tangible  personal  property. 

§  578.  Money  had  and  received. — A  pledgor,  whose  stock  has 
been  wrongfully  sold  by  the  pledgee,  in  violation  of  the  contract 
of  bailment,  may  have  an  action  against  the  pledgee  for  money 
had  and  received.^ 


^McKenney    v.    Haines,    63    Me.    74  221,  232(18'71).  In troTerthegoods  ought 

(1873);  Fosdick  w.  Greene,   27  Ohio  St.  to  be  set  out  with  some    degree   of  cer- 

484  (1875);  Forrest ».  Elwes,  4  Vcs.  492  tainty  of  description,  but  the  same   cer- 

(1799).  tainty  is  not  required  as  in  detinue  and 

'^  Maryland    Fire     Ins.    Co.    v.    Dal-  replevin,  damages   being    recovered    in 

rymple,  25  Md.   242.   267  (1866)  ;  Free-  trover,  the  very  articles  in    detinue    and 

many.    Harwood,    49    Me.    195    (1859);  replevin.     Jfeiler  t^.  Kelley,  69  Penn.  St. 

Fisher  v.  Brown,  104  Mass.  259  (1870).  403  (1871). 

3  Colt  I'.  Owens,  90  N.  Y.  368  (1882);  "Williams   v.    Archer,    5    C.    B.    318 

Harris  J).  Tumbridge,  83   Id.  92  (1880);  (1847);  s.   c.    5    Railway    &   Canal   Cas. 

Sadler  v.  Lee,  6  Beav.  324   (1843).     But  289,  where  it  was  held  'that  detinue  lay 

the  sale  of  stock  held  in  pledge   is  not  a  to  recover  250  scrip  certificates;  Peters 

conversion   when    upon   redemption  the  v.  Heywood,  Oro.   Jac.    682  (21   Jac.    1, 

pledgee  restores  similar  certificates   and  1624).  where  detinue  was  allowed  for  a 

has  been  at  all   times   ready   to   do    so.  bond  detained. 

Thompson  v.  Toland,  48  Cal.   99  (1874).  ^  Von  Schmidt  v.  Bourn,  50  Cal.  61G 

*  Budd  V.  Multnomah  St.  Ry.  Co.,  12  (1875);  Marsh  r.  Keating,  1  Ring.  (N.  C.) 

Oregon,  271  (1885).  198  (1834).    Cf.  Jones  v.  Brinley,  1  Ea&t. 

^Robinson  v.  National  Bank  of  New  1   (1800);  The  King  v.   Churchwardens, 

Berne,  95  N.  Y.  637  (1881).  &c.,  of  the  Parish  of  St.  John  Madder- 

^  Hughes  V.  Vermont  Copper   Mining  market,  6  Id.  182  (1805).     In  an  old  case 

Co.,  72  N.  Y.  207  (1878).  a  contrary  rule  is  laid  down.    Nightingal 

■■National   Bank  of    New  London  v.  «;.  Devisme,  5  Burr.  2589  (1770). 
Lake  Shore,  &c.  R  R.  Co.,   21   Ohio    St. 

588 


CH.  XXXV.]     REMEDIES   AND   MEASURE   OF    DAMAGES.  [§§  570,  580. 


§  579.  Bill  in  equity.— A  bill  in  equity  may  be  maintained 
by  a  honafide  purchaser  of  stock,  against  the  corporation  to  com- 
pel a  transfer  of  the  stock  upon  the  corporate  books. ^  So,  also, 
a  pledgor  may  have  a  bill  in  equity  to  redeem  shares  which  have 
been  wrongfully  sold  by  the  pledgee.^ 

§  580.  Special  action  on  the  case.— In  many  jurisdictions, 
particularly  in  those  States  whose  codes  of  procedure  have  been 
modelled  more  or  less  after  that  of  New  York  State,  the  form  of 
the  action  in  these  cases  is  not  material.  Accordingly,  it  will  be 
found  that,  in  these  States,  there  is  in  general  but  one  form  of 
action  by  which  the  plaintiff  may  equally  seek  to  recover  dam- 
ages for  the  conversion  of  his  stock,  or  to  compel  the  corporation 
to  register  a  transfer  to  himself,  or  to  have  the  certificate  de- 
livered up,  or  for  any  other  appropriate  relief.  It  is,  however, 
necessary,  in  making  the  allegations,  to  keep  in  mind  the  dis- 
tinctions which  the  pleaders  at  common  law  observed  between 
the  different  forms  of  actions.  The  modern  action,  under  the 
codes  of  procedure,  is  essentially  a  special  action  on  the  case, 
wherein  the  plaintitf  in  his  pleading  sets  out  distinctly  his  cause 
of  action,  and  details  his  grievance  without  reference  to  w  hether 
the  form  of  his  action  is  assumpsit  or  case  on  the  one  hand  ; 
or  trover,  detinue,  or  trespass,  on  the  other.^ 


'  Cushman  v.  Thayer  Mfg.  Co.,  16  N. 
S65  (1879);  Middlebrook  v.  Merchants 
Bank  of  New  York,  41  Barb.  481  (1864); 
B.  c.  18  Abb.  Prac.  1(j9  ;  27  How.  Prac. 
474;  affirmed  3  Abb.  Ct.  of  App.  Dec. 
295  (1866);  Huckmaster  v.  Consumers 
Ice  Co.,  5  Daly,  313  (1874);  Pollock  i;. 
National  Bank,  7  N.  Y.  274  (1852);  Lor- 
iiig  t».  Brodie,  134  Mass.  453;  lasigi  v. 
Chicago,  <tc.,  R.  R.  Co.,  129  Mas.s.  46 
(1880);  Conyngham's  Apiieal,  57  Penn. 
St.  474;  Ashby  i;.  Blackwell,  Aujb.  5fi3 
(1765).  Cf.  Purchase  V.  New  York  Kx- 
cliaiige  Bank,  3  Robert.  (N.  Y.  Super.  Ct.) 
164  ;  While  v.  Scliuyler,  1  Abb.  Prac. 
(N.  S.)  3011 ;  Seymour  v.  Dulancy,  6  Johns. 
Chan.  222;  8.  c.  3  Cowen,  445;  Commer- 
cial Bank  of  Builido  v.  Kortright,  22 
Wend.  348  [tlie  dissenting  opinion  of  tlie 
ChanceUor]  (1839).     See  $5  391. 

"  Fowle  V.  Ward,  113  Mass.  548  (1873); 
B.  c.  18  Am.  Rei>.  .03-1.  In  thi>i  case  it  is 
held  that  the  true  measure  of  damages  is 
tlie  value  of  the  stock  at  the  time  of  til- 
ing the  bill. 


^  Brisbane  v.  Delaware,  <tc.,  R.  R.  C'c, 
94   N.   Y.   204  (1883);  Burrall  v.  Bush- 
wick  R.  R.  Co.,  75  Id.  211  (1878).     Cf. 
Tackerson  v.   Chapin,   52   N.   Y.   Super. 
Ct.    16   (1885).     In  Nevada,    there  is  a 
statutory  action  of  claim  and   delivery. 
Bercich  v.  Marye,  9  Nev.  312  (1874).    See 
Webster  v.  Grand  Trunk  Ky.  of  Canada, 
3  Lower  Can.  Jur.  148  (1859);  s.  o.  2  Id. 
291,  for  a  construction  of  that  provision 
of  the  Judicature   Act   [12  Vict.  ch.   38, 
g  87]  whicii   governs  actions  of  this  na- 
ture in  tlic  Canadian  provinces.     In  Kuhu 
V.  Mc.\llister,  1    Utah,   275  (1875),  it  is 
held  that  the  language  used  in  the  plead- 
ings in  these  actions  is  not  material,  or 
that  the  language  is  that  of  one   form  of 
action  or  another,  or  of  no  f(jrm,  but  that 
the  question   is  whether  the  facts  entitle 
the  plaintilf  to   recover.     A    declaration 
in  an  action  for  the  wrongful  conversion 
of  the  shares  of  the  capital  stock  of  a  cor- 
poration is  sufficient  for  the  purposes  of 
pleading,  if  it  states  the  ultimate  facts  to 
be    proven.      The    circumatances   which 

589 


§581.] 


REMEDIES   AND   MEASURE   OF   DAMAGES.      [CH,  XXXV. 


§  581.  The  measu-re  of  damages. — {a.)  The  first  rule. — Great 
difficulty  has  been  experienced  in  determining  what  shall  he  the 
measure  of  damages  for  the  conversion  of  stock.  As  the 
manner  and  conditions  of  the  conversion  vary,  so  also  will  the 
measure  of  damages  vary,  from  nominal  damages  to  the  highest 
value  of  the  stock  with  dividends  and  interest,  and  also  any 
special  damages  which  the  plaintiff  can  establish.  In  general, 
the  courts  incline  to  the  rule  that  the  true  measure  of  damages 
is  the  value  of  the  stock  at  the  time  of  the  conversion,^  or  a 
reasonable  time  after.^  By  the  term  the  value  of  the  stock 
is  nsually  to  be  understood  the  market  value.^  But  the  fact  that 
the  business  of  the  corporation  is  very  profitable,  and  that  its 
shares  of  stock  have  no  known  market  value,  or  are  greatly  en- 
hanced by  the  good  will  of  a  growing  business,  will  not  vary  the 


tend  to  prove  that  fact  can  be  used  for 
the  purpose  of  evidence ;  but  they  have 
no  place  in  the  pleadings.  McAllisters. 
Kuhn,  96  U.  S.  87  (1877);  affirmino-  Kuhn 
V.  McAllister,  1  Utah,  275  (1875).  As  to 
a  misjoinder  of  causas  of  action  under  the 
California  Code,  where  the  plaintiff  sues  to 
recover  certain  stock,  see  Johnson  v.  Kir- 
by,  65  Cal.  48'2  (1884).  Upon  the  question 
of  what  is,  in  New  York,  a  sufficient 
pleading  in  an  action  to  compel  delivery 
of  stock,  see  Burrall  v.  Bushwick  R.  R. 
Co.,  75  N.  Y.  211  (1878). 

1  /n  re  Bahia  <fe  San  Francisco  Ry. 
Co.,  3  Q.  B.  584  (1868);  Williams  v.  Arch- 
er, 5  Rail.  &  Canal  Cas.,  289  (1847);  s.  c. 
5  C.  B.  318.  17  L.  J.  (C.  P.)  82;  Tempest 
V.  Kilner.  3  C.  B.  249  (1846);  Shaw  v. 
Holland,  15  Mees.  &  W.  136  (1846);  Pott 
V.  Flather,  5  Ry.  &  Canal  Cas.  85  (1847); 
Davidson  v.  Tulloch,  6  Jur.  (N.  S.)  543 
(1860);  Wells  v.  Abernethy,  5  Conn.  222, 
227(1824);  O'Meara  w.  North  American 
Mininij  Co.,  2  Nev.  112  (1866);  Baker  v. 
Drake';  53  N.  Y.  211  (1873);  s.  c,  66  N. 
Y.  518  (1876);  Colt  v.  Owens,  90  N.  Y. 
368  (1882);  Gruman  v.  Smith,  81  Id.  25 
(1880);  Ormsby  v.  Vermont  Copper  Min- 
ing Co.,  56  Id.  623  (1874);  Pinkerton  v. 
Manchester,  <fec.,  H.  R.  Co.,  42  N.  H.  424; 
McKennev  v.  Haines,  63  Me.  74  (1873); 
Sturges  V.  Keith,  57  111.  451  (1870); 
Noonan  v.  Ilslev,  17  Wis.  314  (1863); 
Bull  V.  Douglas,  4  Munf.  (Va.)  303  (1814); 
Enders  v.  Board  of  Public  Works,  1  Graft. 
3^4  (1845);  White  v.  Salisbury,  33  Mo. 
150  (1862);  Connor  v.  Hillier,  II  Rich. 
Law,    193   (1857);  Nabring    v.   Bank   of 

590 


Mobile,  58  Ala.  204 ;  Eastern  R.  R.  Co.  v. 
Benedict,  10  Gray,  212;  Boylan  v.  Uu- 
guet,  8  Nev.  345  (1873);  Bercich  v.  Ma- 
rye,  9  Id.  312  (1874);  Sargent  v.  Franklin 
Ins.  Co.,  8  Pick.  90  (1829);  Fisher  v. 
Brown,  104  Mass.  259  (1870);  Wyman  v. 
American  Powder  Co.,  8  Cu^h.  168  ;  North 
V.  Phillips,  89  Penn.  St  250(1879);  Hunt- 
ington, »tc..  Coal  Co.  V.  English,  86  Id. 
247(1878);  Neiler  v.  Kelley,  69  Id.  403 
(1871);  Randall  v.  Albany  City  National 
Bank,  1  N.  Y.  State  Rep.  592  (Sept., 
1886);  Douglas  v.  Merceles,  25  N.  J.  Eq. 
144  (1874).  See  also  Eicholz  v.  Fox,  12 
Phila.  382  (1878);  Larrabee  v.  Badger, 
45  111.  440(1867);  Earned  r.  Hamilton,  2 
Rail.  &  Canal  Cas.  624  (1841);  Blyth  i'. 
Carpenter,  L.  R.  2  Eq.  501  (1866). 

•^  Colt  V.  Owens,  90  N.  Y.  368  (1882); 
Douglas  V.  Merceles,  25  N.  J.  Eq.  144 
(1874).  Upon  what  is  reasonable  time 
herein  in  transactions  on  the  stock  ex- 
changes, see  Stewart  v.  Cauty,  8  Mees.  & 
W.  160(1841);  Field  v.  Lelean,  6  Hurl. 
&  N.  617. 

3  By  the  "  market  value  of  stock  "  is 
meant  the  actual  price  at  which  it  is  com- 
monly sold.  That  price  may  be  fixed  by 
sales  of  the  stock  in  market  at  or  about  a 
given  time.  If  no  sales  can  be  shown  on 
the  precise  day,  recourse  may  be  had  to 
sales  before  or  after  the  day,  and  for  that 
inquiry  a  reasonable  range  in  point  of 
time  is  allowable.  Douglas  v.  Merceles, 
25  N.  J.  Eq.  144  (1874).  Cf.  Stewart  v. 
Cautv,  8  Mees.  <fe  W.  160  (1841) ;  Sturgea 
V.  Keith,  57  111.  451  (1870);  Seymour?/. 
Ives,  46  Conn.  109  (1878). 


CH.  XXXV.]   REMEDIES  AND  MEASURE  OF  DAMA.GES. 


[§  5S1. 


rule  wliere  the  actual  value  is  ascertainable  in  an  action  to  recover 
damao-es.^  The  question  of  what  was  the  market  value  at  the 
time  of  the  conversion  is  generally  a  question  for  the  jury,^  and 
it  mav  be  shown  by  tables  of  prices  current,  published  in  the 
newspapers  or  otherwise  at  the  time  of  the  conversion,  and  these 
may  be  read  in  evidence.^  Again,  it  is  not  always  entirely  clear 
at  what  time  the  conversion  was  consummated,  particularly  when 
the  question  arises  between  pledgor  and  pledgee,  vendor  and  ven- 
dee, or  shareholder  and  the  corporation. 

In  general,  however,  a  conversion  for  wliich  the  owner  of  the 
stock  may  have  an  action,  arises  whenever  the  stockholder,  being 
entitled  to  the  immediate  possession  or  delivery  of  the  stock  or 
the  certificate,  makes  a  demand  for  it,  which  is  refused.  Accord- 
ingly, in  this  class  of  cases  the  measure  of  damages  is  the  value  of 
stock  on  the  day  of  the  demand  and  refusal.* 


•  "In  actioDS  for  conversion  of  per- 
sonal property,  such  as  tliese  shares  are, 
the  damtges  are  not  limited  to  the  market 
value  of  the  stock.  Its  actual  value  to  be 
determined  under  all  the  circumstances, 
such  as  tlie  dividend-making  capacity,  the 
good  will,  <fec.,  etc.,  is  the  measure  of 
damages."  Freon  v.  Carriage  Co.,  42 
Ohio  St.  30,  38  (1884).  Not  the  nominal, 
but  the  true  value  of  the  shares  is  what 
the  plaintiff  is  entitled  to  recover.  Bull 
V.  Douglas,  4  Munf.  (Va.)  303(1814);  En- 
ders  V.  Board  of  Public  Works,  1  Gratt. 
364  (1845). 

'■'  1  Sedgwick  on  Damages  (7th  ed.), 
585,  and  cases  cited.  Dos  Passos  on 
Stock-brokers,  801.  See  Cameron  v.  Durk- 
heim,  55  N.  Y.  425  (1874):  Fowler  v. 
New  York  Gold  Exchange  Bank,  67  Id. 
138(1876);  Harris  v.  Tumbridge,  83  Id. 
92  (1880). 

'  Cliquot's  Champagne,  3  Wall.  1 14 
(1865).  In  this  case  it  is  said  that,  sucii 
pi  ice  lists  as  were  printed  and  published 
at  the  time  of  tlio  prices  in  dispute,  and 
meant  to  be  relied  on  at  that  tiiue  in  com- 
mercial transactions,  may  be  submitted 
to  the  jury  as  "  tiirowing  light"  on  tlie 
matter,  as  "some  tjuide  to  ciindid  men," 
and  for  their  "  (;oiisid(;r!ition."  s.  p.,  Who- 
lan  V.  Lynch,  60  N.  Y,  409  (1875). 

*  So  when  stock,  held  as  collateral,  is 
improperly  sold  by  the  |)ledgce,  the  value 
on  the  day  wiien  the  pkMjg(jr  pays  hie 
debt  and  demands  his  stock  is  to  be  taken. 
Fis  cr  )'.  Brown,  101  Mass.  251)  (1870). 
In  Freemim  v.  liarwo'xl,  49  Me.  195 
n859),  sharefl  of  stock   standing   in  the 


name  of  the  defendant  as  collateral  secur- 
ity for  a  debt  which  had  been  paid,  were 
sold  for  non-payment  of  an  assessment, 
and  bought  by  defendant.  It  was  held 
that  the  defendant  was  liable  in  trover 
for  the  value  of  tlie  shares  at  the  lime  of 
the  sale,  with  interest,  and  all  dividends 
received  thereon,  deducting  the  amount  of 
the  assessment  and  the  expenses  of  the 
sale.  In  Sturges  v.  Keith.  57  111.  451 
(1870),  it  is  held  tiiat  wliere  tlie  demand 
and  refusal  constitute  the  conv"ersi<Mi,  or 
afford  presumptive  evidence  of  it,  the 
date  of  such  demand  and  refusal  is  the 
proper  time  for  estimating  the  value. 
Again,  where  the  corporation  wrongfully 
refuses  to  register  a  transfer  and  to  issue 
a  certificate,  the  measure  of  damages  is 
tlie  value  of  the  stock  on  the  day  when 
the  transfer  was  demanded  and  refused. 
Wvm:in  V.  American  Powder  Co.,  8  Cush. 
168  (1851);  Kastcrn  R.  R.  Co.  v.  Benedict, 
10  (Jray,  212  (1857);  West  Branch,  cfee., 
Canal  Company's  Api)eal,  81*  I'cnn. 
St.  19  (1870);  Baltimore  City,  &c..  K.  R. 
Co.  V.  Seweli,  35  Md.  238  (1871).  McMur- 
rich  V.  Bond  Head  Harbor  Co.,  9  Up.  Can. 
(Q.  I'..)  333  (1852),  where  it  is  said  that 
while  the  rule,  as  aiuioiinced  above,  is  the 
])ro])er  one,  wlien  the  Jury  allows  a  larger 
sum,  tlie  question  of  the  measure  of  dnni- 
ages  not  having  been  pressed  at  the  ar- 
gument, the  court  will  not  reduce  the 
verdict.  So  also  where  tliero  is  a  failure 
to  return  borrowed  slock  on  demand,  or 
according  to  the  lerms  of  IIh'  baihncnt, 
the  value  on  the  day  of  demand,  or  on 
the  day  wiien  the  9to(rk  <night  by  contract 


§§  582,  583.]  REMEDIES   AND   MEASURE    OF   DAMAGES.   [CH.     XXXV. 


§  582.  (ft.)  Tlie  second  rule. — In  another  line  of  cases  the 
true  measure  of  damages  in  these  actions  is  said  to  be  the  value 
of  the  stock  on  the  day  of  the  trial.^  In  an  English  case  it  is  said 
that  this  is  a  sound  rule  in  the  ordinary  cases  of  conversion  of 
stock,  but  that  in  cases  of  failure  to  deliver  stock  the  true  measure 
of  damages  is  the  value  when  the  demand  is  made  and  refused.'^ 
This  rule  has,  however,  fourd  little  favor,  and  there  is  believed 
to  be  no  sound  reason  for  its  adoption. 

§  583.  (c.)  The  third  rule. — It  has  been  held,  in  still  another 
class  of  decisions,  that  the  measure  of  damages  for  the  conversion 
of  stock  is  the  highest  market  value  of  the  stock  between  the 
date  of  the  conversion  and  the  day  of  the  trial.  This  is  the  rule 
in  California  in  some  cases.^  So  also  in  South  Carolina,*  Georgia,^ 
and  it  was  formerlv  the  rule  in  New  York^  and   Pennsylvania.^ 


to  have  been  returned,  is  the  measure  of 
damages.     McKenney  v.  Huines,  63  Me. 
74  (1873);    Fosdick\'.  Greene,  27  Ohio 
St.   484  (1875);  s.  c,  22  Am.  Rep.  328; 
McArthur  v.  Seaforth,  2  Taunt.  257 ;  Day 
V.  Perkins,  2  Sandf.  Chan.  359.     Cf.  Cor- 
telyou  V.  Lansing,  2  Caines'  Gas.  in  Error, 
200  (1805) ;  West  v.  Wentworth,  3  Cowen, 
82;  Clark  v.  Finney,  7  Id.  681;  Wilson 
V.  Matthews,  24  Barb.  295 ;   2  Sedgwick 
on  Damages  (7th  ed.),  141,  365,  n.     In  an 
old  case  where  borrowed  stock  was  not 
returned,  the  plaintiff  was  allowed  to  re- 
cover the  value  at  the  time  of  the  transfer 
to  the  borrower,  no  account  being  taken 
of  an  increase  in  value.     Forrest  v.  Elwes, 
4  Ves.   492  (1799).     Ace.  McKenney  v. 
Haines,  63  Me.  74  (1878).     Upon  a  failure 
to  deliver  stock  according  to  contract  or 
on  demand,  the  value  at  the  time  of  the 
demand  is  the  value  to  be  taken.     Koonan 
V.  Ilsley,  17  Wis.  314  (1863);  Pinkerton 
V.  Manchester,  Ac,  R.  R.  Co.,  42  N.  H. 
424  (1861);  Korth  v.  Phillips,  89  Penn. 
St.  250  (1879);  Huniington,  Ac,  Coal  Co. 
V.  English,  86  Id.  247  (1878).     Cf.  Pott  v. 
Flather,  5  Rail.  &  Canal  Cas.  85  (1847); 
Earned  v.  Hamilton,  2   Id.    624  (1841); 
Shaw  V.  Holland,  4  Id.  150  (1846);  s.  c, 
15  Mees.  &  W.  136;  Tempest  v.  Kilner,  2 
C.  B.  300;  s.  c,  3  Id.  249;  Gainsiord  v. 
Carroll,  2  Barn.  &  C.  624. 

1  Owen  V.  Routh,  14  C.  B.  327  (1854); 
Sliepherd  v.  Johnson,  2  East,  211;  Ber- 
cich  V.  Marye,  9  Kev.  312  (1874).  Cf. 
Williams  v.  Archer,  5  C.  B.  318  (1847); 
8.  c,  5  Rail.  &  Canal  Cas.  289;  17  L.  J. 
(C.  P.)  82;  and  see  Wilson  v.  Little,  2 
2^.  y.  443,  450  (1849),  wherein  there  is  a 

592 


quere  as  to  whether  this  may  not  be  the 
better  rule.  In  Fowle  v.  Ward,  1 1 3  Mass. 
648;  s.  c,  18  Am.  Rep.  534  (1873),  it  is 
held  that  the  measure  of  damages  is  the 
value  of  the  stock  upon  the  day  when  the 
bill  in  equity  is  filed,  it  being  an  equitable 
action  by  a  pledgor  against  a  pledgee. 

•^  Shaw  V.  Holland,  15  Mees.  &  W.  136, 
145  (1846);  s.  c,  4  Rail.  &  Canal  Cases, 
150;   15  L.  J.  Exch.  87. 

3  Code  of  California,  §  3336,  is  as  fol- 
lows :  "  The  detriment  caused  by  the 
wrongful  conversion  of  personal  property 
is  presumed  to  be :  1.  The  value  of  the 
property  at  the  time  of  the  conversion, 
with  interest  from  that  time;  or  where 
the  action  has  been  prosecuted  with  rea- 
sonable diligence,  the  higliest  market  va- 
lue of  the  property  at  any  time  between 
the  conversion  and  the  verdict,  without 
interest,  at  the  option  of  the  injured  par- 
ty." This  is  held  to  apply  to  the  conver- 
sion of  shares  of  stock.  Fromm  v.  Sierra 
Nevada  Silver  Mining  Co.,  61  Cal.  629 
(1882);  Dent  v.  Holbrook,  54  Id.  145 
(1880).  Cf.  Thompson  v.  Toland,  48  Cal. 
99  (1874). 

•*  Kid  V.  Mitchell,  1  Nott  &  McCord, 
334. 

5  Central  R.  R.  <fe  Banking  Co.  v.  At- 
lantic, tfec.,  R.  R.  Co.,  50  Ga.  444. 

«  Markham  v.  Jaudon,  41  N.  Y.  235 
(1869);  Romaine  v.  Van  Allen,  26  Id.  309 
(1863). 

''  Bank  of  Montgomery  v.  Reese,  26 
Penn.  St.  143  (1856);  Musgrave  v.  Beck- 
endorff,  53  Id.  310  (1866);  Rcitenbaugh 
V.  Ludwick,  31  Id.  131,  141  (1858). 


CH.  XXXV.]        REMEDIES   AND   MEASURE   OF   DAMAGES-  [§  584. 

The  eonrts  of  the  two  latter  States  have,  liowever,  in  later  cases, 
wholly  receded  from  this  position,  and  in  both  the  rule  is  now 
established,  that  in  general,  in  such  actions,  the  measure  of  dam- 
ages is  not  the  highest  price  of  the  stock,  but  the  value  at  the 
date  of  the  conversion.^ 


§  584.  Interest,  dividends,  and  accretions.— It  is  settled  law 
that,  in  addition  to  the  value  of  the  stock  at  the  date  of  conver- 
sion, the  plaintiff  may  recover  legal  interest  upon  such  valuation 
from  the  date  of  the  conversion  to  the  day  of  the  trial.  It  fol- 
lows, as  of  course,  that  if  the  plaintiff  has  been  damaged  in  an 
ascertained  sum,  he  may,  in  an  action  for  damages,  recover  not 
only  that  sum,  but  interest  thereon,  for  the  time  during  which  he 
has  been  wrongfully  deprived  of  his  stock.^  In  addition  to  inter- 
est, the  plaintiff  may  recover  also  all  accretions  to  the  property 
made  during  the  time  when  he  was  deprived  of  it.  He  is,  there- 
fore, entitled  to  judgment  for  all  dividends  paid  upon  the  stock 
between  the  date  of  the  conversion  and  the  day  of  the  trial.^ 
The  reason  why  the  plaintiff  recovers  dividends  in  addition  to  the 
value  of  the  stock  and  interest,  is  probably  this.  It  often  occurs 
that  the  dividends  involved  were  earned,  wholly  or  in  part,  before 


'  Nortli  V.  Phillips,  89  Penn.  St.  250 
(1879);  Ilunlington,  &c.,  Coal  Co.  v.  Eng- 
lish, 86  Id.  247(1878);  Work*.  Bennett, 
70  Id.  484  (1872);  Nciler  v.  Kelley,  69 
Id.  403  (1871).  Cy.  Wilson  v.  Whittakcr, 
49  Id.  114(1865).  So  also  in  the  later 
New  York  cases.  Baker  v.  Drake,  53  N. 
Y.  211  (1873);  s.  c,  66  N.  Y.  518  (1876); 
White  V.  Smith,  54  Id.  522  (1874) ;  Har- 
ris V.  Tumhridge,  83  Id.  92  (1880);  Colt 
V.  Owen.s,  9i»  Id.  368  (1882);  Randall  v. 
Albany  City  National  Bank,  1  N.  Y.  State 
Rep.  592  (Sept.,  1886).  Cf.  Suydiim  v. 
Jenkins,  3  Sandf.  Super.  Ct.  614  (1850); 
Matthews  v.  Coe,  49  N.  Y.  57  (1872); 
Bryan  v.  Baldwin,  52  Id.  236  (1873).' 
See  also  Seymour  v.  Ives,  46  Conn.  109 
(1878);  MeCiiffey  v.  Ilurncs  (Sup.  Ct. 
Tenn.  Sept.  1886),  1  Soulli-west.  Rep.  506. 

-'  O'Meara  v.  North  American  Minin"- 
Co.,  2  Nev.  112(1 866) ;  P,oylan  v.  I luguer 
8  Id.  345  (1873);  Fisher  v.  Brown,  104 
Mass.  25.')  (1870);  S.irgent  v.  Franklin 
Ins.  Co.,  8  Pick.  90  (18;i9);  Seymour  v. 
Ives,  46  Conn.  109(1878);  .McKenney  w. 
Haines,  63  Me.  74  (1873);  Freeman  v. 
Ilarwood,  49  Id.  195  (1859);  Ormsby  y. 
Vermont  Copper  Mining  Co.,  56   N.  Y. 


623  (1874);  White  v.  Smith,  54  Id.  522 
(1874)  ;  Sturges  v.  Keith,  57  III.  451 
(1870);  Baltimore  City,  Ac.,  Ry.  Co.  v 
Sewell,  35  Md.  238,257(1871);  Pinker- 
ton  V.  Manchester,  &c.,  R.  R.  Co.,  42  N 
H.  424  (1861);  North  v.  Phillips,  89  Penn! 
St.  250  (1879);  Huntington,  &c..  Coal 
Co.  V.  English.  86  Id.  247  (1878)  ;  North 
America  Building  Assoc,  i;.  Sutton,  35  Id. 
463  (1860);  Noonan  v.  ]Mey,  17  Wis.  314 
(1863)  ;  Forrest  v.  Elwcs,  4  Ves.  492 
(1799);  Jn  re  Bahia  it  San  Franci-eo  Ry. 
Co.,  3  Q.  B.  584  (1868)  ;  Blyth  v.  Carpen- 
ter, L.  R.  2  Eq.  501  (1866);  McMurrich 
V.  Bond  Head  Ilarbcr  C«'.,  9  Upj).  Can.  (Q 
B.)  333  (1852).  In  the  Civil  Code  of  Cali- 
fornia, 55  3336,  interest  in  these  cases  is 
expressly  jirovided  for.  Fromm  v.  Sierra 
Nevada  Silver  Mining  Co.,  61  Cal.  629 
(1882)  ;  2  Sedgwick  on  Damages  (7th 
ed.),  391. 

'■'  P>ull  V.  Douglas,  4  Munf.  (Va.)  303 
(1S14):  Baltimore  City,  .te.,  Ry.  Co.  i-. 
Sewell,  35  .Md.  238  (l871);  Bn-cich  v 
Marye,  9  Nov.  312  (1871);  Bank  of  Mont- 
gomery V.  Reese,  26  Penn.  St.  1-13  (1856). 
Cf.  Boston,  itc,  R.  R.  Co.  v.  Richardhon, 
135  Mass.  473,  477  (1883). 


[38] 


593 


§§  585,  586.J  REMEDIES  AND   MEAbUEE   OF   DAMAGES.       [CH.  XXXV 


the  conversion,  though  declared  and  paid  after  the  conversion. 
The  market  value  will  not  in  such  cases,  as  a  rule,  represent  the 
true  value,  including  the  dividends,  and,  therefore,  a  judgment  for 
the  mere  value  of  the  shares  and  interest  would  not  be  adequate 
compensation  for  the  conversion. 

§  585.  Special  damages. — The  plaintiff  may  also  recover  any- 
special  damages  which  legitimately  arise  out  of  matters  in  exist- 
ence at  the  date  of  the  conversion,  and  which  he  has  sustained  by 
reason  of  the  detention  of  his  stock.^  This  is  the  general  rule, 
but  it  seems  that  in  Connecticut  such  special  damages  in  trover., 
in  cases  of  conversion  of  stock,  are  not  favored.^ 

§  586.  Nominal  damages. — In  certain  cases,  where  the 
plaintiff  has  been  guilty  of  laches,  or  where  the  stock  is  of  no 
actual  value,  or  where  the  stock  could,  for  a  reasonable  time 
after  the  conversion,  have  been  purchased  in  the  market  for  the 
same  or  a  lower  price,  or  in  any  other  case  where  the  plaintiff 
has  suffered  only  a  technical  conversion  without  any  actual  pecu- 
niary loss,  only  nominal  damages  can   be  recovered.^     Thus  the 


1  Boylan  v.  Huguet,  8  Nev.  345  (1873); 
2  Sedgwick  on  Damage?  {1th  ed.),  391 ; 
Bodley  v.  Reynolds,  8  Ad.  &  El.  (N.  S.) 
779  (1846)  ;  Davis  v.  Oswell,  7  Car.  &  P. 
804  (1837).  Where  the  president  of  a 
company  issues  spurious  stock  in  excess 
of  the  amount  authorized  by  law,  the 
measure  of  damages,  in  actions  by  those 
who  take  such  stocks  bona  Jide,  is  the  pe- 
cuniary equivalent  of  such  shares,  it  being 
impossible  to  decree  an  allotment  of  the 
shares  themselves.  Willis  v.  Fry,  13 
Phila.  33  (1879).  In  an  action  on  the 
case  against  a  building  society,  for  un- 
justly refusing  to  permit  a  transfer  of  cer- 
tain shares  of  stock  held  by  the  plaintiff, 
the  latter  may  recover  the  amount  paid 
on  the  stock,  as  dues,  with  interest  there- 
on from  the  time  of  the  several  payments. 
North  America  Building  Association  v. 
Sutton,  35  Penn.  St.  463  (1860).  In  an 
action  by  a  corporation  against  one  to 
whom  the  corporation  has  issued  a  certif- 
icate upon  a  forged  power  of  attorney  to 
transfer,  the  measure  of  damages  will  em- 
brace (a)  the  costs  and  expenses  incurred 
by  the  corporation  in  defending  a  suit 
brought  against  it  by  the  person  whose 
name  was  forged ;  (6)  the  amount  required 
to  replace  the  stock  so  unlawfully  trans- 
ferred ;  (c)  dividends  which  the  corpora- 

594 


tion  was  obliged  to  pay  to  the  one  whose 
name  was  forged.  Barton,  &c.,  R.  R.  Co. 
V.  Richardson,  135  Mass.  473,  477  (1883). 
Bankers  of  trustees  wrongfully  sold  out 
stock,  and  applied  the  proceeds  to  their 
own  purposes.  The  measure  of  their  lia- 
bility is  the  amount  paid  in  replacing  the 
stock.  Sadler  v.  Lee,  6  Beav.  324  (1843). 
As  to  damages  in  cases  of  trusts,  see 
Story's  Eq.  (13  ed.),  §§  1263,  1264.  Upon 
the  effect  of  false  and  traudulent  repre- 
sentations, on  an  action  for  damages,  see 
Tockerson  v.  Chapin,  52  N.  Y.  Super.  Ct. 
16  (1885).  It  is  no  defense  to  such  an 
action  tliat  the  original  conversion  was 
by  some  one  else.  Kuhn  v.  McAllister, 
1  Utah,  275  (1875);  s.  c.  sub  nom.,  McAl- 
lister V.  Kuhn,  96  U.  S.  87  (1877). 

^  Seymour  v.  Ives,  46  Conn.  109 
(1878). 

3  Thus  where  a  borrower  of  shares 
fails  to  return  them  until  after  the  cor- 
poration is  dissolved,  the  lender  having 
made  no  demand  during  the  existence  of 
the  company,  the  measure  of  damages,  in 
an  action  to  recover  the  shares,  will  be 
the  market  value  of  them  at  the  time  the 
course  of  action  accrued,  that  is  at  the 
time  of  a  demand.  And  if  at  that  time 
the  stock  is  worthless  only  nominal 
damages  are  recoverable.        Fosdick  v. 


CH.  XXXV.]   REMEDIES  AND  MEASURE  OF  DAMAGES. 


[§  587. 


measure  of  damas^es  for  the  conversion  of  a  mere  certificate  of 
stock  cannot  be  placed  at  the  value  of  the  shares  themselves 
which  the  certificate  represents,  if  the  ownership  of  the  shares  is 
not  affected.^ 

§  587.  In  actions  hettveen  stochhroJcers  and  their  custom- 
ers.— {a.)  Actions  against  tlie  hrolcer. — Where  a  broker  buys  or 
sells  stock  on  his  customer's  account  in  violation  of  the  terms  of 
liis  contract,  and  thereby  makes  a  profit,  the  customer  has  his 
option  either  to  repudiate  the  transaction  altogether  and  sue  for 
damages,  or  he  may  adopt  it  and  claim  for  himself  the  benefit 
made  by  his  agent.^  It  has  been  held  that  where  the  broker  fails 
to  buy  according  to  the  instructions  of  his  customer,  and  the 
customer  suffers  a  loss  by  reason  of  the  failure,  the  object  of  the 
purchase  being  to  cover  a  short  sale,  the  measure  of  damages  is 
the  diff'erence  between  the  price  at  which  the  stock  was  sold  short 
and  the  market  price  upon  the  day  when  the  order  was  given  to 
the  broker  to  buy  in,  that  is  to  say,  the  plaintiff  may  in  such  a  case 
recover  the  profits  which  he  would  necessarily  have  made  had  his 
order  been  properly  executed.^     And  the   rule  is  the  same  when 


Greene,  27  Ohio  St.  484  (1875);  s.  c.  22 
Am.  Rep.  328.  See  Cameron  v.  Durk- 
heim,  55  N.  Y.  425  (1874);  Hope  v. 
Lawrence,  50  Barb.  258.  In  an  action 
on  a  contract  for  tl<e  sale  of  specific  stock, 
■which,  without  tlie  knowled<^e  of  tlie 
vendor,  had  ah-eady  been  sold  to  another 
by  his  agent,  the  plaintiff  can  recover 
only  nominal  damages.  Wilson  v.  Whi- 
taker,  49  Penn.  St.  114  (1865).  Ace. 
Skinner  v.  City  of  London,  &c.  Ins.  Cor- 
poration, L.  K.,  14  Q.  n.  Div.  882(1885). 
See  Fowler  v.  New  York  Gold  Exchange 
Bank,  67  N.  Y.  138.  Wliere  a  broker  sold 
stock  for  his  customer  without  authority, 
and  in  violation  of  an  agreement  not  to 
sell,  and  it  appeared  that  for  thirty  days 
after  notice  was  given  to  the  customer  of 
the  sale  the  stock  could  luive  been  pur- 
chased in  the  market  for  the  price  at 
which  it  was  sold  or  even  for  less,  it  was 
held,  in  an  action  to  recover  damages, 
that  the  customer  having  had  a  reason- 
able time  after  he  was  notified  of  ihe  sale 
of  his  stock,  to  replace  it  at  the  same  or 
a  lower  price,  was  entitled  only  to  nom- 
inal damages.  Colt  v.  Owens,  90  .N.  Y. 
368  (1882).  Cf'.  Randall  v.  Albany  City 
National  Bank,  1  N.  Y.  State  Rep.  592 
(Sept.    1886).       See    also    McArtluir    v. 


Seaforth,  2  Taunt.  257.  But  when  the 
action  of  the  broker  is  fraudulent  (he 
customer  may,  upon  obtaining  knowledge 
of  the  facts,  repudiate  the  whole  trans- 
action and  recover  back  the  money  paid. 
Levy  V.  Loeb,  89  N.  Y.  886  (1882);  re- 
versing s.  c.  15  Jones  <fe  Spencer,  61.  Cf. 
Stewart  v.  Drake,  46  N.  Y.  449  (1871). 

'  Daggett  V.  Davies,  53  Micii.  35 
(1884),  by  Cooley,  C.  J. 

''  Kiinber  v.  Barber,  L.  R.,  8  Chan. 
56;  Marsh  v.  Keating,  1  Bing.  N.  C.  198 
(1834);  Taussig  v.  Hart,  49  N.  Y.  301 
(1872);  8.  c.  58  N.  Y.  425  (1874);  Picker- 
ing V.  Demeritt,  100  Mass.  416;  Day  v. 
Holmes,  1(13  Id.  306. 

'in  an  action  to  recover  damages, 
where  a  firm  of  stock-brokers  sold,  for  a 
customer  upon  his  order  and  for  his  ac- 
count, 300  shares  of  stock,  short,  at  186, 
and  subsequently,  without  tlie  customer's 
order  or  knowledge,  bought  in  stock  to 
cover  the  sale,  and  then,  a  few  days  later, 
the  stock  liaving  declined  several  points, 
tiie  customer  ordered  them  to  cover  their 
sale,  to  which  ordei-  no  attention  was 
paid,  it  was  held  that  the  proper  measure 
of  damages  was  the  dilferLiice  between 
the  price  at  which  the  stock  was  sold 
short  and  the  market  price  upon  the  day 

505 


58  T.] 


REMEDIES  AND  MEASURE  OF  DAMAGES. 


[CH. 


XXXV. 


the  loss  to  the  customer  results  from  the  failure  of  the  broker  to 
sell  as  instructed,  or  where  the  broker  sells  at  an  improper  or 
manifestly  unfavorable  time.^  Where  one  has  been  induced  by 
fraudulent  misrepresentations  to  buy  or  subscribe  for  shares  of 
stock,  tlie  measure  of  damages,  in  an  action  against  the  vendor,  is 
the  difference  between  the  value  of  the  stock  as  repi'esented,  and 
the  actual  value.^  And  where  one,  with  intent  to  cheat  and  de- 
fraud, induces  another,  by  false  and  fraudulent  representations, 
to  purchase  shares  for  value  which  he  knows  to  be  worthless,  he 
is  liable  for  the  damages  sustained,  whether  the  purchase  was 
made  from  him  or  from  another  at  his  instance.^  Where  a  broker 
converts  the  securities  of  his  customer,  the  measure  of  damages  is 
the  value  at  the  time  of  the  conversion,  with  interest  to  the  day 
of  the  trial,  and  past  dividends.*     This  rule  is  sometimes  so  modi- 


■when  the  order  was  received  to  purchase, 
with  interest,  deducting  commissions,  <fec. 
White    V.   Smith,   54    N.  Y.    622  (1874). 
See  Magee  v.  Atkinson,  2  Mees.  &  W.  440. 
'  In  Harris  v.  Tumbridge,  83  N.  Y.  92 
(1880),  it  appears  that  the  jjlaintiff  pur- 
chased,  through  the  agency  of  the  de- 
fendant, a  stock  option,  a  privilege  known 
as   a    "  straddle,"    upon    the   defendants 
guarantee   that    the   fluctuations    in    the 
slock  dui'ing  the  pendency  of  the  con- 
tract should  amount  to  eight  per  cent.    On 
the  next  day  after  tlie  purchase  defend- 
ant sold  the  stock,  short,  which  resulted 
in  a  loss  to  the  plaintiff,  who  bad,  at  the 
time  of  the  purchase,  authorized  defend- 
ant, as  her  agent,  to  exercise  the  option. 
As  to  the  measure  of  damages,  the  court 
say  :   "An  objectitm  is  taken  to  tlie  rule 
of  damages.     It  is  insisted  that  as  plaint- 
iff never  gave  any  directions  to  '  put '  or 
'  call '  the  stock,  she  should  not  have  re- 
covered as  if  she  had.     But  in  the  ab- 
sence of  such  directions  it  was  defendant's 
duty,  under  the  circumstances  of  this  case, 
as  we  have  already  said,  to  have  closed 
the  '  straddle '  contract  by  exercising  the 
option  at  the  most  favorable  time,  and  to 
have  acted  for  her  in  that   respect  with 
reasonable  care  and  skill.     As  he  did  not 
do  so,  she  is  entitled  to  recover  what  she 
lias  lost  by  his  neglect,  and  the  price  of 
the  stock"  from  day  to  day   during  the 
running  of  the  option  having  been  shown, 
it   was    for  the    jury  to   determine  that 
amount."     Of.  Spey'er  v.  Colgate,  4  Hun, 
622(1875). 

•^  Miller  v.  Barber,  66  N.  Y.  558,  568 

59(3 


(1876)  ;  Hubbell  v.  Meigs,  50  Id.  480,491 
(1872). 

^  Hubbell  V.  Meigs,  supra. 

4  Baker  v.  Drake,  53  N.  Y.  211  (1873); 
s.  c.  66  Id.  518(1876);  Brass  v.  Worth, 
40  Barb.  648;  Gruman  v.  Smith,  81  N. 
Y.  25  (1880)  ;  Burridge  v.  Anthony,  N. 
Y.  Marine  Ct.  (1880);  Colt  v.  Owens,  90 
N.  Y.  368  (1882) ;  Randall  v.  Albany  City 
National  Bank,  1  N.  Y.  State  Rep.  592 
(Sept.  1886);  North  v.  Phillips,  89  Penu. 
St.  250  (1879).  Cf.  Moody  v.  Caulk,  14 
Fla.  50;  Kent  v.  Ginter,  23  Ind.  1; 
Orange,  Ac,  R.  R.  Co.  v.  Fulvey,  17 
Graft.  366  ;  Jefiferson  v.  Hale,  31  Ark. 
286  ;  Third  National  Bank  v.  Boyd,  44 
Md.  47  ;  Thomas  v.  Sternheimer,  29  Id. 
268.  The  "  highest  price  "  rule  formerly 
prevailed  in  New  York.  Markham  v. 
Jaudon,  41  N.  Y.  236  (1869);  Romaine 
V.  Allen,  26  Id.  309  (1863);  La-m-ence  v. 
Maxwell,  6  Lans.  469  ;  Nauman  v.  Cald- 
well, 32  N.  Y.  Super.  Ct.  212  (1870).  In 
an  action  to  recover  damages  for  the  un- 
lawtul  conversion  of  a  quantity  of  grain, 
it  seems  that  the  rule  in  New  York  is 
that  the  highest  price  up  to  the  time  of 
the  trial  is  the  proper  measure  of  damages. 
Lo:  dell  v.  Stowell,  51  N.  Y.  70  (1872).  In 
this  case  the  court  assumes  that  the  rule 
which  applies  as  to  the  measure  of  dam- 
aures  for  the  conversion  of  shares  of  stock 
is  not  applicable  to  a  conversion  of  prop- 
erty other  than  shares,  and  that  the  rule 
in  the  text  is  rather  an  exception  to  the 
general  rule  as  to  measure  of  damages  in 
case  of  the  conversion  of  other  classes  of 
personal    property.      The  same  view   is 


CH.  XXXV.]      REMEDIES   AND   MEASURE   OF   DAMAGES. 


[§  588. 


fied  as  to  allow  the  plaintiff  to  recover  any  advance  in  tbe  price 
of  tbe  stock  within  a  reasonable  time  after  notice  of  tbe  conver- 
sion is  brought  to  him.^  And  what  is  a  reasonable  time  in  such 
a  case  is  a  question  for  tbe  jury.^ 

§  588.  (6.)  Actions  against  the  customer. — It  is  a  well  settled 
rule  that  if  a  broker,  acting  in  good  faitli,  and  without  default, 
incurs  personal  loss  or  damage  in  the  course  of  transacting  the 
business  of  bis  agency,  or  in  following  tbe  instructions  of  his 
principal,  be  may  recover  from  the  principal  full  compensation 
therefor.^  Accordingly,  where  a  broker  buys  stock  upon  his  cus- 
tomer's order  and  pays  for  it,  and  upon  a  decline  in  value  the  cus- 
tomer refuses  to  accept  it,  tbe  broker  may  recover  tbe  price  paid 
by  him,  and  not  merely  tbe  difference  between  that  price  and 
tbe  market  value  on  tbe  day  of  his  demand.^     Where  a  vendee 


taken  in  an  Indiana  case.  Kent  v.  Ginter, 
23  Ind.  1  (1864).  See  1  Sedgwick  on 
Damages  (7tl)  edition),  578,  and  note  (a). 
Cf.  Burt  V.  Dutcher,  34  N.  Y.  493  (1866)  ; 
Scott  V.  Rogers,  31  Id.  676  (1864) ;  Devlin 
V.  Pike,  5  Daly  (N.  Y.)  C.  P.  85.  In 
Pennsylvania  where  one  is  accountable 
for  stock  as  trustee,  and  converts  it,  he  is 
chargeable  with  the  highest  market 
value.  Reitenbaugli  v.  Ludwick,  31 
Penn.  St.  131  (1858);  North  v.  Phillips, 
89  Penn.  St.  250  (1879).  See  also  Kid 
V.  Mitchell,  1  Nott  &  McCord,  334  ; 
Central,  <fec.,  R.  R.  Co.  v.  Atlantic,  &c., 
R.  R.  Co.,  50  Ga.  444.  Cf.  Bates  v. 
Wiles,  1  Handy  (Ohio),  532.  In  Cali- 
fornia the  Civil  Code  provides  that  the 
measure  of  damages  in  the  case  of  a  con- 
version of  personal  propi-rty,  shall  be  the 
value  at  coiiversi"!],  or  where  tlie  action 
is  brought  promptly,  tiie  highest  market 
value.  Cal.  Civil  Code,  §  3330.  The 
courts  have  held  that  this  section  of  the 
Code  ajjplies  to  the  conversion  of  shares 
of  stock,  but  they  have  not  worked  out  a 
very  consistent  rule  on  the  subject.  In 
Douglass  V.  Craft,  '.»  Cal.  562,  the  "  liighest 
value"  rule  is  ad(ii)ted,  but  in  lati'r  cases 
the  court  seems  to  incline  t(jward  the 
modern  New  York  rule.  Ilamer  v. 
Ilnthaway,  33  Cal.  117;  Page  v.  Fowler, 
39  Id.  412;  Dentin,  llolbrook,  54  Id.  145 
(1880);  'J'ully  v.  Tranor,  53  Id.  274; 
Thompson  ?;.  Toland,  48  Id.  99  (1H74); 
Fromm  v.  Sierra  Nevada  Silver  iVIining 
Co.,  6 1  Cal.  629  (1882).  For  the  "measure 
of  damages  where  a  broker  converts  his 
customer's  securities,  and  then  is  unable 


by  reason  of  his  insolvency  to  replace 
them,  see  Chamberlain  v.  Greenleaf,  4 
Abb.  New  Cas.  92,  178. 

'  Gruman  v.  Smith,  81  N.  Y.  25  (1880); 
Burridge  v.  Anthony,  N.  Y.  Marine  Ct. 
(1880);  Page  v.  Fowler,  39  Cal.  412. 

'^  Baker  v.  Drake,  66  N.  Y.  618  (1876); 
Stevens  v.  Hurl  but  Bank,  31  Conn.  146  ; 
Stewart  v.  Cauty,  8  Mees.  <fe  \V.  160; 
Field  V.  Lelean,  6  Hurl.  <fe  N.  617.  Of. 
Allen  V.  Dykers,  3  Hill,  593  (1842). 

^  2  Sedgwick  on  Damages  (7th  edi- 
tion), 86 ;  Lindley  on  I'artnership  (4tb 
edition),  731  [where  the  English  autiiori- 
ties  U])on  the  right  of  a  stock-broker  to  in- 
demnity from  his  principal,  and  the 
measure  of  damages  in  such  cases,  are  col- 
lected and  fully  considered];  citing 
Sutton  V.  Tatham,  10  Ad.  &  E.  27 ;  P>ay- 
lifie  V.  Butterworth,  1  Fxch.  425  ;  I>owlby 
V.  Bell,  3  C.  B.  284  ;  Bayley  v.  Wilhius, 
7  Id.  886;  McEwen  v.  Woods,  2  Car.  & 
K.  330;  Taylor  v.  Stray.  2  C.  B.  (N.  S.) 
175;  Stray  2».  Russell,  1  El.  &  El.  888; 
Chapman  v.  Shepherd,  L.  R.  2  C.  P.  228  ; 
Biederman  v.  Stone,  Id.  504;  MoUett  v. 
Robinson,  L.  R.,  7  H.  L.  802;  s.  c.  7  C. 
P.  81 ;  5  C.  P.  646 ;  I'oUock  v.  Stables,  12 
Q.  B.  765  ;  Lacey  v.  Hill,  8  Chan.  921  ; 
Dos  Passoson  Stock  Brokers,  123,  8(i2. 

■^  GiddingH  v.  Seats,  103  Mass.  311. 
Cf.  Field  V.  Kinnear,  4  Kan.  476.  Where 
there  is  a  rescission  of  a  conti'act  fur  the 
sale  of  stock,  the  measure  of  the  damages 
is  the  value  of  the  stock  at  the  time  and 
place  of  the  proposed  delivery.  White 
V.  Salisbury,  33  Mo.  160  (1862);  Vance 
V.  Tourne,  i3  La.  225. 


597 


§  588.]      REMEDIES  AND  MEASURE  OF  DAMAGES.   [CH.  XXXV. 

refuses  to  carry  out  an  executory  contract  for  the  sale  of  shares, 
the  measure  of  damages  is  the  difference  in  vahie  of  the  stock  at 
the  time  of  tender  and  refusal,  and  at  the  time  the  vendee  gave 
notice  of  his  purpose  to  repudiate.^ 


'  Earned  v.  Hamilton,  2  Rail.  &  Canal  the  day  when  they  were  resold  by  the 

Cas.  624  (1841).     Cf.  Tempest  v.  Kilner,  vendor,  snch  sale  being  within  a  reason- 

3  C.  B.  249  (1846),  and  Stewart «.  Cauty,  able  time.     In  Shaw  v.  Holland,  15  Mees. 

8  Mees.  &  W.    160  (1841),  wherein  it 'is  &  W.  1.36  (1846),  the  proper  measure  of 

held   that   in   such    a    case    the    proper  damages  is  said  to  be  the  difference  be- 

measure  of  damages  is   the  difference  of  tween  the  contract  price  and  the  market 

the  prices  of  the  shares  on  the  day  when  price  on  the  day  when  the  contract  was 

they  ought  to  have  been  accepted,  and  on  broken. 


598 


CHAPTER   XXXVI. 

CORPORA.TE   MEETINGS.— CALLS,    TIME,   PLACE,    AND 
CLASSES   OF   MEETINGS. 


589.  Introductory. 

590.  The  meeting  must  be  held  at  the 

prescribed  time,  which  must  be 
reasonable. 
59L  The    place  of  meeting   must    be 
within    the   State   creating   the 
corporation. 

592.  Validity  of  corporate  acts  at  meet- 

ings outside  the  State. 

593.  By    whom    meetings    are    to    be 

called. 

594.  When   the  stockholders    are   en- 

titled   to    notice    of    corporate 
meetings. 


595.  The  essential  elements  of  a  notice 

of  a  meeting  are  time,  place,  and 
business. 

596.  Service  of  the  notice. 

597.  Notice  must  be  served  a  reason- 

able time  before  the  meeting. 

598.  The  division  of  meetings  into  ordi- 

nary and  extraordinary. 

599.  Waiver  of  notice. 

600.  Notice  is  presumed  to  have  been 

regularly  given. 

601.  Adjourned  meetings. 


§  589.  Introductory. — The  stockholders  of  a  corporation 
constitute  the  essential  existence  and  continued  life  of  the  cor- 
poration itself.  Thej  elect  its  officers,  control  its  general  policy, 
and,  within  the  charter  limits,  may  prolong  or  dissolve  its  exist- 
ence at  their  pleasure.  All  tliese  vital  powers  of  the  stockholders 
can  be  exercised  by  them  only  in  corporate  meetings  duly  con- 
vened and.  properly  organized  for  the  transaction  of  business. 
Accordingly,  the  method  of  calling  together  a  corporate  meeting, 
the  time  and  place  of  that  meeting,  the  notice  to  be  given  to  the 
stockliolders,  and  the  various  incidents  relative  to  a  proper  con- 
vening of  the  members  of  the  corporation,  are  of  great  impor- 
tance.    They  constitute  the  subject  of  this  chapter. 

§  590.  Tlie  meeting  must  he  lield  at  the  prescribed  time,  which 
must  he  reasonahle. — The  particular  time  at  which  corporate 
meetings  shall  be  held  is  often  prescribed  in  the  charter,  or  a 
statute,  or  in  the  by-laws  of  the  corporation.  AVhcn  not  so  pre- 
scribed, it  is  fixed  by  the  officers  who  call  together  the  cor])orate 
meeting.  But,  in  whatever  way  it  is  decided  upon,  the  meeting 
must  be  convened  at  the  time  decided  upon,  or  within  a  reason- 

r>99 


§591.] 


CORPORATE  MEETINGS.— CALLS. 


[cH.  xxxvr. 


able  time  thereafter.^  Accordingly,  if  the  meeting  is  convened 
before  the  hour  at  which  it  is  called,  and  business  is  transacted, 
the  proceedings  will  be  invalid.^  Under  the  incorporating  acts 
of  some  of  the  States,  meetings  of  incorporators  for  the  purpose 
of  organization,  election  of  directors,  &c.,  may  properly  be  held 
before  the  full  capital  stock  is  subscribed.^  In  general,  a  court 
of  equity  will  restrain  the  directors  from  fixing  the  time  for  an 
annual  meeting  at  a  date  when  many  members  are  in  the  country^ 
the  purpose  being  to  prevent  them  from  exercising  their  right 
to  vote.* 

§  591.  The  place  of  meeting  must  he  ivitMn  the  State  creat- 
ing the  corporation. — The  first  and  most  general  rule  as  to  the 
place  where  stockholders  may  hold  corporate  meetings,  is  that 
the  place  of  meeting  must  be  within  the  limits  of  the  State  by 
which  the  corporation  is  created.  Inasmuch  as  stockholders  can 
meet  and  act  in  the  capacity  of  stockholders  only  by  virtue  of 
the  existence  of  the  corporation,  and  since  the  corporation  exists 
only  in  the  State  creating  it,  the  power  of  stockholders  to  meet 


'  Where  a  meeting  was  held  by  a  mi- 
nority of  the  stockliolders  several  liours 
after  the  time  fixed  in  the  notice,  and  an 
adjournment  made  until  the  following  day, 
at  which  adjourned  meeting,  without  the 
knowledge  of  the  other  members,  an  elec- 
tion was  held,  the  election  was  unfair  and 
invalid.     State    of  Ohio   v.   Eonnell,   35 
Ohio  St.   10  (1878).     But  a  delay  of  an 
hour  and  five  minutes  after  the  time  speci- 
fied in  the  notice,  is  not,  as  a  matter  of 
law,   an  unreasonable  delay   which   will 
vitiate  the  proceedings.      South   School 
District  «.  Blakeslee,  13  Conn.  227,  235 
(1839).    In  this  case  the  court  says:  "The 
presumyjtion  of  law  is  that  the  meeting 
was  holden  at  a  suitable  and  proper  time 
in  the  day,  and  in  pursuance  of  the  warn- 
ing.     If  the  defendant  claims  that  the 
proceedings  were  illegal,  the  burden  of 
proof  is  upon  him.     If  there  was  an  un- 
reasonable delay  in  opening  the  meeting, 
he  must  show  it.     This  he  has  not  done 
by  merely  proving  that  there  was  delay 
of  one  hour  and  five  minutes;  for  there 
is  no  law,  statute  or  common,  that  neces- 
sarily requires  the  meeting  to  be  opened 
within  that  time  after  the  hour  appointed. 
Nor  has  he  done  it  by  merely  proving 
that  a  few  persons  left,  for  tiiey  may  have 
gone  away  for  the  purpose  of  preventing 
the  meeting  from  acting.     If  there  were 

600 


any  particular  circumstances  which  ren- 
dered a  delay  of  that  length  of  time  un- 
reasonable, the  defendants  ought  to  have 
shown  them." 

^  So  where  a  meeting  was  called  for 
twelve  o'clock,  but  was  called  to  order 
and  organized  fifteen  minutes  before 
twelve,  it  was  held  to  be  a  surprise  and 
a  fraud  upon  such  of  the  shareholdtrs  as 
were  not  actually  present  at  that  hour, 
and  that  in  consequence  the  proceed- 
ings were  irregular  and  void.  People  v. 
Albany,  (fee,  K.  R.  Co..  55  Barb.  344 
(1869).  Where  commissioners,  after  call- 
ing a  meeting  of  subscribers,  ordered  the 
election  postponed,  but  the  subscribers 
nevertheless  refuse  to  postpone,  and  pro- 
ceed with  the  election,  the  election  is  not 
void,  imless,  in  the  opinion  of  the  court, 
a  postponement  was  clearly  necessary. 
Hardenburgh  v.  Farmers  &  Merchants 
Bank,  3  N.J.  Eq.  68  (1834).  Qiicre,\n 
this  case,  Avhether  the  election  might  not 
have  been  avoided,  if  any  considerable 
number  of  the  shaieholders  were  deprived 
of  their  election  franchise  by  the  failure 
to  postpone.  Cf.  People  i\  Batchelor,  22 
N.  Y.  128(1860). 

'^  Perkins  v.  Sanders,  56  Miss.  73S 
(1879). 

4  Cannon  v.  Trask,  L.  R.,  20  Eq.  669 
(1875). 


CH.  XXXVI.] 


CORPORATE   MEETINGS.— CALLS. 


[§  591. 


and  do  corporate  acts  is  necessarily  bounded  by  the  State  lines. 
It  is  therefore  the  settled  rule  that  the  acts  which  are  essential 
to  the  existence  and  continuation  of  the  corporation  itself,  can 
only  be  exercised  within  the  bounds  of  the  State,  from  which  the 
corporation  derives  its  corporate  existence.  Hence,  a  meeting 
of  the  stockholders  of  a  corporation  can  only  be  held  in  the  State 
which  has  incorporated  the  company.^  Accordingly,  it  is  the 
rule  that  no  legal  organization  by  the  corporators  under  a  charter 
granted  by  one  State,  can  lawfully  be  affected  by  their  meeting 
and  action  in  another  State.^  It  is  not  doubted  that  a  corporation 
may  act  by  its  agents  outside  of  the  State  which  creates  it.  Thus 
it  may,  as  of  course,  make  contracts,  carry  on  its  proper  business, 
sue  and  be  sued,  and  acquire  and  hold  property  in  a  foreign 
State.^  Accordingly,  as  directors  are  merely  corporate  agents, 
they  may  lawfully  hold  meetings  in  foreign  States,  and  their  acts 
as  directors  at  such  meetings  are  lawful  and  valid.*     Frequently 


'  Miller  v.  Ewer,  21  Me.  509  (1847); 
Smith  V.  Silver  Valley  Mining  Co.,  64  Md. 
85  (1885);  8.  c.  10  Am.  &  Eng.  Corp. 
Cas.  1;  54  Am.  Rep.  760;  Franco-Te.xan 
Land  Co.  v.  Laigle,  59  Texas,  339  ;  Orms- 
by  V.  Vermont  Copper  Mining  Co.,  56  N. 
Y.  623  (1874);  Ililles  ti.  Parrish,  14  N.  J. 
Eq.  380  (1862).  See  also  Plimpton  v. 
Bigelow,  93  N.  Y.  592,  598  (1883);  Mer- 
rick V.  Van  Santvoord,  34  Id.  208,  218 
(1866);  Stevens  v.  Phoenix  Ins.  Co.,  41 
Id.  149  (1869);  La  Fayette  Ins.  Co.  v. 
French,  18  How.  404  ;  lieichwald  v.  Com- 
mercial Hotel  Co.,  106  111.  439  (1883); 
Farnum  v.  Hlackstone  Canal  Corporation, 
1  Snmner,  46;  Day  v.  Newark  India  Rub- 
ber Mfg.  Co.,  1  Blalchf.  628. 

"  It  has,  ever  since  the  decision  of  t])e 
Supreme  Court,  in  the  case  of  The  IJank 
of  Augusta  V.  Earle,  13  Peters,  519.  by 
Taney,  C.  J.,  been  the  recognized  rule 
of  American  law,  that  a  corporation  can 
have  no  legal  existence  out  of  tiie  boun- 
daries of  the  sov('rei<;nty  by  wliich  it  is 
created  ;  tiiat  it  exists  by  force  of  law, 
and  where  that  cea.scs  to  ojierate,  the 
corporation  can  have  no  existence;  tliat 
it  must  dwell  in  the  place  of  its  creation, 
andcatinot  migrate  to  another  sovereign- 
ty, and  thiit  it  cannot  hold  meetings,  [iiiss 
votes,  i>r  do  any  (orporate  acts  strictly 
80  called  outside  of  that  sovereignly." 
Smith  V.  Silver  Valley  Mining  Co.,  64 
Md.  85  (1885).  To  the  sam.!  point  see 
Morawetz  on  Corp.  (2d  ediiion),  ij  438; 


Taylor  on  Corp.,  §  382 ;  Wood  on  Rail- 
ways, §  139,  p.  344. 

^  Freeman  v.  Machias  Water  Power, 
<kc.,  Co.,  38  Me.  343  (1854);  Camp  v. 
Byrne,  41  Mo.  525  (1867).  But  see  Heath 
V.  Silverthorn  Lead  Alining,  <tc.,  Co., 
39  Wis.  146  (,1875),  holding  that  the  cor- 
poration may  be  estopped  to  deny  the 
validity  of  acts  done  outside  the  Slate 
when  the  rights  of  third  parties  inter- 
vene. 

^  Bank  of  Augusta  v.  Earle,  13  Peters, 
519,  588;  Runvon  »■.  Coster,  14  Id.  122, 
129;  Kerchncr\'.  (iettys,  18  S.  C.  521; 
i:z  parte  SchoUenberger,  96  U.  S.  369 
(1877);  Railroad  Co.  •;.  Harris,  12  WaU. 
65  (l^^O);  Bard  i'.  Poole,  12  N.  Y.  495 
(1855);  Muniford  v.  American  Life  Ins. 
Co.,  4  Id.  46.i  (1851);  Stoney  i'.  Ameri- 
can Life  In«.  Co.,  11  Paige,  635  (1845); 
New  York  Floating  Derrick  Co.  v.  New 
Jernv  Oil  Co.,  3  Duer,  648  (1854). 

■*  Ohio,  &(-.,  H.  R.  Co.  r  MclMierson, 

35  Mo.  13  (1864);  Bellows  i'.  Todd,  39 
Iowa.  209,  217  (1874);  Arnies  v.  Conant, 

36  Vt.  744  (1861);  Wood  Hydraulic 
Hose  Mining  Co.  v.  King,  45  Ga.  34 
(1872);  McCall  v.  Byrani  Mfg.  Co..  6 
Conn.  428;  Wright  v.  Bundy,  11  Ind. 
398,  '104  ;  Bassett  v.  Monte  Cristo  Mining 
Co.,  15  .\ev.  293;  .Smith  v.  Aivord,  63 
Barb.  115  (1866) ;  Galveston  Railroad  r. 
Cowdery,  11  Wall.  459,  476  (lK7<i).  In 
Copp  .-.  Lamb,  12  Me.  312  (183.^),  a 
meeting  of  the  stockholdcis  of  a  Maine 

C.Ol 


§  592.1 


CORPORATE   MEETINGS.— CALLS. 


[CH.  XXXVI. 


the  particular  office  or  place  for  meeting  within  the  State,  is  spec- 
ified in  the  charter  or  by-laws  of  the  corporation.  In  that  event 
a  meeting  held  at  a  different  place  will  be  irregular,  and  the  pro- 
ceedings at  such  a  meeting  void  and  ineffectual.^ 

g  592.  Validity  of  corporate  acts  at  meetings  outside  tlie 
State. — There  is  a  difference  of  opinion  as  to  the  effect  of  busi- 
ness transacted  at  a  corporate  meeting  held  bejond  the  borders 
of  the  State  creating  tlie  corporation.  Upon  the  one  hand  it  is 
held  that  all  the  acts  and  proceedings  of  such  a  meeting  are 
wholly  invalid  and  void ;  that  the  corporation  is  not  bound 
thereby,  and  that  the  meeting  is  as  though  it  had  never  been.' 
But  it  is  perhajjs  the  sounder  view  to  regard  the  votes  and  proceed- 
ings at  such  a  meeting  as  voidable  rather  than  void,  and  as  cap- 
able of  subsequent  ratification  by  the  corporation  at  a  regular 
meeting.^  The  corporation  itself  cannot  allege  that  such  pro- 
ceedings are  void.     It  is  estopped  from  so  doing.*     So  also  is  any 


corporation,  in  the  State  of  New  Hamp- 
shire, where  they  all  resided,  was  held  not 
illegal  or  void,  but  the  circumstances  of 
this  case  were  peculiar.  When  a  corpo- 
ration migrates  from  the  State  of  its  cre- 
ation into  another  State,  ceasing  entirely 
to  do  business  in  the  former  State  and 
transacting  all  its  business  in  the  Slate 
to  which  it  migrates,  it  loses  its  corpo- 
rate rights  and  privileges,  and  the  mem- 
bers bee  )me  partners.  Merrick  v.  Brain- 
ard,  38  Barb.  5*74  (186(1).  But  see  Mer- 
rick V.  Van  SantvQord,  34  N.  Y.  208 
(1806).     Sei  §§  237-239. 

'  Wheie  the  customary  place  of  meet- 
ing of  a  corporation  is  abandoned  and  a 
new  place  fixed  upon  in  a  regular  and 
lawful  manner,  a  meeting  at  the  old  place 
is  irregular,  and  the  proceedings  at  such 
a  meeting  are  invalid.  Miller  v.  English, 
21  N.  J.  Law,  317  (1848).  The  meeting 
must  be  held  at  the  usual  place.  Ameri- 
can Primitive  Society  v.  Pilling,  24  N.  J. 
Law,  658  (1855).  6/.'McDaniels  v.  Flower 
Brook  Mfg.  Co.,  22  Vt.  274  (1850). 

■^  Aspinwall  v.  Ohio,  (fee,  R.  R.  Co., 
20  Ind.  492,  497  (1863);  Wood  v.  Hy- 
draulic Hose  Mining  Co.,  45  Ga.  35  (1872); 
Miller  v.  Ewer,  27  Me.  509  (1847);  Free- 
man v.  Machias  Water  Power,  Ac,  Co., 
38  Id.  343  (1854);  Hilles  v.  Parrish,  14 
K  J.  Eq.  380  (1862);  Ormsby  v.  Ver- 
mont Copper  Mining  Co  ,  56  N.  Y.  623 
(1874);  Merrick  v.   Brainard,   38  Barb. 

602 


574(1860);  sees.  c.  sub  nom.  Merrick  v. 
Van  Santvoord,  34  N.  Y.  208  (1866). 

3  Ohio,  (fee,  R.  R.  Co.  v.  McPlierson, 
35  Mo.  13  (1864);  Freeman  i;.  Machias 
Water  Power,  <fcc.,  Co.,  38  Me.  343  (1854). 
The  legislature  may  also  validate  the  acts 
passed  at  such  a  meeting,  in  case  it  could 
liave  authorized  the  meeting  in  the  first 
instance.  Graham  v.  Boston,  Hartford  & 
Erie  R.  R.  Co.,  i:'8  U.  S.  161,  178  (1886); 
affirming  s.  c.  14  Fed.  Rep.  753  (1883). 
(7/.  Grenada  Co.  i-.  Brogden,  112  U.  S. 
261  (1884) ;  Anderson  »■.  Santa  Anna,  116 
Id.  356  (1885);  Shaw  v.  Norfolk  R.  R. 
Co.,  5  Gray,  162;  Howe  v.  Freeman,  14 
Id.  566. 

■*  Heath  v.  Silverthorn  Lead  Mining, 
(fee,  Co.,  39  Wis.  146  (1875).  In  this  case 
the  court  says  :  "  The  question  is,  can 
the  corporation  repudiate  its  contracts  on 
the  ground  that  its  oflncers,  who  executed 
them  on  its  behalf,  were  chosen  at  a  meet- 
ing held  beyond  the  limits  of  this  State? 
If  this  were  a  case  of  first  impression,  we 
should  say  upon  principle,  the  com- 
pany was  estopped  from  availing  itself  of 
any  such  defense  to  defeat  a  i-ecovery  on 
its  contracts ;  but  the  cases  cited  in  the 
brief  of  counsel  for  the  plaintiff,  show  that 
such  a  view  is  amply  sustained  by  au- 
thority. These  cases  will  not  be  particu 
larly  referred  to  in  this  opinion,  but  they 
will  be  found  fully  to  sustain  the  pro- 
position, that  Avhere  a  company  has  as- 


CH.  XXXVI.] 


CORPORATE  MEETINGS.— CALLS. 


[§  593. 


stoekliolder  who  takes  part  in  such  a  meeting.^  If  the  corpora- 
tion has  been  incorporated  in  two  or  more  States,  it  is  lawful 
to  hold  meetings  of  the  stockholders  in  either  State.^  And  pro- 
ceedings at  a  meeting  in  any  one  of  the  States  are  valid  in  re- 
spect to  the  property  of  the  corporation  in  all  of  them,  witliout 
the  necessity  of  the  repetition  of  the  meeting  in  any  other  of 
those  States.^  " 


§  593.  By  whom  meetings  are  to  he  called. — Where  the  time 
and  place  of  a  meeting,  and  the  business  to  be  transacted  at  that 
meeting,  are  not  all  fixed    by  charter  or  otlierwise,   so  that   the 


aumed  to  exercise  the  franchises  conferred 
by  its  charter,  as  this  has  done,  it  becomes 
a  corporate  body  de  facto,  and  the  acts 
of  its  officers  are  binding  upon  the  corpo- 
ration. The  company  ought  not  to  be 
permitted  to  say,  in  defense  of  an  action 
upon  its  contracts  entered  into  under  such 
circumstances,  that  it  had  no  legal  exist- 
ence when  the  contracts  were  executed, 
or  that  its  officers  were  not  duly  elected 
or  appointed.  We  have  commented  upon 
the  fact  that  the  charter  created  a  private 
corporation,  so  far  as  it  was  possible  for 
the  legislature  to  bring  one  in  esse,  and 
constituted  the  corporators  a  board  of 
directors  without  further  action.  Our 
conclusion  upon  this  point,  therefore,  is, 
that  though  the  first  meeting  of  the  stock- 
holders to  elect  directors  was  held  in 
Chicago,  this  fact  does  not  render  the 
note  and  mortgage  void  as  against  the 
corporation." 

'  Camp  V.  Byrne,  41  Mo.  52.5  (1867); 
Ohio,  Ac,  R.  K.  Co.  v.  McPherson,  .35 
Mo.  13  (1864).  But  mere  neglect  on  the 
part  of  a  shareholder  who  did  not  attend 
a  meeting  of  tiiis  kind,  or  a  mere  fiiiure 
to  take  affirmative  action,  for  a  period  of 
time  short  of  that  jjrescribed  by  the  Stat- 
ute of  Litnitatioiis,  will  not  deprive  that 
eiiareholder  of  iiis  right  to  attack  the 
proceedings  as  irreguliir  and  in  fraud  of 
his  rights.  Orinsby  v.  Vermont  Copper 
Mining  Co.,  56  N.  Y.  623  (1874). 

'■'  Graham  v.  Boston,  Hartford  &  Erie 
R.  R.  Co.,  118  U,  S.  161  (1886);  Coving- 
ton, <fec.,  Bridge  Co.  v.  Mayer,  31  Oiiio 
St.  317  (1877).  Of.  Richardson  r.  Ver- 
mont, (fee,  R.  I{.  Co.,  4  1  Vt.  613  (1K72); 
Culbertson  v.  Wabash  Navigation  (U>.,  4 
McLean,  544  (1849).  Contra,  Aspinwall 
V.  Ohio,  (fee,  R.  R.  Co.,  20  Ind.  492 
(1863). 


^  Graham  v.  Boston,  Hartford  cfe  Erie 
R.  R.  Co.,  supra.  In  the  opinion  in  this 
case,  Blatchford,  J.,  aptly  says:  "That  a 
meeting  in  one  of  several  States,  of  the 
stockholders  of  a  corporation,  chartered 
by  all  those  States,  is  valid  in  respect  to 
the  property  of  the  corporation  in  all  of 
them,  witliout  the  necessity  of  a  repeti- 
tion of  the  meeting  in  any  other  of  those 
States,  is,  we  think,  a  sound  proposition. 
Whether  it  be  or  be  not  true,  that  pro- 
ceedings of  persons  professing  to  act  as 
corporators,  when  assembling  without 
the  bounds  of  the  sovereignty  granting 
the  charter,  are  void,  there  is  no  princi- 
ple which  requires  that  the  corporators 
of  this  consolidated  corporation  shcjuld 
meet  in  more  than  one  of  the  States  in 
wlii(!h  it  has  a  domicile,  in  order  to  the 
validity  of  a  corporate  act.  .  .  .  The 
Boston,  Hartford  &  l*b'ie  Co.,  therefore, 
though  made  up  of  distinct  corporations 
chartered  by  the  legislatures  of  different 
States,  had  a  capital  ^tock  which  w;is  a 
unit,  and  only  one  set  of  shareholders 
who  had  an  interest,  by  virtue  of  their 
ownership  of  shares  of  such  stock,  in  all 
of  its  property  everywhere.  In  its  or- 
ganization and  action,  and  the  practical 
n)anagement  of  its  property,  it  was  one 
corpoi'ation,  having  one  board  of  direc- 
tors, though,  in  its  relations  to  any  Stiitc, 
it  was  a  sepiirafe  corporation,  governed 
by  tlie  laws  of  that  State  as  to  its  prop- 
erty therein.  It,  therefore,  had  a  dotni- 
cile  in  each  State,  and  the  corporators  or 
shareholders  could,  in  the  .'ibsfnce  of  any 
statutory  jirovision  to  the  contrai-y,  liold 
mectingrt  and  transact  corpoi'ate  bnsiiirss 
in  any  one  State,  so  as  to  hind  the  cor- 
poration in  respect  to  its  i)roperty  every- 
where." 


fio3 


§  593.] 


CORPORATE   MEETINGS.— CALLS. 


[CH.  XXXVI. 


stockholders  are  all  l)oiincl  to  take  notice  of  tliem,  it  is  necessary 
that  the  meeting  be  called,  and  this  call  must  be  made  by  the 
properly  authorized  corporate  authority.^  In  the  absence  of  any 
special  authority  to  any  particular  person  to  call  meetings,  the 
general  agent  of  the  corporation  may  make  the  caH,^  Statutory 
provisions  as  to  who  shall  call  the  meetings  are  generally  held  to 
be  merely  directory.  Accordingly,  although  the  statute  prescribes 
who  shall  call  the  meeting,  yet  other  corporate  officers  than  those 
prescribed  in  the  statute  may  issue  a  valid  call.^  Such  also  is  the 
rule  where  the  provision  as  to  who  shall  call  the  meeting  is  made 
by  by-law.^  The  officers  or  agents  of  a  corporation  whose  duty 
it  is  to  call  meetings,  may,  in  case  they  neglect  or  refuse  to  issue 
the  call,  be  compelled  by  mandamus  to  call  a  meeting  at  the 
instance  of  a  shareholder  who  is  injured  by  reason  of  their  fail- 
ure.^    Where  there  is  no  officer  competent  to  call  a  meeting,  it 


'  Evans  v.  Osgood,  ]8Me.  213(1841); 
CongTe^ational  Society  of  Bethany  v. 
Sperry,  10  Conn.  200  (1834);  State  of 
Nevada  v.  Pettineli,  lONev.  141  ;  Angell 
&  Ames  on  Corp.,  §  491.  The  notice  it- 
self sliould  show  that  it  is  issued  by  an 
officer  having  authority  to  make  a  call. 
Johnston  V.  Jones,  28  N.  J.  Eq.  216 
(18*72);  Stevens?;.  Eden  Meeting  House 
Society,  12  Vt.  688  (1839). 

■•^  Stebbins  v.  Merritt,  10  Cush.  27 
(1852). 

^  Judah  V.  American  Live  Stock  In- 
surance Co.,  4  Ind.  333  (1853);  Chamber- 
lain w.  Painesville,  <fec.  R.  R.  Co.,  15  Ohio 
St.  225  (1864);  Newcomb  »».  Reed,  12  Al- 
len, 362  (1866).  "The  statute  provides 
that  as  soon  as  ten  per  centum  of  the 
capital  stock  shall  be  subscribed,  the  per- 
sons named  in  the  certificate  of  incorpo- 
ration, or  any  three  of  them,  may  give 
notice  for  the  stockholders  to  meet  for 
the  purpose  of  choosing  directors.  But 
we  d:)  not  tliink  it  indispensable  to  an 
election,  that  the  notice  for  it  should  be 
given  by  the  persons  named.  Suppose 
they  should  all  die  before  the  time  ar- 
rived for  giving  tlie  notice,  or,  any  of  the 
many  other  contingencies  should  occur 
which  would  prevent  their  action,  could 
not  an  election  be  had  ?  If  the  necessary 
amount  of  stock  has  been  obtained,  and 
at  a  meeting  of  the  stockholders  for  the 
purpose  they  elect  directors,  the  validity 
of  their  acts  cannot  be  questioned  col- 
laterally on   account    of  the   irregularit}' 

60-i 


in  their  election.  The  statute  in  regard 
to  the  notice  is  directory."  Chamberlain 
V.  Painesville,  Ac.  R.  R.  Co.,  supra,  p. 
250.  Where  three  persons  are  appoint- 
ed to  make  a  call,  and  one  of  them  calls 
the  meeting  of  incorporation,  the  other 
two  making  no  objection,  the  organiza- 
tion of  the  company  at  the  meeting  so 
called  is  valid.  Walworth  v.  Brackett, 
98  Mass.  98  (1867). 

*  Chamberlain  v.  Painesville,  <fec.  R. 
R.  Co.,  15  Ohio  St.  225  (1864).  Where 
a  by-law  provides  that  special  meetings 
may  be  culled  by  the  president,  or  in  his 
absence  by  tiie  secretary,  on  application 
made  by  ten  members  in  writing,  the  di- 
rectors may  call  a  special  meeting  with- 
out such  an  application.  Citizens'  Mu- 
tual Fire  Ins.  Co.  v.  Sort  well,  8  Allen, 
217  (1864  K  But  where  a  by-law  author- 
izes the  trustees  to  call  a  meeting,  a 
meeting  called  by  the  president  is  irregu- 
lar. State  of  Nevada  v.  Petrine'i.  10 
Nev.  141  (1876).  When  the  by-laws  re- 
quire a  call  in  writing,  a  call  by  parol  is 
insufficient.  Stevens  v.  Eden  Meeting 
House  Society,  12  Vt.  688  (1839). 

'•>  State  of  Nevada  v.  Wright,  10  Nev. 
167  (1875);  People  v.  Board  of  Govern- 
ors of  Albany  Hospital,  61  Barb.  397 
(1871);  McNeely  y.  Woodrufif,  13  N.  J. 
Law,  352  (1833).  In  this  case  the  court 
say:  "  It  is  made  the  duty  of  the  direc- 
tors to  notify  an  election  within  tliirty 
day's.  What  is  the  consequence  if  they 
neglect  this  duty  ?     The  penalty   is  not 


CH.  XXXVI.] 


CORPORATE  MEETINGS.— CALLS. 


[§  594. 


has  been  held  that  tl)e  corporation  cannot  carry  on  business  until 
properly  reorganized  under  a  new  charter.^  But  it  is  doubtful 
whether  such  a  rule  would  be  held  good  at  the  present  day.  If, 
npon  the  organization  of  a  corporation,  a  majority  of  tlie  subscrib- 
ers refuse  to  proceed  in  calling  a  meeting,  the  minority  may  call, 
it,  and  bind  the  corporation.^ 

§  504.  When  the  stocJiholders  are  entitled  to  notice  of  cor- 
porate meetings. — If  the  time  and  place  at  which  a  corporate 
meeting  is  to  be  held  is  distinctly  fixed  in  the  charter,  or  by  a  by- 
law, or  by  usage,  this  is  of  itself  sufiicient  notice  to  all  the  stock- 
holders, and  no  further  call  or  notice  of  that  meeting  is  neces- 
sary.^ But  a  by-law  which  fixes  the  day  of  meeting  without  also 
fixing  the  hour,  is  insufficient  as  a  notice  to  stockholders  of  that 
meeting.*  It  is  a  general  and  settled  rule  of  law  that  notice,  in 
some  way  or  other,  must  be  given  to  every  person  entitled  to  be 
present  at  a  corporate  meeting.^  When,  therefore,  no  sufficient 
notice  is  given  by  charter,  or  statute,  or  by-law,  each  stockliolder 


to  be  a  forfeiture  of  the  franchise  ;  there 
is  not  such  a  word  in  the  latter  statute. 
Such  a  forfeiture  cannot  arise  bj-  impli- 
cation, for  forfeitures  are  odious  except 
when  inflicted  by  positive  enactment. 
The  consequence  of  neglecting  their  duty 
is  simply  this  :  that  atter  thirty  days  the 
stockholders  may  compel  tliem  to  do  their 
duty  by  mandiirruis  or  otherwise  immedi- 
ately. It  was  not  intended  to  impair  the 
charter  right  of  holding  an  election  at 
any  time,  but  to  hasten  and  quicken  the 
directors  in  using  it,  and  ymtting  it  in  the 
power  of  the  stockholders  to  compel 
them  to  do  it,  if  they  sliould  neglect  for 
tliirty  days."  Of.  liegina  v.  Aldhfim,  <fec. 
Insurance  Society,  0  Eng.  L.  ife  Eq.  365 
(1851). 

'  Goulding  v.  Clark,  34  N.  H.  148 
(1856). 

»  Busey  v.  Hooper.  35  Md.  15  (1871). 

«  Warner  w.  Mower,  11  Vt.  385,  393 
(18:^0);  State  v.  IJontiell,  35  Ohio  St.  10, 
15  (1878).  a/.  Atlantic  Mutual  Fire  Ins. 
Co.  V.  Sanders,  36  N.  II.  252  (1858); 
Sampson  v.  Howdoinham  Steam  Mill  Co., 
30  Me.  78  (1854);  Moore  v.  Hammond, 
C,  P,!irn.  .fe  C.  456  (lh27).  Where  a  spec- 
ial day  lias  been  fixed  lor  the  election  of 
a  city  ortieial,  it  is  not  competent  for  a 
board  of  aldermen,  at  an  iriterviMiing 
meeting,  to  rescind  the  resolution,    an(l 


go  at  once  into  an   election.     People  v. 
Batchelor,  22  N.  Y.  128  (1860). 

*  The  fa('t  that  one  of  the  by-laws  of 
the  corporation  fixes  the  day  upon  which 
the  annual  meeting  of  the  corporation 
shall  be  held,  is  not  of  itself  a  sufficient 
notice  of  the  time  and  place  at  which  the 
r.ieeting  is  to  be  held.  There  must  be  an 
express  notice  of  the  day,  hour,  and  place 
of  meeting.  Otherwise,  unless  all  the 
stockholders  are  present  and  consent, 
either  in  person  or  by  proxy,  the  meeting 
cannot  legally  be  held.  San  Buenaven- 
tura Commercial,  d'c.  Co.  v.  Vassault,  50 
Cal.  534  (1875).  Though  the  by-laws  of 
a  corporation  fix  the  date  of  tiie  annual 
meetino;,  that  of  itself  will  not  be  notice 
of  the  meeting.  Notice  must  be  given 
of  tlie  place  of  the  meeting,  and  a  pro- 
vision of  the  charter  for  the  calling  of  all 
meetings  is  a  mandatoi'y  provision,  ap- 
jilicable  alike  tn  general  and  .«|)eciai  meet- 
inu:H.  United  states?'.  McKehier,  8  liep. 
778  (Sup.  Ct.  Dist.  of  Col.,  187'.») 

' "  To  8ui)port  the  validity  of  corporate 
acts,  each  member  must  be  actually  sum- 
moned." Angell  it  Ames  on  ("orp., 
t^4J)2.  "Due  notice  of  the  time  and 
)ilace  of  a  corpor.itc;  meeting  is,  by  the 
English  law,  essential  to  its  validilj-,  or 
its  power  to  do  an}'  act  which  shall  bind 
the  corporation."  Dillon  on  Munic. 
Corp.,  §  200. 

()0r/ 


§  595.] 


CORPORATE   MEETINGS.— CALLS. 


[CH.  XXXVI. 


is  entitled  to  an  express,  personal  notice  of  every  corporate  meet- 
ing.^ No  usage  can  operate  to  excuse  a  failure  to  give  such  a 
notice,^  and  it  has  even  been  held  that  custom  or  by-laws  cannot 
change  or  abrogate  the  right  to  a  notice  of  corporate  meetings.^ 

§  595.  The  essential  elements  of  a  notice  of  a  meeting  are 
time,  place,  and  hiisiness. — The  contents  of  the  notice  depends 
upon  the  character  of  the  meeting.  There  are  three  matters  con- 
cerning every  corporate  meeting  of  which  the  members  are  en- 
titled to  notice,  namely,  the  time,  the  place,  and  the  business  pro- 
posed to  be  transacted.  Some  or  all  of  these  may  be  known  to 
him,  by  virtue  of  a  charter  provision,  or  a  by-law,  or  a  statute. 
But  if  any  one  of  them  is  not  known  in  that  way,  the  stockhold- 
ers are  entitled  to  an  actual  notice  thereof.  Accordingly,  it  is 
the  rule  that,  in  the  absence  of  other  valid  notice,  the  call  must 
S]3ecify  the  time  and  place  of  meeting,  and  the  business  to  be 
considered.*  The  precise  hour  at  which  the  meeting  is  to  be  held 
must  be  stated  in  the  notice.^ 


1  Wij^gin  V.  Freewill  Baptist  Church, 
8  Mete.  '301  (1844);  People  v.  Albany, 
&c.  R.  R.  Co.,  55  Barb.  344  (1869);  Com- 
monwealth V.  Cullen,  13  Penn.  St.  133 
(1850);  Jackson  v.  Hampden,  20  Me.  37 
(1841)  ;  McDaniels  v.  Flower  Brook 
Manfg.  Co.,  22  Vt.  274  (1850);  San  Bue- 
naventura Commercial,  &c.  Co.  v.  Vas- 
sault,  50  Cal.  534  (1875);  Stockholders 
of  the  Shelby  R.  R.  Co.  v.  Louisville,  &c. 
R.  R.  Co.,  12  Bush.  62  (1876);  Rex  v. 
Langborn,  4  Ad.  &  El.  538  (1836) ;  s.  c. 
6  Nev.  &  M.  203;  2  Id.  618;  Moore  v. 
Hammond,  6  Barn.  &  C,  456  0827); 
Smyth  V.  Darley,  2  H.  of  L.  Cas.  789 
(1849).  Cf.  Stebbins  v.  Merritt,  10 
Cush.  27  (1852);  People  v.  Batchelor,  22 
N.  Y.  128, 134  (1860);  Shortz  i;.  Unangst, 
3  Watts  <fe  S.  45  (1841);  Cannon  v. 
Trask,  L.  R.  20  Eq.  669  (1875);  MacDou- 
gall  V.  Gardiner,  L.  R.  1  Chan.  Div.  13 
(1875);  People  v.  Peck,  11  Wend.  604 
(1834). 

2  Wiggin  V.  Freewill  Baptist  Churcb, 
8  Mete.  301  (1844). 

2  The  King  v.  Attwood,  4  B.  <fe  Ad. 
481  (1833);  the  King  v.  Westwood,  7 
Bing.  1  (1830);  The  King  v.  Bird,  13 
East,  367(1811);  Green  v.  Mayor  of 
Durham,  1  Burr,  127  (1757). 

*  The  King  v.  Hill,  4  Barn.  &  C,  426 
(1825).  In  re  Bridport  Old  Brewery  Co. 
L.  R,  2  Chan.  191  (1866);  In  re  Silkstone 

606 


Fall  Colliery  Co.,  L.  R.  1  Chan.  Div.  38 
(1875).  Cf.  Wills  V.  Murray,  4  Exch. 
843  (1850). 

^  San  Buenaventura  Commercial,  <fec. 
Co.  V.  Vassault,  50  Cal.  534(1875).  Here 
the  court  said :  "  Conceding  that  this  by- 
law is  notice  per  se,  that  the  annual  meet- 
ing of  the  stockholders  will  be  held  on 
the  third  Monday  in  April  of  each 
year,  it  is  insufficient  as  a  notice  of  the 
point  of  time  during  that  day  at  which 
the  meeting  is  to  be  held.  .  .  .  The 
fact  that  the  by-law  here  names  a  day  up- 
on which,  instead  of  a  week  within  whicli, 
the  annual  meeting  is  to  be  held,  while  it 
may  diminish,  does  not  remove  the  un- 
certainty as  to  the  time  at  which  it  is  to 
be  held.  A  meeting  held  on  that  day, 
at  any  time  within  the  business  hours 
customarily  observed  in  San  Francisco, 
might  be  fairly  claimed  to  have  been  held 
pursuant  to  the  notice.  A  body  of  the 
stockholders  might  meet  at  ten  o'clock 
a.  m.  of  that  day  and  proceed  to  transact 
the  business  of  the  annual  meeting,  in- 
cluding the  election  of  trustees ;  at  a 
later  hour  of  the  same  day,  say  at  twelve 
o'clock  m.,  another  body  of  the  stock- 
holders, it  may  be,  representing  the  actu- 
al majority  of  the  stock,  might  convene 
and  proceed  to  elect  a  different  board  of 
trustees,  and  each  of  these  bodies  might 
equally  claim  to  have  proceeded  pursu- 


CH.  XXXVI.] 


CORPORATE   MEETINGS.— CALLS. 


[§  595. 


In  general  the  notice  need  not  specify  the  business  to  be  con- 
sidered where  the  meeting  is  one  prescribed  by  charter,  or  wliere 
the  business  is  prescribed  by  charter,  or  statute,  or  by-law,  and  no 
unusual  business  is  to  be  transacted.^  But  if  the  meeting  is  to  be 
held  at  a  time  not  provided  by  the  charter,  or  if  unusual  business 
is  to  be  transacted  at  a  meeting  which  is  a  customary  one,  the  call 
must  specify  particularly  such  unusual  business.^  Thus  at  a 
meeting  called  to  alter  the  by-laws  and  transact  other  business  an 
election  cannot  lawfully  be  held.*  Nor  can  an  assessment  be 
levied  at  a  special  meeting  when  the  stockholders  were  not  duly 
notified  that  that  matter  would  come  up  for  consideration.*  At 
a  special  meeting  which  has  been  called  for  a  particular  purpose 
only  the  business  specified  in  the  call  can  lawfully  be  transacted.^ 
The  transaction,  however,  of  business  other  than  that  for  which 


ant  to  the  Dotice  contained  in  the  by-law 
of  the  corporation.  In  view  of  the  fre- 
quent and  constantly  recurring  struggles 
by  different  combinations  of  stockholders 
to  obtain  control  of  the  corporate  direc- 
tion, often  resulting  in  serious  embarrass- 
ment to  the  corporate  interests,  it  is  high- 
ly important  that  the  notice  should  be 
80  definite  and  certain  in  its  character  as 
to  leave  no  room  for  controversies  such 
as  tlie  one  now  before  us." 

'  Sampson  v.  Bowdoinham  Steam  Mill 
Co.,  .36  Me.  78  (1854);  Warner  w.  Mower, 
11  Vt.  .385(1839);  People's  Insurance  Co. 
V.  Westcott,  14  Gray,  440  (1860).  See 
also  Wills  V.  Murray,' 4  Exch.  843  (18oO); 
8.  c.  19  L.J.  Exch.  209;  South  School 
District  v.  Blakeslee,  13  Conn.  227(1839); 
Merritt  v.  Farris,  22  111.  303  (1859);  Peo- 
ple V.  Batchelor,  22  N.  Y.  128  (I860). 

''  In  re  Bridport  Old  Brewery  Co.,  L. 
R.  2  Chan.  191  (1860);  In  re  Silk.stone 
Fall  Colliery  Co.,  L.  R.  1  Chan.  Div.  38 
(1875);  Atlantic  De  Laine  Co.  ij.  iMason, 
5  R.  I.  463  (1858);  Tuttle  w.  Michigan 
Air  Line  R.  R.  Co.,  35  Mich.  247  (1877)  ; 
Shelby  R.  R.  C<«.  v.  Louisville,  &c.  R.  K. 
Co.,  12  Bush,  62  (1876);  .Merritt?'.  Kar- 
ris, 22  111.  303(1859).  Cf.  Ashhury  Uy., 
Carriage  &  Iron  Co.  v.  Riclie,  L.  R,  7 
H.  of  L.  653  (1875);  Zahriskie  v.  Cleve- 
land, Ac.  R.  R.  Co.,  23  How.  381  (1859); 
Saving.s  Hank  v.  I>avis,  8  Conn.  192 
(1830).  "The  defision  of  this  case  tiien 
turns  on  the  r|uestion  whether  the  extra- 
ordinary resolution  of  tht;  2(1  of  (Jctoijer, 
1866,  was  valiii  or  not.  The  first  part  of 
this  resolution  is,  that  it  had  been  jiroved 
to   the   satisfaction  of  the  company,  that 


the  company  could  not,  by  reason  of  its 
liabilities,  continue  its  business.  But  the 
notice  did  not  state  that  an  extraordinary 
resolution  to  wind  up  the  companj^  would 
be  proposed  ;  nor  did  it  give  any  intima- 
tion that  it  was  proposed  to  consider  at 
the  meeting  the  question  whether  the 
company  was  able  to  continue  its  busi- 
ness. Now  it  is  evidently  of  great  im- 
portance to  shareholders  that  they  should 
have  proper  notice  what  subjects  are 
proposed  to  be  considered  at  a  meeting, 
and  I  do  not  think  that  in  the  present 
case  they  had  such  notice.  I  do  not  say 
that  it  was  necessary  to  follow  in  the  no- 
tice the  precise  terms  of  the  company's 
act  (sect.  129,  clause  2),  but  it  appears  to 
me  that  the  shareholders  were  entitled  to 
have  a  notice  which  would  give  them  to 
understand  that  it  was  proposed  to  pass 
an  extraordinary  resolution  tn  wind  up 
the  company.  It  is  of  great  ini]  ortance 
that  the  steps  taken  in  a  matter  of  such 
consequence  as  the  resolving  to  wind  up 
a  company  should  be  perfectly  regular, 
and  in  the  present  case  I  think  that  tliore 
was  no  sufhcient  notice."  /«  ?-e  Bridport 
Old  Brewery,  L.  R.  2  Chan.  191,  194 
(1866). 

■'  People's  Insurance  Co.  v.  Westcott, 
14  Gray,  440  (1860).  Cf.  Rex  v.  Town 
of  Liverpool,  2  Burr.  723  (1759);  Rex  v. 
Doncaster,  Id.  738. 

■*  Atlantic  De  Laine  Co.  v.  Mason,  5 
R.  I.  463  (1858).  See  also  Smith  v.  Erb, 
4  Gill(Md.),  437. 

■'•  Warner  v.  Mower,  11  Vt.  385(1839). 
Cf.  Ex  parte  Fox,  L.  R.  6  Chan.  176 
(1871). 

607 


596. 


CORPORATE   MEETINGS.— CALLS. 


[CH.  XXXVI. 


the  meeting  was  called  will  not  invalidate  the  entire  proceedings 
at  that  meeting.     There  is  only  an  invalidity  y^ro  tanto} 

§  596.  Service  of  the  notice. — If  tlie  particular  form  of  the 
notice,  or  the  manner  in  which  it  shall  be  served,  is  prescribed  by 
charter  or  by  law  or  by  statute,  the  notice  must  be  given  in  that 
manner,  otherwise  all  the  proceedings  of  the  meeting  are  invalid.'^ 
In  the  absence  of  an  express  provision  as  to  the  manner  of  mak- 
ing a  call,  it  is  the  common-law  rule  that  each  member  of  the 
corporation  is  entitled  to  a  personal  service  of  the  notice.^  But 
a  written  or  verbal  notice  left  at  a  place  of  business,  in  charge  of 
a  member  of  the  stockholder's  family,  has  been  held  sufficient.^ 
The  physical  or  mental  incapacity  of  one  of  the  stockholders  will 
not  excuse  a  failure  to  give  him  notice  of  a  meeting,  and  it  is  very 
clear  that  the  meeting  may  lawfully  convene  and  transact  business 
although  one  of  the  members  is  incapable,  by  reason  of  imbecility, 
of  receiving  the  notice.^  But  the  absence  of  a  stockholder  from 
home  does  not  excuse  a  failure  to  leave  the  notice.^    And  where  one 


'  In  re  British  Sugar  Refininp;  Co.,  3 
Kay  &  J.  408,  413  (ISSY);  Graham  v. 
Van  Diemau's  Land  Co.,  1  Hurl.  &  N.  541 
(1856);  Cleve  v.  Financial  Corporation, 
L.  R.  16  Eq.  363  (18'73).  Cf.  In  re  Irri- 
gation Co.  of  France,  L.  R.  6  Chan.  1*76 
(18'71).  But  it  is  held  that  at  a  special 
meeting,  all  the  members  being  present 
and  consenting,  business  other  than  that 
specified  in  the  call  may  lawfully  be  trans- 
acted. The  King  v.  Theodorick,  8  East, 
543  (1807);  InreThe.  Joint  Slock  Co.'s 
Act  1856,  3  Kay  &  J.  408  (1857);  San 
Buenaventura  Commercial  Mining,  <fec. 
Co.  V.  Vassault,  50  Cal.  534  (1875).  But 
see  People's  Mutual  Ins.  Co.  v.  Westcott, 
14  Gray,  440  (1860).  All  acts  done  by  a 
portion  of  the  stockholders  at  a  meeting 
so-called  or  convened  as  to  have  the  ap- 
pearance of  trickery,  secrecy,  or  fraud, 
are  invalid ;  and  surprise  and  fraud  in 
respect  to  any  part  of  the  stockholders 
■with  regard  to  the  meeting  will  invali- 
date all  proceedings  at  that  meeting. 
People  V.  Albany,  &c.  R.  R.  Co.,  55  Barb, 
344  (1869);  MsicDougail  v.  Gardiner,  L. 
R.  1  Chan.  Div.  13  (1875). 

^  Stockholders  of  Shelby  R.  R.  Co.  v. 
Louisville,  &c.,  R.  R.  Co.,  12  Bush,  62 
(1876);  Warner  v.  Mower,  11  Vt.  385 
(1839);  Reilly  I).  Oglebay,  23  West.  Va. 
36  (1884);  Johnston  v.  Jones,  23  N.  J. 
Eq.  216  (1872) ;  Stevens  «.  Eden  Meeting 

608 


House  Society,  12  Vt.  688  (1839);  Swan- 
sea Dock  Co.  V.  Levien,  20  L.  J.  Exch. 
447  (1851).  Cf.  Citizens  Mutual,  <fec.  Co. 
V.  Sortwell,  8  Allen,  217  (1864);  Smith 
«.  Law,  21  N.  Y.  296  (1860).  The  man- 
ner of  making  the  call  may  be  prescribed 
by  by-law,  and  when  so  prescribed,  pro- 
vided the  by-law  is  reasonable,  calls 
made  in  that  way  are  valid.  Taylor  v. 
Griswold,  14  N.  J.  Law,  222  (1834). 

3  Tuttle  V.  Michigan  Air  Line  R.  R. 
Co.,  35  Mich.  247  (1877);  Stevens  v.  Eden 
Meeting  House  Society.  12  Vt.  688(1839); 
Wiggin  V.  Freewill  Baptist  Church,  8 
Mete.  SOI  (1844) ;  Stow  v.  Wyse,  7  Conn. 
214(1828);  s.  c.  18  Am.  Dec.  99;  Sav- 
ings Bank  v.  Davis,  8  Conn.  191  (1830) ; 
Taylor  v.  Griswold,  14  K  J.  Law,  2.2 
(1834) ;  Harding  v.  Vandewater,  40  Cal. 
77.  Cf.  Porter  v.  Robinson,  30  Hun,  209 
(1883);  Rex  v.  Doncaster,  2  Burr.  738; 
Rex  V.  Town  of  Liverpool.  Id.  723  (1759). 

■*  Williams  v.  German  Mutual  Fire  Ins. 
Co ,  68  111.  387  (1873).  See,  however, 
Stevens  v.  Eden  Meeting  House  Society, 
12  Vt.  688  (1839). 

5  Stebbins  v.  Merritt,  10  Cush.  27 
(1852). 

*  Jackson  v.  Hampden,  20  Me.  37 
(1841).  In  Porter  v.  Robinson,  30  Hun, 
209  (1883),  it  is  held  that  notice  need  not 
be  given  to  a  member  of  a  board  of 
school   trustees,  the  board  being  a  body 


CH.  XXXVI.]  CORPORATE   MEETINGS.— CALL^.  [§§597,598. 

of  the  stockholders  dies  after  notice  of  a  meeting,  but  before  the 
meeting  convenes,  and  no  administrator  is  appointed  in  time  to 
act  at  that  meeting,  there  is  on  this  account  no  ground  to  impeach 
the  regularity  of  the  meeting.^  A  pledgee  of  shares  is  not  en- 
titled to  a  notice  of  corporate  meetings^  since  the  pledgor  is  en- 
titled to  vote  upon  the  stock  until  the  contract  of  bailment  is 
broken  and  foreclosed.' 

§  597.  Notice  7nust  he  served  a  reasonable  time  before  the 
Tneeting. — The  notice  must  be  served  upon  the  stockholders  a 
reasonable  or  customary  time  before  the  day  of  the  meeting,* 
where  by  statute  it  is  provided  that  thirty  days  notice  shall  be 
given  of  certain  corporate  meetings,  that  length  of  time  suffices  for 
notice  of  other  meetings  of  the  same  corporation.^ 

§  598.  The  division  of  meetings  into  ordinary  and  extraor- 
dinary.— Corporate  meetings  of  stockholders  are  frequently  di- 
vided, both  by  the  judges  and  the  text-writers,  into  two  classes, 
the  first  being  special  or  extraordinary,  and  the  second  being 
ordinary,  regular,  stated,  or  general.  By  reason  of  this  attempt  at 
classification  much  confusion  lias  been  introduced  into  the  law 
without  any  corresponding  advantage.  The  terms  employed  to 
distinguish  the  various  kinds  of  meetings  are  used  in  different 
senses  by  different  writers,  so  that  it  is  difficult  to  define  them  in 


corporate,  who  is  absent  from   the  State  any  notice  of  such  meeting,  and  indeed 

and  cannot  attend  tlie  meeting,  and  that  put   it   bej'ond  the  power  of  the  proper 

a  failure    to   notify  such    a  memljer  will  officer    to  give  any."     Subspqueutly  the 

not  render  the   proceedinirs  at  the  meet-  inenitjer   returned    and   acted  as  trustee, 

ing  irregular  or  inv.did.    The  court  said:  Members    of    JOnglish    joint-stock    coin- 

"The  object  of  notice   is  to  give  the  per-  panics    residing  abroad  are  not    entitled 

son    notified  an   o])portunity    to    attend,  to  any  notice  of  corporate  meetings.     JEx 

There  i.s   no  other    virtue  in  the  notice,  parte  Union  Hill  Company,  22  L.  T.  400. 
Now  when  a  person  elected  as  trustee  is  '  Freeman's    National    JJunk  r.  Smith, 

at   the    time    of   his    election  in  a  distant  13  Hlatclif.  220  (1875). 
Stati',  and   continues  there   all  the    time  ^  .McDaniels   v.  Flower  Brook  Manfg. 

utitil  after  the  meeiin:^  in  question,  never  Co.,  22  Vt.  274  (1850). 
having  iiad  any  formal  notice  of  his  elcc-  ^  New  York,  &c.  \l.  R.  Co.  v.  Schuyler, 

tion,  it  would  tje  unrea.sonable  to  say  that  38  Barb.  534,  542  (1800),  per   IngraJiam, 

a  meeting  was  made  invalid    by  a  lailure  J.,  arr/ncndo,  vide,  ^  408. 
to  give  him   notice  thereof      Must  a  per-  ••  In  the  Matter  of  the  Long  Island  R. 

Bonal  notice  be  served    on   him  in  Minne-  R.    Co.,    19    Wend.  :i7  (1837);    Wiggin  »>. 

sota?     Or,  if  a   notice  left  at  his  house  is  Freewill    Bajitist    Church,  8    Mete.    ;{01 

sufficient,  of  what  ukc  would  it  be  to  one  (1844).     f,f.   (Covert  v.    Rogers,  38  Mich, 

who  was  bnyo.id  its  reach  ?     It  cannot  be  ;<08,  where  a  similar  rule  is  declared  as  to 

necessary  to  do  an  act  wiiich,  when  done,  notici;  to  directois  ofiheir  meetings, 
would  be  of  no  use.     By  remairdng  where  '  Shelby  R.    R.    ('o.  v.  Louisville,  «tc. 

he   could  not  attend  the  meetings  of   the  R.  R.  Co.,  12  Bush,  02  (1870). 
board  of  education,  S.  practical!}'  waived 

[391  GOi) 


§  598.] 


CORPORATE   MEETINGS.— CALLS. 


[CH.  XXXVI. 


such  a  way  as  to  avoid  confusion.  It  seems,  however,  to  be  a  very 
generally  accepted  principle  that  if  the  time,  or  the  place,  or  the 
business  of  a  meeting  is  unusual,  that  meeting  is  special  or  extra- 
ordinary, at  least  to  the  extent  that  any  one  or  more  of  these  three 
matters  are  unusual.  Accordingly,  when  neither  the  time,  nor 
place,  nor  business  of  a  meeting  is  unusual,  that  meeting  is  a  gen- 
eral, ordinary,  or  regular  meeting.^ 


'  Mason  v.  Atlantic  De  Laine  Co.,  5 
R.  I  463(1858);  Zabriskie  v  Cleveland, 
&c.  R.  R.  Co.  23  How.  381  (1859)  ;  Peo- 
ple's Insurance  Co.  v.  Westcott,  14  Gray, 
440  (1860);  Sampson  v.  Bowdoinham 
Steam  Mill  Co.,  36  Me.  78  (1854).  In 
Warner  t;.  Mower,  11  Vt.  385,  391  (1839). 
Redfield,  J.,  in  an  exceedingly  luminous 
opinion,  insists  that  this  distinctiim  be- 
tween an  ordinary  and  an  extraordinary 
meeting  is  a  most  material  one.  At  a 
regular  annual  meeting,  that  is  where  the 
meeting  is  stated  and  general,  any  and 
all  proper  corporate  business  may  be 
transacted.  Warner  v.  Mower,  11  Vt. 
385,  392  (1839).  At  the  annual  meeting 
any  business  may  be  transacted,  provided 
it  be  within  the  scope  of  the  corporate  en- 
terprise. SchofF  V.  Hloomfield,  8  Vt.  472 
(1836).  A  meeting  of  stockholders,  under 
§  5122  of  the  Revised  Statutes  of  the 
United  States,  for  the  purpose  of  making 
petition  that  the  company  be  declared  a 
bankrupt,  is  not  such  a  meeting  as  is  pro- 
vided for  by  the  New  York  Statute  of 
1848  (Laws  of  1848,  chap.  40,  §  21)  and 
hence  it  is  not  necessary  that  it  be  called 
in  the  manner  prescribed  in  that  section. 
Freeman's  National  Bank  v.  Smith,  13 
Blatchf.  220  (1875).  A  stated  meeting  is 
usually  a  general  meeting.  Warner  v. 
Mower,  supra.  Every  member  is  entitled 
to  personal  notice  of  a  special  meeting. 
Warner  v.  Mower,  supra.  Cf.  Kynaston 
V.  Mayor  of  Shrewsbury,  2  Strange,  1051 
(1837);  Rex  v.  Town  of  Liverpool,  2 
Burr.  723,  728  (1759) ;  Rex  v.  Mayor  and 
Aldermen  of  Carlisle,  1  Strange,  385 
(1720)  ;  Stow  V.  Wyse,  7  Conn.  214  (1828); 
s.  c.  18  Am.  Dec.  99  and  the  note.  In  Eng- 
land a  general  meeting  of  every  company 
formed  under  the  Companies  Acts  (25  <fe 
26  Vict.  c.  89;  30  <fe  31  Vict.  c.  131; 
40  &  41  Vict.  c.  26;  42  «fe  43  Vict. 
c.  76  ;  43  Vict.  c.  19),  must  be  held  once 
at  least  in  every  year.  In  default  of  anj- 
regulations  in  the  articles  as  to  the  sum- 
moning of  general   meetings,  seven  days 

610 


notice  in  writing  sent  to  the  shareholders 
is  sufficient.  With  respect  to  the  man- 
ner of  the  notice  it  is  enacted,  as  regards 
cost  book  mining  companies,  that  "  a  no- 
tice to  be  served  by  a  company  for  any 
purpose  of  this  act  on  a  shareholder  shall 
be  served  personally,  or  shall  be  served 
by  prepaid  letter  sent  by  post  addressed 
to  him  at  his  address  as  entered  in  the 
cost  book,  in  which  case  the  notice  shall 
be  taken  as  served  at  the  time  when  the 
letter  containing  it  was  put  into  the  post 
office  ;  and  in  proving  sucli  notice  it  shall 
be  sufficient  to  prove  that  the  letter  was 
properly  addressed  and  prepaid  and  was 
put  into  the  office,  and  tlie  time  when  it 
was  put  in.  As  regards  a  company  exist- 
ing at  the  passing  of  this  act,  the  address 
of  a  shareholder  as  known  to  tlie  purser 
at  the  passing  of  this  act  shall  be  and  re- 
main entered  in  the  cost  book  as  liis  ad- 
dress, unless  and  until  he  gives  notice  in 
writing  to  the  contrary"  (32  <fe  33  Vict, 
chap.  19,  §  8);  and  this  is  substantially 
the  rule  which  applies  to  notices  to  mem- 
bers of  other  companies.  Art.  95  &  97  of 
Table  A,  to  the  Companies  Act  of  1862. 
See,  for  a  construction  of  these  articles, 
III  re  London,  &c.  Fire  Insurance  Co., 
L.  R.  24  Chan.  Div.  149.  The  Com- 
panies Act  of  1862  recognizes  only  one 
description  of  general  meeting.  But  by 
Table  A  of  that  act  tli^re  is  a  distinction 
drawn  between  ordinary  general  meet- 
ings and  extraordinary  general  meetings. 
Table  A.  art.  31.  Ordinary  meetings 
or  ordinary  general  meetings  are  those 
convened  at  regular  intervals,  not  exceed- 
ing one  year,  in  accordance  with  the  arti- 
cles. All  other  meetings  of  the  company 
are  extraordinary  meetings.  The  tirst 
general  meeting  of  the  company  must  be 
held  within  four  months  of  the  registra- 
tion of  the  company,  and  may  be  either  an 
ordinary  or  extraordinary  meeting.  Sub- 
ject to  the  articles  of  association,  any 
business  of  which  proper  notice  has  been 
given  may  be  transacted  at  any  meeting. 


CH.  xxxvr.] 


CORPORVTE    MEETINGS.— CALLS. 


[§  599. 


§  599.  Waiver  of  notice. — The  stockliolder  may,  in  general, 
waive  liis  right  to  liave  a  notice  of  a  corporate  meeting  duly 
served  ujDon  hini.^  But  where  the  giving  of  the  notice  is  pre- 
scribed by  statute,  it  is  held  that  the  notice  cannot  be  waived.'"^ 
This  is  not,  however,  a  universal  rule.^  The  presence  and  con- 
sent of  all  who  have  a  right  to  the  notice  is  a  waiver  of  it/  So 
participation  as  an  officer  in  issuing  the  call  is  a  waiver  by  him 
of  informalities  as  to  that  call,^  and  recognition  of  an  agent  ap- 
pointed at  a  certain  meeting,  by  dealing  and  oifering  to  deal  with 
him  as  the  agent  of  the  company,  is  a  waiver  of  the  right  to 
notice  of  that  meeting.^  One  stockholder  cannot  avail  himself 
of  the  neglect  of  the  corporate  officers  to  give  due  notice  to  an- 
other stockliolder  who  does  not  himself  complain.'  But  the 
waiver  of  all  the  stockholders  is  essential  in  order  to  validate  the 


Extraordinary  meetings  may  be  con- 
vened at  any  time,  subject  to  proper  no- 
tice, at  the  option  of  the  directors,  or  on 
a  requisition  in  writin;^  signed  by  a  speci- 
fied number  of  sliiireholders.  The  Com- 
panies Act  of  18G2,  25  &  26  Vict.  chap. 
89,  §t^  49,  50,  51,  52;  Shelford  on  Joint 
Slock  Companies,  74,  2(i4;  llurrell  & 
Hyde  on  Joint  t'tock  Companies,  66. 

'  Turquand  v.  Marshall,  L.  R.  4  Chan. 
376  (186y);  Smallcombe  v.  Evans,  L.  R. 
3  ]L  of  L.  249  (1868);  Phosphate  of  Lime 
Co.  V.  Green,  L.  H.  7  C.  P.  43  (1871); 
Richardson  v.  Vermont,  ifee. ,  R.  R.  Co., 
44  Vt.  613  (1872);  Judali  v.  American, 
>kc.,  Ins.  Co.,  4  Ind.  333  (1853);  Jones  v. 
Milton,  <L'c.,  Turnpike  Co.,  7  Id.  547 
(1856). 

"■'  United  States  v.  McKelden,  8  Rep. 
'778(1879);  In  the  Matter  of  the  Long 
Island  R.  R.  Co.,  19  Wend.  37  (1837). 
See  The  King  v.  Theodorick,  8  East,  543 
(1807);  People  v.  Peek,  11  Wend.  6(l4 
(1834). 

•'  Kenton  Furnace  R.  R.  <fe  Manfg.  Co. 
V.  McAlpin,  5  Fed.  Rep.  737  (1880). 

■'  Stebbins  v.  Merritt,  10  Ciish.  27 
(1852);  People  v.  Peck,  11  Wend.  601 
(1834)  ;  Ketiton  Furnace  Ji.  R.  &  Munfj;. 
Co.  V.  McAlpin,  5  Fed.  Rep.  737  (1H80); 
Ajc  porlc  Fiiris,  26  L.  J.  Chan.  369  (1856); 
The  King  v.  Chelwynd,  7  Harn.  «fe  C.  695 
(1828).  Cf.  San  linenaventnra  Commer- 
cial, (fee,  Co.  V.  Vassault,  50  (.'al.  531 
(1875);  in  7-e  Hritish  Sugar  R('finirr;r  ( 'o., 
3  Kay  &  J.  408  (1857);  and  see  State  of 
Nevada  v.  Peltineli,  10  Nev.  141  (1875). 
In  Jones  !'.  .Milton,  <tc. ,  Ttii'iM)iI<e  Co.,  7 


Ind.  547  (1856),  the  court  said:  "  It  is 
objected  that  notice  of  the  meeting  for 
the  election  of  directors  was  not  proved, 
but  the  objection  is,  in  this  case,  unim- 
portant, as,  from  the  evidence,  it  appears 
that  the  subscribers  here  sued  were  pres- 
ent by  their  proxy,  and  voted  at  the  elec- 
tion." The  stockholder  wiio  participates 
in  the  proceedings  at  a  meeting  is  es- 
topped to  question  the  sufficiency  of  his 
notice.  In  re  The  Joint  Stock  Co.'s  Act, 
1856,  3  Kay  ife  J.  408  (1857);  Williams 
V.  Financial  Corporation,  L.  R.  16  Kq. 
363,  375  (1873). 

^  Bucksport(»tfec.,  R.  R.  Co.  v.  Buck, 
68  Me.  81  (1878)  ;  Schenectady,  &c., 
Plankroad  Co.  v.  Thatcher,  11  N."V.  102 
(1854). 

"  Bryant  v.  Goodnow,  5  Pick.  228 
(1827). 

■"  Schenectady,  Ac,  Plankroad  Co.  v. 
Thatcher,  11  N.  Y.  102  (18.V1).  In  this 
ease  the  court  said  :  "  The  court  rejected 
the  offer  of  the  defendant  to  prove  that 
no  notice  had  been  given  of  the  first  elec- 
tion of  directors.  I  think  this  was  prop- 
erly rej(;ete<l,  on  the  ground  that  the  de- 
fi'ndaiit  could  not  avail  himself  of  a  neg- 
lect to  give  notice  to  any  other  stockhold- 
er. The  defendant  himself  was  present 
at  tiiat  meeting  and  votjd,  and  was  elect- 
ed a  director,  lie  h.is  not  sutfired  byaii 
omission  to  serve  notice,  and  lu;  is  not  in 
a  situation  to  object  as  to  others."  Sec 
also  In  the  Matter  ofthe  Election  of  Direc- 
tors of  tile  Moiiawk  it  Hudson  R.  K.  Co., 
19  Wend.  135(1835);  and  rf.  Samuel  v. 
Hoiiida\,  1   WooUv.  loO. 

Oil 


§g  600,  601.]  CORPORATE   MEETINGS— CALLS.  [cH.  XXXVI. 

proceedings  at  a  meeting  not  properly  called.^  Accordingly, 
where  one  shareholder  is  absent  from  a  meeting  assembled  with- 
out a  call,  or  refuses  his  assent,  the  proceedings  are  irregular  and 
invalid.^ 

§  600.  Notice  is  presumed  to  have  'been  regularly  given. — It 
^is  a  presumption  of  law  that  proper  and  valid  notice  of  a  corpo- 
rate meeting  has  been  duly  given  to  every  stockholder,  and  that 
the  meeting  itself  was  regularly  and  lawfully  held.  The  burden 
of  proof  is,  therefore,  upon  him  who  alleges  want  of  notice  or 
insufficiency  of  notice,  or  attacks  the  regularity  and  validity  of 
the  proceedings,^ 

§  601.  Adjourned  meetings. — An  adjourned  meeting  is  but  a 
continuation  of  the  meeting  which  has  been  adjourned,  and  when 
that  meeting  was  regularly  called  and  convened,  and  duly  ad- 
journed, the  shareholders  may,  at  the  adjourned  meeting,  con- 
sider and  determine  any  corporate  business  that  might  lawfully 
have  been  transacted  at  the  original  meeting.*  Accordingly, 
where  the  charter  or  by-laws  of  a  corporation  prescribe  that  when 
less  than  a  quorwrn  are  present  at  a  regular  meeting,  duly  called 
and  convened,  they  may  adjourn  to  a  future  day,  if  at  the  ad- 
journed meeting  a  quorum  is  present  that  qiLorum  is  competent 
to  exercise  the  ordinary  corporate  powers,  and  to  transact  what- 
ever business  might  have  been  proposed  and  concluded  at  the 
regular  meeting,  although  the  absentees  have  no  other  notice 
of  the  meeting  than  that  with  which  they  are  chargeable  from 
the  by-law,  by  virtue  of  which  the  regular  meeting  was  ad- 
journed.^ But  where  there  is  an  absence  of  good  faith,  and  an 
adjourned  meeting  is  held  in  such  a  way  as  to  prevent  certain  of 


•  state  of  Nevada  «.  Pettineli,  10  Kev.  son,  30  Hun,  209  (1883);  Sargent  v.  Web- 

141  (1875).  ster,  13  Mete.  497  (184*7);  Medical  &  Surg- 

^  Farweil  V.  Houghton  Copper  Works,  ical  Society  /;.  Weatherly,  75  Ala,   248. 

8  Fed.  Rep.   66  (1881);  Moore  v.  Ham-  6/.  Lane  ij.  Braincrd,  30 Conn.  565(1862); 

mond,  6  Barn,  k  C.  456(1827);  Rex  v.  Pitts  v.  Temple,  2  Mass.  538  (1807);  Copp 

Langhorn,  4  Ad.  &  El.  538  (1836);  s.  c,  v.  Lamb,  12  Me.  312  (1835). 
2  Nev.  <fe  M.  618;  6  Id.  203;   Smyth  v.  *  Granger   v.    Grubb,    7   Phila.    350 

Di.rley,  2  H.  of  L.  Cas.  789  ( 1 849);  Rex  (1870);  Farrar  v.  Perley,  7  Me.  404  (18ai); 

V  Theodorick,  8  East,  543  (1807);  Rex  Schoff  v.  Bloomfield,  8  Vt.  472  (1836); 

V.  Gaborian,  11  Id.  86,  n.  87,  n.     Of.  Peo-  Warner  v.  Mower,  11  Id.  385  (1839).   Cf. 

pie's  Insurance  Co.  v.  Westcott,  14  Gray,  The  Queen  v.  Grinishaw,   10  Q.  B.   747 

440  (1860) ;  Dillon  on  Munic.  Corp.,  §  202;  (1847) ;  People  v.  Batchelor,  22  N.  Y.  128 

Angell  &  Ames  on  Corp.,  §  495.  (I860). 

3  McDaniels  v.  Flower  Brook  Manf.  ^  Smith  v.  Law,  21  N.  Y.  296  (I860). 

Co.,  22  Vt.  274  (1850);  Porter   v.  Robin- 

G12 


CU.  XXXVI.] 


CORPORATE   MEETIXGS.— CALLS. 


[§  601. 


the  stockholders  from  knowing  of  it,  the  proceedings  are  invalid,^ 
Where  the  original  meeting  was  duly  called  and  convened,  the 
stockholders  are  not  entitled  to  any  other  notice  of  the  adjourned 
meeting  than  that  which  is  implied  in  the  adjournment.'"^ 


'  state  I'.  Bonnell,  35  Ohio  St.  10 
(1878). 

'  United  States  v.  McKelden,  8  Rep. 
778  (1879);  Smith  n.  Law,  21  X.  Y.  296 
(1860);  People  v.  Batchelor,  22  Id.  128 
(I860);  Warner  v.  Mower,  11  Vt.  385 
(1839);  Schoff  v.  Bloomfield,  8  Id.  472 
(1836);  Farrar  v.  Perley,  7  Me.  404  (1831); 
The  Queen  v.  Grimshaw,  10  C.  B.  747 
(1847)  ;  Wills  v,  Murraj-,  4  Exch.  843 
(1850);  s.  c,  19  L.  J.  Excli.  209;  Rex  v. 
Carmarthen,  1  Maul.  &  Sel.  702.  In 
Scadding  v.  Lorant,  3  H.  of  L.  Cas.  418 
(1851),  a  most  carefully  considered  case, 
which  went  from  the  Court  of  Queen's 
Bench,  where  it  was  commenced,  through 
the  Court  of  Exchequer  Chamber  to  the 
House  of  Lords,  in  which  it  was  conceded 
that  the  notice  given  of  the  original  meet- 
ing was  in  all  respects  regular  and  suffi- 


cient, although  tlie  notice  actually  given 
omitted  to  state  the  purpose  for  which 
the  meeting  was  to  be  held,  but  tlie  ground 
was  taken  that  no  sufficient  notice  had 
been  given  of  the  adjourned  meeting,  the 
court  said  :  "  We  are  unanimously  of 
opinion  that  the  vote  was  not  rendered 
invalid  by  reason  of  the  alleged  defect  in 
the  notice  of  the  adjourned  meeting.  It 
was  sufficient  to  give  notice  on  the  church- 
door  of  the  purpose  for  which  the  first 
meeting  was  to  be  held,  and  that  notice 
having  been  duly  given,  we  think  that 
the  notice  so  given  extended  to  all  the 
adjourned  meetings — such  adjourned 
meetings  being  held  for  the  purpose  of 
completing  the  unfinished  business  of  the 
first  meeting,  and  being  in  continuation 
of  that  meeting."  See.  however,  Gowen'a 
Appeal,  10  Week.  Notes  Cas.  86  (1881). 


613 


CHAPTER  XXXVII. 


CORPORATE     MEETINGS.— ELECTIONS    AND    OTHER    BUSINESS. 


A. — Elections. 

§  602.   Scope  of  the  subject. 
"^  (503.  Elections  are  to  be  by  the  stock- 
holders. 

604.  Who  shall  preside  at  elections. 

605.  Conducting,  opening,  and  closing 
elections. 

606.  Mandamus  to  compel  election. 

607.  The  majority  of  votes  cast  shall 
elect. 

608.  Every  share  of  stock  is  entitled  to 
one  vote. 

609.  Cumulative  voting. 

610.  Proxies. 

611.  The  transfer  book  as  evidence  of  a 
right  to  vote. 

612.  The  right  of  trustees,  pledgees, 
married  women,  administrators, 
<fec.,  <fec.,  to  vote. 

613.  The  corporation  cannot  vote  upon 
shares  of  its  own  stock. 

614.  Injunction  against  voting  particu- 
lar stock. 


16.  Illegal  or  fraudulent  elections. 
— Shareholders'  remedies  herein. 

617.  Injunctions  against  elections. 

618.  Combinations  and   contracts  as  to 
elections. 

Faihire  to  elect  officers. 
Who  may  be  a  director  or  corpo- 
rate officer. 


;615- 


619 
620 


B. — Other  Corporate  Fitnctions  Belong- 
ing TO  THE  Stockholders  as  Distin- 
guished from  tbie  Duties  of  Direc- 
tors. 

621.  The  general  method  of  transacting 
business. 

622.  Stockholders  can  act  only  at   cor- 
porate meetings. 

623.  Stockholders  may  make  by-laws. 

624.  The  quorum. 

625.  Stockholders,  as  such,  cannot  con- 
tract for  the  corporation. 

626.  The  expulsion  of  members. 

627.  The  removal  of  directors. 


•  A. — Elections. 

§  602.  Scope  of  tlie  suljject.— The  business  which  tlie  stock- 
holders of  a  corporation,  in  meeting  assembled,  have  the  power 
to  transact,  is  not  extensive,  although  generally  of  great  impor- 
tance. Generally  the  meeting  elects  the  corporate  officers,  listens 
to  reports  of  the  condition  of  the  corporation,  and  adjourns. 
Consequently  the  law  relative  to  the  business  which  a  corporate 
meeting  may  transact  is  chiefly  the  law  regulating  corporate  elec- 
tions. It  happens,  however,  occasionally,  that  important  changes 
are  to  be  made  in  the  corporate  enterprise.  In  that  case,  such 
changes  are  generally  authorized  by  the  corporate  meetings. 
The  preceding  chapter  explained  the  legal  method  of  calling  to- 
gether a  corporate  meeting.  This  chapter  treats  of  the  business 
which  may  be  transacted  at  such  meetings,  and  also  the  methods 
of  its  transaction. 
614 


CH.  xxxvir.]  CORPORATE   ELECTIONS.  [§§  003-605. 

§  603.  Elections  are  to  he  hy  the  stocliholders. — x\t  common 
law  the  directors  of  a  corporation  are  to  be  elected  by  the  stock- 
holders, in  corporate  meeting  assembled.  Generally  this  is  de- 
clared to  be  the  law  by  charter  or  statutory  provisions.  The  sub- 
ordinate officers  and  agents  of  the  corporation  are  generally  elect- 
ed or  appointed,  not  by  the  stockholders,  but  by  the  directors. 
All  these  matters,  however,  are  the  usual  subjects  of  statutory 
regulations. 

§  G04.  Who  shall  preside  at  elections. — In  the  absence  of  an 
express  provision  by  statute,  or  in  the  charter,  it  is  not  essential 
to  the  validity  of  a  coi-porate  election  that  the  corporate  officers 
preside  at  the  meeting  at  which  the  election  is  held.'  Generally 
the  charter  or  the  statutes  provide  for  inspectors  to  superintend 
corporate  elections.  Jn  an  emergency,  however,  in  which  the 
forms  of  procedure  prescribed  by  the  charter,  in  respect  to  elec- 
tions, fail  to  accomplish  the  purposes  contemplated,  owing  to 
the  fact  that  the  necessary  inspectors  do  not  act,  it  is  competent 
for  the  corporators  themselves  to  exercise  the  power  of  appoint- 
ing inspectors,  or  to  provide  for  their  appointment  for  the  pur- 
pose of  an  election.^  So  also  where  the  regular  inspectors  are  re- 
strained by  an  order  of  court  from  acting,  the  stockholders  may 
appoint  other  inspectors  and  proceed.* 

§  G05.  Conducting,  opening,  and  closing  elections. — The  form 
or  mode  of  conducting  an  election  is,  in  general,  not  material, 
])rovided  it  violates  no  positive  provision  of  the  charter  or  of  a 
statute  regulating  it ;  is  orderly,  and  in  good  faith;  and  is  con- 
ducted by  authorized  or  proper  persons.^  Where  no  time  is 
specified  by  law  within  which  the  polls  must  be  kept  open,  it 
rests  within  the  sound  discretion  of  the  inspectors  to  say  when 


'   People  V.  Twaddell,    18  IIiui,  427  legislative  aid,  to  meet  voliintariij'  at  the 

(1879).     This  was  a  ease  of  an    election  time  designated  in  the  constitution  for  an 

of  triHlees  of  a  n-ligious  corporation,  and  election,  and  proceed  to  the  election  of  a 

the  court  held  that  where  such  a  eorpo-  new  boanl  of  trustees. 

ration,  duly  organized   and    constituted,  '^  Matter  of  Wheeler,  2  Abb.  I'rac.  (N. 

had  for  several  years  failed  to  elect  trus-  S.)  301  (1800).     Tiie  failure  of  the  inspec- 

tees,tliere  being  no  provision  authorizing  tors  so  appointed    to  take  the  jirescribed 

those  formerly  electe<l  to  hold  over  until  oath  will  not  invalidate  the  election, 

their  successors  arc   chosen,  or  requiring  •'  People  /■.  Albany,  itc,  K.  K.  ('o.,  55 

the  li'ustees  or  other  officers  to  preside  at  Barb.  :M4  ( IHOO). 

or  do  any  act  in  relation  to  the  (flection,  •*    Kox    )'.    .Mlensville,    (fee,   'rurn|)ike 

it  is  within  the  projier  power  of  tlie  cor-  Co.,  40  Ind.  lil  (1H74). 
;  orators   them.selves,    without   any    new 

615 


§  606.] 


CORPORATE   ELECTIONS. 


[CH.  XXXTII. 


the  polls  shall  close.^  So  also  it  is  held,  that  holding  the  polls 
open  after  the  hour  specified  in  the  notice  for  them  to  close,  will 
not  where  the  inspectors  exercise  a  reasonable  discretion,  invali- 
date an  election.2  And,  as  a  general  rule  of  law,  where,  in  the 
election  of  corporate  officers,  no  particular  mode  of  proceeding  i& 
prescribed  by  law,  if  the  wishes  of  the  corporators  have  been 
fairly  expressed,  and  the  election  was  conducted  in  good  faith, 
it  will  not  be  set  aside  on  account  of  any  informality  in  the  man- 
ner of  conducting  it.^ 

§  60G.  Mandamus  to  compel  election. — At  common  law  man- 
damus lies  to  compel  an  election  of  corporate  officers."*  But  in 
Louisiana,  if  the  corporate  officers  die,  resign,  or  refuse  to  act, 
and  the  stockholders  neglect  or  refuse  to  appoint  or  elect  others^ 
in  their  place,  a  court  of  equity  will  appoint  a  receiver  or  mana- 
ger ad  interim,  for  the  purpose  of  winding  up  and  putting  an 
end  to  the  concern.^ 


'  In  the  Matter  of  the  Chenango  Coun- 
ty Ins.  Co.,  19  Wend.  634  (1839). 

'  In  the  Matter,  <fec.,  of  the  Mohawk 
A  Hudson  R.R.  Co.,19W^end.  135(1838), 
the  court  saying:  "The  trustees  acted 
properly  in  taking  the  requisite  time, 
notwithstanding  they  were  called  on  to 
close  the  poll  at  one  o'clock.  I  much 
doubt  whether  the  time  could,  in  -virtue 
of  a  by-law,  be  tied  up  to  a  certain  hour 
of  the  day  ;  but  in  this  case  it  was  not 
attempted.  I  have  no  doubt  that  in  case 
of  actual  necessity  the  business  might 
have  been  extended  even  to  the  next  day. 
Every  principle  of  construction  is  in  fa- 
vor of  full  time,  otherwise  business  may 
be  badly  done  by  being  hurried,  or  em- 
barrassed and  defeated  by  the  raising  of 
dilatory  objections  and  protracted  <-xami- 
nation  and  discussion.  (Rex  v.  Mayor, 
<fec.,  of  Carmarthen,  1  Maule  &  8el. 
697.)"  See  People  v.  Albany,  <fcc.,  R.  R. 
Co.,  65  Barb.  344(1869). 

^  Philips  V.  Wickham,  1  Paige,  590 
(1829). 

*  People  V.  Board  of  Overseers  of  Al- 
bany Hospital,  61  Barb.  397(1871);  State 
of  Nevada  v.  Wright,  10  Nev.  167  (1875); 
People  V.  Cummings,  72  N.  Y.  433  (1878). 
In  this  case  the  court  say:  "If  trustees 
could  keep  themselves  in  office  by  not 
having  an  annual  election,  the  stockhold- 
ers would  be  powerless,  and  they  might 
perpetuate  themselves  in  power  as  long 
as  they  chose.     Such  a  course  would  also 

616 


be  in  direct  opposition  to  the  mandatory 
provit-ion  requiring  that  trustees,  to  be 
annually  elected,  shall  manage  the  affairs 
of  the  company  The  enactment  (§  82, 
R.  S.  604)  prevents  any  such  arbitrary 
use  of  power,  and  protects  stockholders 
of  corporations  from  the  misconduct  of 
their  oflficers  in  this  respect.  It  imposes 
a  duty  upon  those  officers,  in  case  of  a 
failure  to  elect,  to  give  notice  of  another 
election  within  a  time  limited  by  the  sec- 
tion cited.  This  is  in  entire  harmony 
with  the  provisions  of  the  Manufacturing 
Act,  and  does  not  conflict  in  any  way 
with  the  right  of  the  officers  to  make  rea- 
sonable and  prudential  rules  and  regula- 
tions for  the  management  and  disposition 
of  the  stock  and  business  affairs  of  the 
company  under  §  8  of  the  act.  To  hold 
that  an  election  of  officers  of  a  corpora- 
tion must  utterly  fail  because  those  in 
power,  by  accident  or  design,  omit  to  do 
their  duty,  and  by  neglecting  to  give  the 
proper  notice,  or  by  failing  to  make 
proper  by-laws  for  that  purpose,  would 
be  in  contravention  of  the  manifest  inten- 
tion of  the  law,  and  sanction  a  construc- 
tion entirely  unwarranted.  No  such  pow- 
er was  intended  to  be  conferred  upon  offi- 
cers of  corporations. ' 

=  Brown  i\  Union  Ins.  Co.,  3  La.  Ann. 
177,  182  (1848).  But  in  those  jurisdic- 
tions where  the  common  law  prevails,  the 
rule  is  probably  otherwise,  and  a  court 
of  equity  would  not  in  such  a  case  appoint 


en.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  607, 


§  607.  The  majority  of  votes  cast  shall  elect. — It  is  the  well 
settled  rule  in  corporations  having  a  capital  stock  divided  into 
shares  that  a  majority  of  the  votes  cast  at  any  election  shall  elect.^ 
The  minority  in  such  incorporated  bodies  are  under  an  implied 
obligation  to  submit  in  an  election  to  the  will  of  the  majority. 
This  is  one  of  the  features  which  distinguishes  a  body  corporate 
from  a  mere  private  business  association.^  And  this  majority, 
moreover,  need  not  be  an  actual  numerical  majority  of  all  *the 
votes  which  all  the  stockholders  have,  but  only  a  majority  of  the 
votes  cast.^     Accordingly,  a  majority  of  the  votes  cast  will  elect. 


a  receiver.  Curry  v.  Woodward,  53  Ala. 
371,  375  (187o);"Know]ton  v.  Acklev,  8 
Cash.  93  (1851). 

'  People  V.  Albany,  &c.,  R.  R.  Co..  55 
Barb.  M4  (1869);  East  Tennessee,  <fec., 
R.  R.  Co.  V.  Gammon,  5  Sneed,  567(1858); 
Dudley  v.  Kentucky  Hij^h  School,  9  Bush, 
678;  Gifford  v.  New  Jersey,  &c.,  R.  R. 
Co.,  10  N.  J.  Eq.  174:  Xew'Orlcans,  <fce., 
R.  R.  Co.  V.  Harris.  27  Miss.  637;  Tread- 
well  V.  Salisbury  Manfg.  Co.,  7  Gray,  393. 
Cf.  Zabriskie  v.  Hackensack,  &c.,  R.  R. 
Co.,  18  N.  J.  Eq.  178  (1867);  Lauman  v. 
Lebanon  Valley  R.  R.  Co.,  30  Penn.  St. 
42(1858);  Stevens  v.  South  Devon.  Rv. 
Co.,  9  Hare,  313.  In  Diirfee  v.  Old  Col- 
ony, (fee,  R.  R.  Co.,  5  Allen,  242,  Bigelow, 
C.  J.,  says:  "  It  may  be  stated  as  an  in- 
disputable proposition  that  every  person 
who  becomes  a  member  of  a  coi'jioration 
aggregate,  by  purchasing  and  holding 
shares,  agrci-s,  by  necessary  implication, 
that  he  will  Ije  bound  b}'  all  acts  and  pro- 
ceedings witliin  the  8C0])e  of  the  powers 
and  authority  conferred  by  the  charter, 
which  shall  be  adopted  or  sanctioned  by 
a  vote  of  the  majority  of  the  corporation, 
duly  taken  and  ascei-tained  according  to 
law.  This  is  a  result  of  the  fundamental 
principle  that  the  majority  of  the  stock- 
holders can  regulate  and  control  the  law- 
ful exeicise  of  the  powers  conferred  on  a 
corporation  l)y  its  charter." 

'  In  Livinifstone  v.  I^ynch,  4  .Johns. 
Chan.  573  (1 820 1,  ( 'iiaiicell'.r  Kent  say.s : 
"The  genera!  j)rinciplc  of  law  is,  that  in 
such  private  associations  the  majority 
cannot  bind  the  minority,  utdcss  it  be  by 
Bpecial  agreement.  Lord  Coke  (Co.  l,itt. 
181,  6)  t(jok  the  distinction  between  pnb- 
lie  and  jirivate  associations,  and  adinitled 
that  in  matters  of  jmblic  concern  the 
voice  of  the  majority  shoidd  govern,  be- 
cause it  was  for  the  public  good,  anrl  the 
power  was  to  be  more  favorably  expound- 


ed than  when  it  was  created  for  private 
purposes.  In  Viner  (tit.  Authority  B) 
we  haA'e  several  cases  marking  the  same 
distinction;  and  it  is  now  well  settled 
that  in  matters  of  mere  private  confidence, 
or  personal  trust  or  benefit,  the  majority 
cannot  conclude  the  minority  ;  but  where 
the  power  is  of  a  public  or  general  nature, 
the  voice  of  the  majority  will  control  on 
grounds  of  convenience ;  and  this  is  also 
part  of  the  law  of  corporations.  (Attor- 
ney-General V.  Daw.  2  Atk.  212:  The 
King  r.  Beestan,  3  Term  Rep.  592  ;  With- 
neil  ?'.  Gartham,  6  Term  Rep.  388;  Grind- 
lev  V.  Barker,  1  Bos.  &  \'\i\\.  229 ;  Green 
t'. 'Miller,  6  Johns.  Rep.  39;  5  Co.  63,  a.} 
In  Lloyd  v.  Loring  (6  Vesey,  773)  there 
was  a  suit  by  three  persons  on  behalf  of 
themselves  and  all  the  other  members  of 
a  lodge  of  Freemasons,  and  Lord  Eldon 
observed  "that  if  he  considered  them  as 
individuals,  the  majority  had  no  right  to 
bind  the  minority.  One  indivichial  has 
as  good  a  right  to  possess  the  property  as 
any  other,  unless  he  can  be  affected  by 
some  aii'reement." 

3  Columbia  Bottom  Level  Co.  c.  Meier, 
39  Mo.  53  (1860);  Craig  v.  First  Presby- 
terian Church,  88  Penn.  St.  42  (1878). 
In  this  case  the  court  say:  "  U  maybe 
asked,  howt  ver.  What  is  meant  by  the 
majority  V  Does  it  mean  the  concurrence 
of  the  major  part  of  tliose  who  happen  to 
be  present  at  a  regular  corpor.ite  meet- 
ing, or  does  it  Tnean  a  coneurrence  of  a 
majority  of  the  whole  body?  There  is 
this  distinction  between  a  corporate  act 
to  bo  done  by  a  definite  number  <if  per- 
sons and  one  to  be  performed  by  an  in- 
definite number.  In  the  first  case  it  is  to 
he  ol)scr\ed  that  a  majority  is  necessary  to 
const itntc  a  (/unrum.  and  that  no  act  can 
be  done  unless  a  iinijorily  Ix;  present  ;  in 
the  latter,  a  majority  of  any  number  of 
tliose  whit  h  appear  nuiy  act.     And  where 

G17 


§  608.] 


CORPORATE   ELECTIONS. 


[CH.  XXXVII. 


even  thougli  a  majority  of  the  shares  of  stock  are  not  voted  at 
flll,  the  owners  being  present  at  the  meeting  and  refusing  to  vote.^ 

§  608.  Every  share  of  stock  is  entilled  to  one  vote. — At 
common  law,  in  public  or  municipal  corporations,  each  qualified 
elector  has  one  vote,  and  but  one.  This  rule  has  been  applied  to 
stockholders  in  a  private  corporation.  And  it  has  been  held  that 
such  a  stockholder  is  entitled  to  but  one  vote,  although  he  be  the 
owner  of  many  shares  of  the  capital  stock.^  Almost  universally, 
however,  the  charter  of  the  corporation,  or  a  statute,  or  a  consti- 
tutional provision,  gives  to  each  share  of  stock  one  vote  at  every 
corporate  meeting,  and  at  the  present  day  it  is  probable  that  no 
court,  even  in  the  absence  of  any  such  provision,  would  uphold  a 
rule  which  disregards,  in  the  matter  of  voting,  the  number  of 
shares  which  the  shareholder  holds  in  the  corporation.^  The 
right  of  the  stockholder  to  vote  cannot  be  taken  away  or  restrict- 
ed by  by-law,*  and  votes  even  for  a  candidate  who  is  disqualified 
are  not  wholly  to  be  disregarded  in  determining  the  result  of  the 
election.^     But,  in  an  election  of  directors,  votes  which  are  cast 


a  corpoiation  is  composed  of  several  in- 
tegral parts,  and  each  part  consists  of  a 
definite  number,  a  majority  of  each  part 
must  be  present  to  constitute  a  quorum. 
St.  Mary's  Church  Case,  7  Serg.  &  R.  517. 
But  when  a  corporation  consists  of  sev- 
eral integral  parts,  one  of  which  is  indef- 
inite, if  any  number  of  persons  composing 
the  latter,  however  small,  are  jiresent  af- 
ter having  been  duly  summoned,  it  is  suf- 
ficient. The  distinction  is  between  a 
•definite  and  an  indefinite  number.  In  the 
former  case  a  majority  must  be  present, 
■whereas,  in  the  latter,  a  majority  of  those 
present  may  act  whether  a  majority  of 
the  whole  body  or  not.  Angell  &  Ames 
on  Corp..  464;  Willcock  on  ]\Iun.  Corp., 
66;  The  King  v.  Whitaker,  9  B.  &  C. 
648."  s.  p.  Gowen's  Appeal,  10  Weekly 
Notes  Cas.  85(1881).  See  Commonwealth 
V.  Wickersham,  66  Penu.  St.  134  (1870). 

'  State  V.  Green,  37  Ohio  St.  227 
{1881).  In  Pennsylvania  there  was  for- 
merly a  contrary  rule.  Communwenlth 
V.  Wickersham,  66  Penn.  St.  134  (1870). 
But  see  Gowen's  Appeal,  10  Week.  Notes 
Cas.  85  (1881). 

-  Taylor  v.  Griswold,  14  N.  J.  Law, 
222  (1834). 

3  Hays  V.  Commonwealth,  8  2  Penn. 
St.  618  (1876). 

C18 


4  Brewster  v.  Hartley,  37  Cal.,  15,  24 
(1869);  People  v.  Kip,  4  Cowen,  382, 
note  (1822);  Rex  v.  Spencer,  3  Burr. 
1827  (1766).  In  Brewster  v.  Hartley, 
SHpra,  the  court  say :  "  The  power  of 
electing  the  directors  of  a  railroad  cor- 
poration is  lodged  by  the  statute  in  the 
hands  of  the  stockholders.  The  exercise 
of  tliis  power  having  been  regulated  by 
the  statute,  the  corporation  cannot,  by  its 
by-laws,  resolutions,  or  contracts,  either 
give  or  take  it  away.  Where  the  statute 
is  silent  in  this  respect,  the  election  of 
the  directors,  like  the  election  or  appoint- 
ment of  subordinate  officers,  would  be 
subject  to  the  regulation  and  control  of 
the  corporation,  but  the  statute  having 
expressly  declared  who  shall  be  entitled 
to  vote  for  directors,  its  provisions  are 
imperative  upon  the  corporation,  consti- 
t.iting  a  part  of  the  law  of  its  being,  and 
the  corporation  has  no  authority  to  ex- 
tend or  limit  the  right  as  regulated  by 
the  statute.  The  first  section  of  the  act 
of  1861  (Stats.  1861,  p.  607)  provides 
tliat  the  first  board  of  directors  shall  be 
elected  by  the  stockholders,  each  stock- 
holder being  entitled  to  one  vote  for  each 
share  of  stock  which  he  owned  for  ten 
days  next  preceding  sucli  election." 
'  *  If  the  candidates  for  whom  a  majori- 


CH.  XXXVII.] 


C0RP0.1ATE   ELECTIONS; 


[§  609. 


for  persons  wLo  are  not  and  cannot  lawfully  be  candidates,  must 
be  thrown  out  altogether.^  A  statute  which  confines  the  right  to 
vote  to  stockholders  who  are  citizens  of  the  State  by  which  the 
corporation  is  chartered  is  constitutional,  and  it  cannot  be  evaded 
bj  colorable  transfers  of  shares  to  residents  of  the  State  merely 
for  tlie  purpose  of  having  them  voted  upon.^  When  a  munici- 
pal corporation  is  a  stockholder  in  a  private  corporation,  it  is  eu- 
titled  to  vote  upon  its  stock  in  the  same  way  as  any  other  stock- 
liolder.^ 


§609.  Cumulatii'e  voting. — In  the  constitutions  of  several 
of  the  States  there  are  provisions  for  securing  a  representation  for 
the  minority  of  the  shareholders  of  incorporated  companies  upon 
the  board  of  directors  or  trustees.  This  is  effected  by  what  is 
known  as  a  system  of  cumulative  voting.  By  it  each  shareholder 
is  entitled  to  as  many  votes  for  directors  as  the  number  of  shares 
he  owns  amounts  to  when  multiplied  by  the  number  of  directois 
to  be  elected.  Thus,  if  there  are  six  directors  to  be  elected,  a 
stockholder  who  owns  one  hundred  shares,  maj'  poll  six  hundred 
votes,  and  these  votes  he  may  give  entirely  to  one,  or  two,  or 
more  of  the  six  candidates,  as  he  may  see  fit.  In  this  way  any 
minority  of  the  stockholders  exceeding  one  sixth  part,  acting  to- 
gether, might  elect  one  member  of  a  board  of  six  dii'ectors  and 
thus  secure  a  representation   in   that   body.     A  larger  minority 


ty  of  the  votes  for  directors  was  given 
or  offered  were  disqualitied  for  the  office, 
the  court  will  set  aside  their  election  and 
order  a  new  election  ;  but  if  they  were 
qualified,  and  the  election  was  in  all  re- 
spects fairly  conducted,  except  that  cer- 
tain legal  votes  tendered  for  them  were 
rej'-cted,  le  iviiiuf  them  in  a  minority,  the 
c  'urt  will  set  aside  the  election  of  the 
rival  candidates,  and  in^ke  an  order  put- 
ti'ijj  them  into  their  place.  In  the  Matter 
of  Election  of  St.  Lawrence  Steamboat 
Co.,  4i  N.  J.  Law,  529  (1882). 

'  Where  a  meetinji;  was  called  to  elect 
three  dir<'ctors,  and  a  njajoiity  of  the 
stockholders  voted  for  five  directors,  only 
a  small  minority  voting  for  tliree,  the  lat- 
ter votes  were  held  the  only  valid  ones, 
and  the  three  voted  for  were  dechired 
elected,  'i'he  court  8iii(|  :  " 'J'here  may 
be  no  doubt  thai  the  majority  of  the 
stockliolders  in  intcri'st  were  opposed  to 
those  declared  duly   elected,  but  courts 


only  respect  the  will  of  individuals  when 
it  is  embodied  in  the  forms  required  by 
law,  A  candidate  may  receive  only  ten 
votes  and  be  elected  when  there  may  be 
hundreds  airainst  him  who  have  not  ex- 
jjressed  their  voice  in  tlie  way  the  law 
])rescrib'.'S.  As  the  stockholders  willful 
ly  and  knowin2,'ly  voted  in  disobedience 
to  the  resolution  uiuJer  which  the  electiiui 
was  held,  they  have  no  just  fjround  of 
comidaint.  It  is  a  matter  of  importance 
that  otlices  sliould  be  filled,  and  it'  electors 
will  knowingly  cast  thfir  voices  in  an  il- 
legal niannci',  they  cannot  object  that 
those  elected  by  the  legal  vote  ani  not 
the  choice  of  tlie  majority  of  those  en- 
titled to  vote."  State  v.  Thompson,  '27 
Mo.  3(i.'),  3r,!i  (1858). 

'  State  r.  llunton,  28  Vt.  504  (1856). 

•'Krelger  i\  Slielby  R.  U.  Co.  (Ky. 
188(i);  2:>  Am.  <t  Kng.  K.  U.  Ces.  5-J8. 
See  also   ^W,  mijira. 

619 


§  609] 


CORPORATE   ELECTIONS. 


[CH.  XXXTII. 


mio-ht  secure  the  election  of  two  members  of  siicb  a  board,  the 
possibility  of  increasing  the  minority  representation  increasing  as 
the  minority  increases,  without  it  ever  becoming  possible  for  a 
minority  upon  a  full  vote  to  secure  more  than  its  equitable  pro- 
portion of  the  representation.  The  larger  the  number  of  direc- 
tors, the  smaller  would  be  the  minority  which  would  be  able  to 
elect  one  member  of  the  board,  and  the  larger  the  minority  the 
greater  the  representation  possible  to  be  secured.  Constitutional 
provisions  which  are  designed  to  secure  such  a  minority  represen- 
tation are  found  in  California,  Pennsylvania,  Illinois,  West  Vir- 
ginia, Missouri,  and  Xebraska.^  These  provisions,  if  designed  to 
be  retroactive,  have  been  held  unconstitutional  and  void.  They 
can  only  apply  to  corporations  chartered  after  their  enactment.' 
So  far  as  they  concern  coi'porations  chartered  before  the  adoption 
of  such  a  constitutional  provision,  they  impair  the  obligation  of 
the  contract  between  the  corporation,  the  stockholders,  and  the 
State,  and  infringe  the  vested  rights  of  the  stockholders.^ 


'  In  California  there  is  the  fullowing 
constitutional  provision:  "In  all  elec- 
tions for  directors  or  managers  of  corpo- 
rations every  stockholder  shall  have  the 
right  to  vote,  in  person  or  by  proxy,  the 
number  of  shares  of  stock  owned  by  him, 
for  as  many  persons  as  there  are  directors 
or  n)anao,ers  to  be  elected,  or  to  cumu- 
late said  shares  and  give  cne  candidate  as 
many  votes  as  the  number  of  directors 
multiplied  by  the  number  of  his  shares  of 
stock  shall  equal,  or  to  distribute  them  on 
the  same  principle,  among  as  many  can- 
didates as  he  shall  think  fit,  and  that  such 
directors  or  mimager,-  shall  not  be  elect- 
ed in  any  other  manner."  Constitution 
of  California,  1879,  art.  XII,  ^12.  See 
this  provision  of  the  constitution  con- 
strued in  Wright  v.  Central  California 
Colony  Water  Co.,  Sup.  Ct.  Cal. 
(1885);  13  Am.  &  Eng.  Corp.  Cas. 
89. 

In  Illinois  [Constitution  of  1870,  art. 
XI,  §  3],  stockholders  in  private  corpora- 
tions are  allowed  "  in  all  elections  for 
directors  or  managers,"  "  to  cumulate 
shares  and  give  one  candidate  as  many 
votes  as  the  number  of  directors  multi- 
plied by  the  number  of  his  shares  of  stock 
shall  equal,  or  to  distribute  them  on  the 
same  principle  among  as  many  candidates 
as  he  shall  see  fit." 

In  Pennsylvania  [Constitution  of  1873. 
art,  XVI.  §  4],  the  provision  is  tliat  "  in  all 

620 


elections  for  directors  or  managers  of  a 
corporation,  each  member  or  sharehold- 
er may  cast  the  whole  number  of  his  votes 
for  one  candidate,  or  distribute  them  up- 
on two  or  more  candidates,  as  he  may 
prefer."  See  Wright  v.  Commonwealth 
of  Pennsylvania  (Sup.  Ct.  of  Benn.,  1885), 
11  Am.  &  Eng.  Corp.  Cas.,  609. 

In  the  constitutions  of  West  Virginia 
[Constitution  of  1872,  art.  XI,  §4],  Ne- 
braska [Constitution  of  1875,  art.  XI, 
miscellaneous  provisions  §5],  and  Mis- 
souri [Constitution  of  1875,  art.  XII,  §  6], 
will  be  found  provisions  essentially  simi- 
lar to  the  one  in  the  Constitution  of  Cali- 
fornia, supra. 

■  Stater.  Greer,  78  Mo.  188  (1883); 
Hays  V.  Commonwealth,  82  Penn.  St.  618 
(1876). 

^  In  Hays  v.  Commonwealth,  82  Penn. 
St.  518,  522  (1876),  the  court,  in  liohling 
the  constitutional  provision  allowing  cu- 
mulative voting  if  it  applied  to  existing 
corporations,  void,  as  within  the  consti- 
tutional inhibition  against  imjjairii  g  the 
obligation  of  the  contract,  said:  "  Now, 
whilst  it  cannot  be  said  that  this  would 
not  be  an  alteration  in  the  terms  of  the 
charter,  it  is  nevertheless  urged  that  it  is 
a  mere  regulation  of  the  right  of  suffrage 
in  corporations,  but  affected  the  vested 
riglits  of  no  one.  But  if  it  be  not  a  vest- 
ed right  in  those  who  own  a  major  part 
of  the  stock  of  the  corporation  to  elect. 


CH,  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  610. 


§  610    Proxies.— At  common  law  a  stockholder  has  no  right 
to  cast  iiis  vote  by  prox}-.     This  rule  was  probably  evolved  from 
the  analogous  rule  governing  municipal   corporations,   which  re- 
quires all  votes  to   be  given   in  person.^     When  the  charter  is 
silent,  the  right  to  vote  by  proxy  may,  in  the  absence  of  a  statu- 
tory provision,  be  conferred  by  a  by-law.^     This  right  is,  however, 
usually  secured  to  stockholders  in  corporations  by  statute.^     A 
proxy  should  be  in  writing,  but  it  need  not  be  in  any  particular 
form  ;  it  need  not  be  acknowledged  or  proved,  but  it  must  be  in 
such  a  shape  as  reasonably  to  satisfy  the  inspectors  of  election  of 
its  genuineness  and  validity.*     And  to  this  end  the  corporate  offi- 
cers may  insist  upon  reasonable  evidence  of  the  regularity  and 
genuineness  of  the  proxy,  before  allowing  it  to  be  voted.^     Where 
certificates  of  proxies  are  destroyed  after  use,  parol   evidence  is 
admissible   to    prove  their    former    existence,    and   sufficiency.*' 
Proxies  are  in  general  presumed  to  be  given  in  reference  to  the 
transaction  of  the  regular,  ordinary  business  of  the  corporation, 
and  to  authorize  votes  for  whatever  is   within  the  scope  of  the 
usual  and  legitimate  business  of  the  concern.     A  general  proxy, 
in  the  usual  form,  will  not  therefore  authorize  a  vote  to  dissolve 


if  they  see  proper,  every  member  of  the 
board  o''  directors.  I  would  like  to  know 
what  a  vested  right  means  ?  This  was 
part  of  the  contract  under  which  they 
entered  into  the  company,  and  for  which 
they  paid  their  money."  Upon  the  ques- 
tion of  the  constitutionality  of  statutes 
providing  for  minority  representation,  or 
cumulative  voting  in  the  election  of  pub- 
lic officers,  a  matter  germane  to  the 
present  subject,  see  People  v.  Kenney, 
m  N.  Y.  294  (1884);  People  v.  Crissey, 
91  Id.  f)16(1883);  8tate  v.  Constantiiie, 
42  Ohio  St.  437. 

'  Taylor  v.  (rriswold,  14  N.  J.  Law, 
223  (1834);  Philips?;.  Wickham,  1  Paige, 
.590(1829);  State  I).  Tudor,  5  Day  (Conn.), 
329(1812);  Brown  ?;.  Commonwealth,  3 
Grant  (Penn.),  209  (18.5ft);  Craig  v.  First 
Presbyterian  Church,  88  Penn.  St.  42 
(1878);  Commonwealth  v.  Briiigliurst, 
103  Id  134(1883);  People  v.  Twaddell, 
18  Hun,  427,  430  (1879);  llarben  v. 
Phillips,  L.  R.  23  Chan.  Div.  14,  22 
(1882).  Cf.  ('aseof  the  Dean  and  Chap- 
ter of  Femes,  Davies,  129;  Attorney  Gen- 
eral V.  Scott,  1  Vesev,  413. 

'■'  People  7\  Crosslcy,  ft9  111.  195(1873); 
Philips  /I.  Wickham,  1  Paige,  598  (1829): 
State  )■.  Tudor,  5  Day,  (Conn.)  329  (1812). 


Chancellor  Kent  says:  "Though  in  the 
case  of  electors  in  public  and  municipal 
corporations,  and  in  all  other  elections  of 
a  public  nature,  every  vote  must  be  per- 
sonally given,  yet  in  the  case  of  mon- 
eyed corporations,  instituted  for  private 
purposes,  it  has  been  held  that  the  right 
of  voting  by  proxy  might  be  delegateil 
by  the  by-laws  of  the  institution,  when 
the  charter  was  silent."  2  Kent's  Commen- 
taries, 294,  295.  This  is  denied  in  New 
Jersey.  Taylor  v.  Griswold,  14  N.  J. 
Law,  222  (1834). 

^  N.  Y.  Session  Laws,  1850,  chap.  40, 
i$  5.  In  New  York  a  st.itute  forbids  the 
bu^'ing  or  selling  of  pro.xies  for  the  pur- 
pose of  voting  railroad  stock.  New  York 
Session  Laws,  1880,  chap.  510. 

•*  in  the  Matter  of  Election  of  St. 
Lawrence  Steamboat  Co.,  44  N.  J.  Law, 
529  (18H2). 

•''  Id. 

"Haywood  ck  Pittsborough  I'lank 
Road  Co.  V.  Bryan,  6  Jones  (N.  C),  82 
(1858).  Where*  one  gave  a  proxy  to  voto 
at  an  annual  election,  it  was  held  prima 
fncif  evidenti!  that  ho  wa«  a  stockholder 
just  before  such  election.  Ilarger  v.  Mc- 
Cullough,  2  Denio,  119,  122  (1846). 

(')-21 


OIL] 


CORPORATE   ELECTIONS. 


[CH.  XXXVII. 


the  corporation,  or  to  sell  the  entire  corporate  property  and  busi- 
ness.^ And  an  irrevocable  power  of  attorney,  or  proxy,  author- 
izing a  vote  upon  stock,  is  not  contrary  to  public  policy,  though 
the  owner  reserves  the  power  of  transfer.^ 

But  a  written  contract  not  to  vote  by  proxy,  entered  into  by 
certain  shareholders  mutually  for  the  purpose  of  preventing  the 
board  of  directors  from  consummating  a  proposed  sale  of  the 
franchises  of  the  corporation,  was  held  a  pernicious  and  unlawful 
compact.^ 

§  611.  The  transfer  hooli  as  evidence  of  a  right  to  vote. — 

The  question  who  is  entitled  to  vote  upon  a  particular  share  of 
stock  is,  as  a  general  rule,  answered  by  a  reference  to  the  cor- 
porate transfer  book  ;  he  who  is  there  registered  as  the  owner  of 
the  stock  is  entitled  to  vote  upon  it.^  It  is  not  necessary  that 
the  owner  of  stock  produce  his  certificate,  or  even  have  a  certif- 
icate, in  order  to  vote.^  Neither  will  indebtedness  for  the  sub- 
scription price  prevent  the  stockholder  from  voting.^  So  also 
it  is  immaterial  that  the  person  in  whose  name  the  stock  is  reg- 


'  Abbot  V.  American  Hard  Rubber  Co., 
33  Barb.  578,684  (1861).  In  the  opinion 
in  this  cai-e,  Josiah  Sutherland,  J.  vigor- 
ously said :  "  In  passing  the  resohition  re- 
lied upon  by  the  defendants  as  an  author- 
ity, bj'  a  majority  of  the  stockholders,  to 
make  the  sale  and  transfer,  it  would  ap- 
pear that  a  majority  of  shares  voted  on 
were  voted  on  by  proxy.  I  must  pre- 
sume, in  the  absence  of  anything  to  show 
the  contrary,  that  these  proxies  were  or- 
dinary proxies,  given  with  reference  to 
the  transaction  of  the  ordinary  legitimate 
business  of  the  corporation,  and  that  they 
did  n(-t  and  could  not  authorize  votes  for 
so  extraordinary  a  sale  and  transfer  as  the 
one  in  question.  Hence,  the  resolution 
cannot  be  said  to  have  been,  in  fact, 
passed  by  a  majoiity  of  the  stockholders, 
and  its  passage  can  hardly  be  claimed  as 
an  authority  by  a  majority. 

"A  similar  remark  may  be  made  as  to 
the  Connecticut  statutes  referred  to  by 
the  counsel  for  the  defendants,  authoriz- 
ing a  majority  of  the  stockholders  to 
transact  business,  and  not  less  than  three 
directors  to  manage  the  affairs  and  busi- 
ness of  the  corporation  ;  these  statutes 
must  be  presumed  to  have  been  intended 
to  apply  to  the  ordinary  and  legitimate 
business  and  affairs  of  corporations,  and 

G22 


not  to  so  extraordinary  a  proceeding  as 
the  sale  and  transfer  in  question."  See 
also  21  How.  Prac.  193  ;  11  Abb.  Prac. 
204 ;  and  cf.  Cumberland  Coal  Co.  i/. 
Sherman,  30  Barb.  533  (1859). 

'^  Brown  ji.  Pacific  Mail  Steamship  Co., 
5  Blatchf.  525  (1867). 

3  Fisher  v.  Bush,  35  Him,  641  (1885). 

*  In  the  Matter  of  the  Long  Island  R. 
R.  Co.,  19  Wend.  37,44  (1837),  the  court 
saying :  "  The  votes  upon  the  stock 
standing  in  the  name  of  D.  J.,  were  prop- 
erly received.  The  inspectors  were  not 
to  inquire  beyond  the  transfer  book  (1 
R.  S.  603,  §  6).  Any  private  agreement 
or  undei'standing  between  the  individual 
holdino-  the  legal  title  to  the  stock  in  due 
form,  and  others,  is  a  matter  between 
themselves  with  which  the  corporation 
have  no  concern."  Ex  parte  W iWcochs, 
7  Cowen,  402  (1827);  State  v.  Ferris,  42 
Conn.  560,  568  (1875). 

=  Beckett  v.  Houston,  32  Ind.  393 
(1869). 

'  Birmingham,  &c.,  Ry.  Co.  v.  Locke, 
1  Q.  B.  286  (1841);  Savage  r.  Ball,  17 
N.  J.  Eq.  142  (1864) ;  Downing  v.  Potts, 
23  N.  J.  Law,  66  (1851).  So  held  in  this 
case,  even  though  the  subscriber  had 
paid  nothing  on  his  stock. 


CH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§611, 


istered  is  merely  the  nominal  holder,  and  that  another  person 
really  owns  the  stock. ^  A  subscriber  npon  a  condition  not  yet 
performed  may  vote  upon  the  question  whether  that  condition 
shall  or  shall  not  be  performed.^  And  stock  issued  for  construc- 
tion, the  work  not  having  bfeen  performed,  may  nevertheless  be 
voted.^  In  New  York,  by  statute,  the  corporate  transfer  book  is 
made  conclusive  upon  the  question  who  may  vote.*  But  no 
person  is  allowed  to  vote  upon  railroad  stock  which  he  has  sold, 
whether  the  transfer  has  been  registered  or  not.^  And  in  moneyed 
and  railway  corporations  only  those  stockholders  are  entitled  to 
vote  who  have  been  duly  recorded  as  stockholders  for  thirty  days 
previous  to  the  election.^  Substantially  similar  provisions  are  to 
be  found  in  the  statutes  of  other  States."^  In  the  absence  of  statu- 
tory provisions  to  the  contrary,  the  weight  of  authority  favors  the 
rule,  that  although  a  stockholder  has  sold  his  stock  and  transferred 
the  certificate,  vet  until  such  transfer  has  been  duly  recorded  on 
the  corporate  books,  he  is  entitled  to  vote  upon  the  stock.^     But  in 


'  Under  the  Nevada  statutes  a  person 
Avho  holds  stock,  issued  in  his  name,  is 
recognized  as  a  aliarcholder  as  well  as 
one  who  ovms  shares.  So,  where  a  father 
transferred  stock  to  his  son  to  make  iiim 
eligible  to  a  corporate  office,  the  son  pay- 
ing nothing  for  the  stock,  it  was  held 
that  the  son  was  a  stockholder,  and  might 
vote  the  stock.  State  of  Nevada  v.  Lcete, 
16Nev.  242  (1881). 

*  Greenville,  &c.,  R.  R.  Co.  v.  Cole- 
man, 5  Rich.  Law,  118  (1851). 

■'Savage  v.  Bull,  17  N.  J.  Eq.  142 
(1864). 

••  I  Rev.  Stat,  of  New  York,  chap. 
XVII I,  title  IV,  ^  5;  Vandenbur-h  v. 
Broadway  Railway  Co.,  29  Ilnn,  ;HH,  355 
(1883);  In  the  Matter  of  the  Long  Island 
R.  R.  Co.,  19  Wend.  87(1837);  In  the 
Matter  of  the  Mohawk  &.  Hudson  1!.  W. 
Co.,  Id.  135(1838).  But  see  Strong  v. 
Smith.  15  Hun,  222  (1878). 

•'■  New  York  Session  Laws,  1880,  chap. 
61(». 

«  I  Rev.  Stilt,  of  New  York,  ciiap. 
XVriJ,  title  II,  art.  2,^^  38,  45.  Also  as 
to  {{ailway  Corporations,  New  York  Laws 
of  1850,  chap.  140,  i^  5. 

'  Downing  c.  I'<.tt«,  2:{  \.  J.  Law,  6() 
(1851).  In  tl.<'  .Matter  of  tlie  Election  of 
St.  Lawrence  Steamboat  Co.,  4  J  Id.  529 
(1882);  Hojipin  «.  liud'uni,  9  R.  I.  513 
(1870).  See  for  the  Englisii  rule,  i'ender 
V.    Lushington,    L.    R.,    i;   (.'han.    Div.  70 


(1877),  where  the  court  says:  "How  are 
you  to  ascertain  who  is  to  vcte  ?  That 
"is  pointefl  out  by  the  ai-ticles  of  associa- 
tion. Fir.-t,  who  are  to  be  summoned 
to  attend  the  general  meetings?  Vou 
find  by  article  48,  that  notice  is  to  be 
given  to  '  tlie  members  hereinafter  men- 
tioned.' What  does  the  word  '  members' 
mean  in  that  article  ?  The  definition 
clause,  like  many  other  definition  clauses, 
is  one  wdiich  defines  nothing.  It  says, 
'  Member  means  member  lor  the  time 
being  of  the  company,'  that  is,  member 
means  member.  But  one  must  remem- 
ber that  the  word  '  member '  hns  a  mean- 
ing in  the  Companies  Act,  and  it  means 
prima  facie  a  registered  shareholder  or 
stockholder,  and  that  mu^t  be  tlie  mean- 
ing here,  because  how  else  are  you  to 
give  him  notice  at  all?  You  can  only 
give  him  notice  by  referring  to  the  reg- 
ister which,  under  Article  'J,  is  'to  be 
kei)t  pursuant  to  terms  of  the  Companies 
Act,  IHI'/J.  So  tliat  a  member  is  a  man 
who  is  on  the  register." 

"  McNeil  V.  Tenth  National  I^aiik,  '(t» 
N.  Y.  325,  332  (1871).  I"  tiie  .Matter  of 
the  Long  Island  R.  R.  C<-..  19  Wend.  37 
(1M37)-  People  v.  Robinson,  tt4  Cal.  373 
(1883);  s.  c.  1  Pac.  Rep.  150  (1883); 
Mousseaux  v.  I'npiliart,  19  La.  Ann.  482 
(1867);  State  C.  Ferris,  42  Conn. 
(1S75);  State  v.  I'ettin.li,  l<i  Nev. 
(1875);  Johnston   v.   Jones,  23   N.J 

028 


50O 
141 
E4. 


611.] 


CORPORATE   ELECTIONS. 


[CH.  XXXVII. 


Illinois  it  is  held  tliat  the  corporation  must  allow  the  real  owner 
of  the  stock  to  vote,  whether  he  be  the  registered  owner  or  not.^ 
The  corporation  may  be  compelled  to  register  transfers  made 
merely  for  the  purpose  of  voting,^  while  colorable  transfers 
made  solely  to  enable  tlie  fictitious  -transferees  to  enjoy  certain 
privileges,  which  it  is  the  intent  of  the  ciiarter  provision  confer- 
ring them,  that  only  bona  fide  stockholders  shall  enjoy,  will  be 
set  aside  as  unwarranted  by  a  court  of  equity,^ 

A  by-law  allowing  election  inspectors  to  administer  an  oath  to 
the  voters  at  a  corporate  election,  and  to  interrogate  the  stock- 
holders who  offer  their  votes,  under  such  oath,  is  illegal  and  void.* 
In  general,  as  has  been  shown,  each  share  of  stock  is  entitled  to 
one  vote,  but  under  certain  circumstances  the  holders  of  scrip 
issued  as  a  dividend  are  not  entitled  to  the  right  to  vote  upon 
such  stock.*^  This  is  not,  however,  the  rule  as  regards  a  stock 
dividend,  and  it  is  generally  conceded  that  the  holders  of  stock 


216,  228  (1872);  Downing  v.  Potts,  23 
N.  J.  Law,  66  (1851);  Hoppin  v.  Biiffum, 
9  R.  I.  513  (1870).  Cf.  In  the  Matter  of 
the  North  Shore  Staten  Island  Ferry  Co., 
63  Barb.  556  (1872);  Smith  v.  American 
Coal  Co.,  7  Pans.  317  (1873).  In  People 
V.  Robinson,  supra,  the  court,  at  p.  375, 
well  say  :  "  A  transfer  pot  entered  on  the 
books  of  the  company  has  no  validity 
outside  of  the  parties  to  such  transfer. 
If  not,  could  it  afl'ect  the  validity  of  an 
election  at  which  trustees  of  the  company 
were  elected?  If  so,  would  not  a  trans- 
fer, although  not  entered  on  the  books 
■of  the  company,  be  valid  outside  of  the 
parties  to  such  transfer  ?  The  construc- 
tion which  we  feel  compelled  to  give  to 
this  clause  is,  that  a  transfer  of  stock,  un- 
til entered  upon  the  books  of  the  com- 
pany, confers  on  the  transferee,  as  be- 
tween hiaiself  and  the  company,  no  right 
beyond  that  of  having  such  transfer  prop- 
erly entered.  Until  that  is  done,  or 
demanded  to  be  done,  the  person  in 
whose  name  the  stock  is  entered  on  the 
book  of  the  company  is,  as  between  him- 
self and  the  company,  the  owner  to  all 
interests  and  pnr|ioses;  and  particularly 
for  the  purposes  of  an  election." 

'People  V.  Devin,  17  111.  84(1855). 
This  is  not  a  sntii-factory  position  and 
might  not  now  be  followed.  See  also 
Allen  V.  Hill,  16  Cal.  113  (1860). 

^  In  re  Stranton  Iron  &  Steel  Co.,  L. 
R.,  16  Eq.  559(1873). 

624 


•'  It  is  provided  by  the  charter  of  the 
Academy  of  Music  in  Philadelphia,  that 
every  five  shares  of  stock  shall  entitle  the 
owner  to  a  free  ticket  of  admission,  and 
that  the  directors  siiall  set  apart  a  portion 
of  tiie  house  for  the  exclusive  use  of  such 
stockholders.  Certain  stockholders  own- 
ing large  blocks  of  the  stock  were  in  the 
habit  of  transferring  lots  of  five  shares 
each  to  other  persons  at  the  opening  of 
the  season,  to  be  retransferred  to  them 
again  at  its  close.  Upon  a  bill  filed  by 
certain  stockholders  to  restrain  such 
fictitious  transfers,  the  court  held  that 
the  transfers  were  not  warranted,  and 
that  costs  should  go  against  the  corpoia- 
tion  for  permitting  such  transfers.  Ap- 
peal of  the  Acadcmj'  of  Music,  108  Penn. 
St.  610  (1885). 

*  People  V.  Kip,  4  Cowen,  382,  note 
(1822). 

^  Where  the  New  Yoi'k  Central  Rail- 
road Co.,  issued  what  were  denominated 
"  interest  certificates,"  which  were  prac- 
tically certificates  of  stock  issued  as  a 
scrip  dividend,  except  that  they  were 
payable  at  the  pleasure  of  the  company 
out  of  its  future  earnings,  and  convert- 
ible, upon  certain  conditions,  into  the 
common  stock  of  the  company,  it  was 
held  that  the  holder  of  such  certificates 
were  not  entitled  to  vote  upon  them  at 
corporate  elections.  Bailey  v.  l^ailroad 
Company,  22  Wall.  604,  635  (1874). 


CH.  XXXVII.J  CORPORATE   ELECTIONS.  [§612. 

issued  as  a  stock  dividend,  or  the  holders  of  preferred  stock,  staud, 
in  respect  of  the  right  to  vote  upon  their  shares,  precisely  upon 
the  same  footing  as  the  holders  of  the  common  stock  of  the  cor- 
poration.^ In  New  York,  when  for  any  reason  the  corporation 
fails  to  hold  an  election  at  the  stated  time  as  provided  in  the 
charter  or  by-laws,  and  the  election  is  held  subsequently,  only 
those  stockholders  are  entitled  to  vote  who  were  qualified  elec- 
tors at  the  time  when  the  election  ought  to  have  been  held.^ 

§  612.  The  right  of  trustees,  pledgees,  married  women,  ad- 
ministrators, &c.,  i&c,  to  vote.— It  is  the  general  rule  that  a 
person  holding  stock  as  trustee,  not  only  where  be  is  duly  reg- 
istered as  a  stockholder  in  that  capacity,  but  also  where  the 
trust  relationship  is  not  declared  upon  the  books  of  the  corpora- 
tion, is  entitled  to  vote  upon  the  stock.^  It  seems,  however,  that 
in  case  of  a  trust  not  coupled  with  an  interest,  and  where  the 
cestui  que  trvst  could,  by  bill  in  equity,  compel  a  conveyance  of 
the  property  to  himself,  he  might  compel  the  trustee  to  vote  as 
he  directed.*  In  New  York  a  statute  enables  a  married  woman  to 
vote  in  person  or  by  proxy  on  any  shares  of  stock  she  may  own.'* 
So  also  a  duly  qualitied  executor  or  administrator  may  vote  on 
stock  of  his  testator  or  intestate  even  though  such  stock  has  not 
been  transferred  on  the  book.*  Although  a  person  pledges  stock 
as  collateral  security  for  the  payment  of  a  debt  or  for  any  other 
purpose,  he  is  nevertheless  entitled  to  vote  upon   it  at  all  cor- 

'  "As  a  general  rule  stock  dividends,  (1870) ;  Wilson  v.  Proprietors  of  Central 

even  when  they  represent  net  earnings,  Bridge,     Id.  590    (1870);     Brewster    t;. 

become  at  once  a  part  of  the  capital  of  Uartley,  37  Cal.   15  (1869).     Cf.  Stewart 

the   company,  and  of  course  eutitle  the  v.    Mahoney    Mining  Co.,    54    Cal.     149 

holder  to  vote,  unless  it  is  otherwise  pro-  (1880) ;  Fx  parte  Holmes',  5  Cowen    426 

vided  in  the  charter  or  by-laws."    Bailey  435  (1826).     For  the  rule  as  to  a  trustee' 

i».  Railroad  Co.,  22  Wall.  604,  e.-i?  (1874).  of  stock   for   the  corporation   itself    see 

'  1  Rev.     Stat,    of  New  York,  chaj).  g  613. 
XVIII,  title  IV,  §  8.  6j^ew    York    Session    Laws,    1851, 

*  Widow  Conant  v.  Millaiidon,  5  La.  chap.  S21. 
Ann.   542(18.50);  Wilson  v.  Proprietors  « In   tlie  Matter  of  the  North  Shore 

of  Central  Bridge,   9  R.    I.  590  (1870);  Staten   Island    Ferry   Co.,  63  Barb    556 

Hoppin    7'.   Buffum,  9    Id.     513    (1870):  (187'-i) ;  Middlel.rook  i'.  Merchants  Hank 

Crease  v.    Babcock,  10   Mete.    525,    545  3   Keyes  (N.  Y.),  135  (1806).     The    pro- 

(1846);    In    re    Barker,    6    Wend.    609  visi(,n   of  the   New  York  Manufacturing 

(1831);    In    the    Matter  of  the    Mohawk  Cos.  Act  of  1848,  is.  viz.  ;    "Every   such 

and  Hudson  R.  R.  Co.,  19  Id,  135  (1838);  executor,     administrator,     guardian,    or 

In  the  Matter  of  the  North  Shore  Stateu  trustee,  shall  represent  the  share  of  stock 

Wand   Ferry   Co.,   63  Barb.    556(1872);  in  his  hands  at  all  meetings  of  the   com- 

£x  parte  Holmes,  5  Cowen.  420  (1820) ;  pany,    and    may    vote    accordingly    as  a 

Pender   v.  Lushington,    L.   It.,    6    Chan,  stockholder."     New  York  Laws   of  1848 

Div.  70(1877).  chap.  40,  4?  17. 

••  Hoppin    V.     BufTum,     9    R.    I.     013 

[*0]  625 


§  612.] 


CORPORATE   ELECTIONS. 


[CH.  XXXVIl. 


porate  meetings  so  long  as  it  is  not  transferred  into  the  name  of 
the  pledgee.^  And  where  the  stock  has  been  transferred  on  the 
corporate  books  into  the  name  of  the  pledgee,  it  is  held  that, 
even  then,  it  cannot  be  voted  contrar^^  to  the  wishes  and  interests 
of  the  pledgor.^  A  court  of  equity  will  compel  the  pledgee 
under  some  circumstances,  when  the  stock  has  been  transferred, 
to  give  the  pledgor  a  proxy  ;^  but  will  not,  upon  the  application 
of  the  pledger,  enjoin  the  pledgee  from  voting,  unless  it  appears 
that  irreparable  injury  is  threatened,  and  that  the  pledgor  is  in 
danger  of  loss  without  an  adequate  remedy^  at  law.*  A  partner 
may  properly  vote  upon  stock  belonging  to  the  firm,  and  regis- 
tered in  the  partnership  name  ;  ^  so  also  it  seems  where  the  stock 
belongs  to  the  firm,  but  is  registered  in  the  name  of  the  other 
partner  who  is  dead.^  Where  the  word  "  cashier "  is  added  to 
the  name  of  a  shareholder  upon  the  corporate  stock  book,  it  is  not 
suflBcient  to  raise  a  trust,  nor  will  the  election  of  another  person 
to  the  oflice  of  cashier  of  the  corporation  operate  to  transfer  the 
right  to  vote  the  stock  from  the  outgoing  to  the  incoming  oflBcial. 
The  appended  word  is  merely  a  word  of  description.'' 


1  In  re  Barker,  6  Wend.  509  (1831); 
Ex  par/e  Willcocks,  7  Cowen,  402  (182*7) ; 
Matter  of  Cecil,  36  How.  Prac,  477(1869); 
Smith  V.  American  Coal  Co.,  7  Lans.  317 
(1873) ;  Vowell  v.  Thompson,  3  Cranch 
C.  C.  428  (1829);  Scholfield  v.  Union 
Bank.  2  Id.  115  (1815);  McDaniell  v. 
Flower  Brook  Mant^.  Co.,  22  Vt.  274 
(1850);  Crease  v.  Babcock,  10  Mete.  525, 
545  (1846);  Hoppin  v.  Bufium,  9  R.  I. 
513  (1870);  Brewster  v.  Hartley,  37  Cal. 
15  (1869).  The  provision  of  the  New 
Yoik  Manufacturing  Cos.  Act  of  1848  is 
viz.:  "Every  person  who  shall  pledge 
bis  stock  as  aforesaid  may  nevertheless 
represent  the  same  at  all  such  meetings, 
and  may  vote  accordingly  as  a  stockhol- 
der. "  New  York  Laws'of  1848,  chap.  40, 
§17. 

2  Lawrence  v.  Maxwell,  53  N.  Y.  19 
(1873);  ^xjaarife  Willcocks,  7  Cow.  402, 
410  (1827);  Vowell  v.  Thompson,  3 
Cranch  C.  C.  428  (1829);  Scholtield  v. 
Union  Bank,  2  Id.  115  (1816);  Story  on 
Bailments  (9th  edition),  §  89  ;  1  Scliouler 
on  Personal  Property  (2d  edition),  §  435  ; 
Redfield  on  Carriers,  §  659 ;  Lewis  on 
Stock-Brokers.  Tin;  Stephens  on  Joint 
Stock  Companies  (Catadian),  401,  Cf. 
McDaniels  v.  Flower  Brook  Manfg.  Co., 
22  Vt.  274(1850). 


See  also  Fanning  v. 


Hibernia  Insurance  Co.,  37  Ohio  St.  339 
(1881).  It  is  not  a  conversion  for  one 
who  holds  stock  as  pledgee,  to  attend 
corporate  meetings  and  vote  upon  the 
stock,  especially  where  it  appears  that 
the  president  of  the  company  who  knew 
that  he  held  the  stock  as  collateral  se- 
curity, asked  him  to  attend  the  meeting 
and  to  vote.  Heath  v.  Silverthorn 
Lead  Mining,  <fec.,  Co.,  39  Wis.  146 
(1875). 

'  Vowell  V.  Thompson,  3  Cranch  C.  C. 
428(1829). 

^  MeHenry  v.  Jewett,  90  N.  Y.  58 
(1882).  In  order  to  settle  a  contest 
growing  out  of  a  disputed  election,  the 
court  may  go  behind  the  entry  in  the 
transfer  book  to  determine  whether  a 
transfer  appearing  thereon  was  a  sale  or 
only  a  pledge  of  the  shares,  and  whether 
the  pledgor  or  pledgee  be  entitled  to  vote 
thereon.  Strong  v.  Smith,  16  Hun,  222 
(1878). 

*  Kenton  Furnace  Railroad  and  Manfg. 
Co.  V.  McAlpin,  5  Fed.  Rep.  737  (1880). 
See  Hardy  v.  Norfolk  Man.'g.  Co.,  80  Va. 
404  (1885). 

«  Allen  V.  Hill,  16  Cal.  113  (1860). 

''  In  the  Matter  of  the  Mohawk  <& 
Hudson  R.  R.  Co.,  19  Wend.  135,  146 
(1838). 


626 


<iH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  613. 


§  G13.  Tlie  corporation  cannot  vote  upon  shares  of  its  own 
stock. — Shares  of  stock  owned  by  t!ie  corporation  itself  cannot 
be  voted  either  directly  by  the  corporate  officers,  or  indirectly 
by  a  trustee  of  the  corporation.  This  is  the  established  rule, 
whether  the  stock  is  registered  in  the  name  of  the  corporation 
or  not.^  The  inspectors  of  election  may  lawfully  inquire  into 
the  ownership  of  stock  registered  in  the  names  of  the  directors 
of  the  corporation,  if  there  be  any  reason  to  suspect  that  the 
corporation  owns  it,'''      Directors  elected   by  votes  upon   stock 


'  Mousseaux  v.  Urqubart,  19  La.  Ann. 
482  (1867);  Vail  v.  Hamilton,  85  N.  Y. 
453  (1881);  ^x  parte  Holmes,  5  Cowen, 
426  (1826);  McNeely  v.  Woodruff,  13  N. 
J.  Law,  352  (1833) ;   American  Railway 
Frog  Co.  V.  Haven,  101  Mass.  398  (1869); 
State  V.  Smith,  48  Vt.  266  (1876);  United 
States  V.  Columbian   Ins.  Co.,  2  Cranch 
C.  C.  266  (1821);  New  England  Mutual. 
<fec..  Ins,  Co.  V.  Phillips  (Mass.  1886),  13 
Am.  <fe  Eng.  Corp.  Cas.  104.      Cf.  Taylor 
V.    Miami   Exporting  Co.,   6    Ohio,    176 
(1833);  Frazer  v.  Whalley,  2  Hem.  &  M. 
10  (1864).     Where  shares  are  bought  in 
by  the  corporation   for  non-paytnent  of 
assessments,  the  treasurer  of  tlie  company 
may  vote  upon  such  stock  at  a  meeting 
where  all  the  stock  is  represented  and  all 
consent  to  the  vote.  Farwell  c.  llougliton 
Copper  Works,  8   Fed.   Rep.    66  (1881). 
Cf.    Stephens   on   Canadian    Joint-Stock 
Companies,  354.     In  American  Railway 
Frog  Co.  V.  Haven,  supra,  the  court  says, 
at  page  402:  "The  case  finds  that  the 
capital  stock  was  divided  into  two  tiiou- 
sand  shares,  all  of  whicl;  wore  properly 
issued  to  the  original  stockholders;  and 
that  sonielirae  afterwards,  four  liundred 
of  these  shares  were  transferred  by  some 
of  the  stockholders  to  Aaron  W.  Clark, 
'  to  hold  for  the  benefit  of  the  corpora- 
tion.'    If  these  transfers  had  been  made 
directly  to  the  C(;rporation,  without  the 
intervention  of  a  trustee,  it  would  hardly 
be  contended  that  it  would  thereby  be- 
come entitled  to  vote  at  a   meeting  of 
stockholders.    A  corporation  cannot  liter- 
ally be  one  of  its  own  stockholders  in  the 
full  sense  of  that  term.     Such  a  transfer 
might  not  operate  as  a  mere  surrender  or 
cancellation  of  stock  unless  so  intended. 
It  would  not  diminish  the  amount  of  the 
capital,  nor  necess:irily  reduce  the  num- 
ber of  shares.     The  corporation  miijht, 
perhaps,  receive  such  a  tmnafcr,  and  h(jld 
the  stock  so  conveyed  to  it,  for  tin;  pur- 
pose of  reissue  to  new  subscribers  or  pur- 


chasers. By  the  terms  of  the  transfer, 
Clark  holds  '  for  the  benefit  of  the  corpo- 
ration,' and,  of  course,  subject  to  its  or- 
der. This  is  the  extent  of  his  trust. 
Nothing  in  the  nature  of  it  makes  it  nec- 
essary that  he  should  vote,  as  the  holder 
of  those  shares.  There  is  no  apparent 
reason  why  he,  not  being  beneficially  or 
practically  the  owner  of  them,  should  be 
endowed  with  the  privilege  of  controll- 
ing four  hundred  votes  according  to  hia 
own  judgment  or  pleasure,  especially 
when  it  is  taken  into  consideration  that 
the  corporation  for  which  he  holds  thera 
has  no  right  of  voting  in  any  event.  It 
is  easy  to  see  that  any  such  privilege 
would  not  only  be  unreasonable  and  un- 
fair, but  might  lead  to  great  abuses. 
The  position  of  these  shares,  in  our  judg- 
ment, is  the  same,  to  all  intents  and  pur- 
poses, so  far  as  the  right  of  voting  upon 
them  is  concerned,  as  if  they  were  held 
directly  by  tlie  corporation  itself;  and 
until  they  are  sold  and  transferred  by  its 
authority,  the  right  of  voting  upon  them 
is  suspended." 

^  JEx  parte  Holmes,  5  Cowen,  426 
(1826).  The  court  in  this  case  said: 
"  But  the  question  remains,  whether  the 
latter  are  to  be  deemed  stockholders, 
within  the  spirit  of  the  act.  True,  the 
stock  on  whicli  they  voted,  in  this  case, 
stands  in  their  name  ;  but,  on  the  face  of 
the  entry,  they  are  declared  to  be  mere 
nominal  holders.  The  real  owner  of  the 
stock  should  vote,  especially  where  his 
name  is  truly  e.\])re8sed  in  flic  books; 
though  it  might  be  otherwise  if  he  clmose 
to  have  the  entry  simply  in  the  name  of 
another,  without  expressing  any  trust. 
Now  these  three  persons,  a  majority  of 
whom  claim  a  right  to  vote,  are  mere 
trustees;  and  they  iire  trustees,  not  for  the 
directors  iiut.  the  company,  the  corpora- 
tion itself.  If  there  could  be  a  vote  at 
all  upon  the  stock,  one  would  suppose 
that  it  must  bo  by  each  stockholder  of 

62Y 


§  614.] 


CORPORATE   ELECTIONS. 


[cH.  xxxvi:. 


owned  by  the  corporation  are  illegally  elected,^  and  mandamus 
lies  to  oust  directors  so  elected.^  The  court  may  also,  in  the 
exercise  of  its  equity  powers,  declare  a  candidate  elected  who 
received  only  a  minority  of  the  votes  actually  cast,  when  such 
candidate  plainly  received  a  majority  of  all  the  legal  votes  cast.' 
And  a  new  election  will  not  be  ordered  where  the  person  de- 
clared elected  had  a  majority  of  legal  votes,  though  not  a  majority 
of  all  the  votes,  legal  and  illegal,  that  were  cast  at  the  election.* 

§  614.  Injunction  against  voting  'particular  stock. — Under 
certain  circumstances  it  seems  that  a  court  of  equity  might  enjoin 
a  stockholder  from  voting  on  particular  stock.  Such  an  injunction 
can  only  issue  when  the  complainant  can  show  a  plain  purpose  of 
parties  to  vote  the  stock,  and  to  vote  it  in  a  particular  way  ;  that 
the  effect  of  the  vote  will  be  to  control  the  election  ;  that  mischief 
will  result  to  the  coi'poration ;  and  that  irreparable  or  permanent 
injury  will  come  either  to  the  corporation  itself  or  to  the  other 
stockholders.^  So,  also,  where  a  combination  or  conspiracy  can 
be  shown  for  the  purpose  of  controlling  an  election  in  fraud  of 
the  rights  of  those  shareholders  who  are  not  in  the  combination, 


the  company,  in  proportion  to  his  interest 
in  it. 

"  This  brings  us  to  the  important  dif- 
ficulty in  the  case;  -which  is,  whether 
stock  thus  held  can  vote  at  all.  And  we 
think  it  is  not  to  be  considered  as  stock 
held  by  any  one  for  the  purpose  of  being 
voted  upon.  Ko  doubt  the  company  may, 
from  necessity  as  in  this  case,  take  their 
own  stock  in  pledge  or  payment ;  and 
keep  it  outstanding  in  trustees,  to  pre- 
vent its  merger ;  and  convert  it  to  their 
security.  But  it  is  not  to  be  voted  upon 
within  the  meaning  of  the  charter,  or 
general  act  upon  which  we  are  proceed- 
ing. It  is  not  to  be  tolerated,  that  a  com- 
pany should  procure  stock  in  any  shape, 
which  its  ofiicers  may  wield  to  the  pur- 
pose of  an  election  ;  thus  securing  them- 
selves against  the  possibility  ot  removal." 

'  ^a-joaWeDesdoity.l  Wend.  98  (1828). 

^  American  Railway  Frog  Co.  v.  Hav- 
en, 101  Mass.  398  (1869). 

'  Mousseaux  v.  Urquhart,  19  La.  Ann. 
482  (1867). 

4  McNeely  v.  Woodrufi;  13  N.  J.  Law, 
352  (1833);  Ex  parte  Desdoity,  1  Wend. 
98  (1828). 

'  In  Reed  v.  Jones,  6  Wis.  680  (1858), 
■where  there  had  been  alleged  overissue 

628 


of  stock,  upon  which  the  holders  pro- 
posed to  vote,  an  injunction  was  denied, 
but  in  the  opinion  the  court  said:  "Now 
upon  general  principles  it  would  seem  im- 
proper and  most  mischievous  to  grant  an 
injunction,  upon  the  complaint  of  a  minor- 
ity of  a  board  of  directors,  to  restrain  a 
stockholder  from  voting  upon  an  alleged 
excess  of  stock,  held  by  him  before  the 
company  had  taken  any  steps  to  cancel 
the  stock  or  declare  it  void.  We  have 
not  been  referred  to  any  case  where  an 
interposition  of  the  court  by  injunction 
has  been  exercised  for  such  a  purpose, 
and  after  some  research,  we  have  been 
able  to  find  none.  But  from  the  allega- 
tions of  this  complaint,  it  is  not  easy  to 
perceive  how  it  would  produce  irrepar- 
able and  permanent  injury  to  the  com- 
pany or  the  plaintiffs,  even  if  Jones  should 
vote  upon  this  alleged  excess  of  stock. 
The  complaint  fails  to  show  that  immi- 
nent danger  to  the  property  of  the  plaint- 
iffs is  threatened  by  the  contemplated 
acts;  nor  does  it  present  any  other  suf- 
ficient ground  or  reason  for  arresting  and 
restraining  him  from  voting  upon  thie 
stock."  From  this  it  may  be  inferred  that 
under  other  circumstances  the  injunction 
would  have  been  allowed. 


CH.  XXXVII.]  CORPORATE   ELECTIONS.  [§615. 

the  injunction  will  issue.'^  Such  an  injunction  will  not  prevent 
an  election  from  taking  place.  On  the  contrary,  the  election 
goes  on,  and  is  valid  even  though  it  happen  that,  what  would 
have  been  a  minority  of  the  votes,  had  not  the  injunction  issued, 
becomes,  by  reason  thereof,  a  majority,  and  elects.^  The  gen- 
eral rule,  however,  unquestionably  is,  that  one  stockholder  has 
nothing  to  do  with  the  vote  of  another  stockholder,  and  can  law- 
fully do  nothing  to  abridge  the  right  of  another  to  vote;  or  to 
control  or  direct  the  casting  of  the  vote  of  any  other  member  of 
the  corporation.'' 

Accordingly,  an  injunction  will  not  be  granted  upon  the 
ground  that  the  stockholders  against  whom  the  injunction  is 
sought,  are  likely  to  obtain  control  of  the  affairs  of  the  company, 
and  that  then  they  will  probably  misuse  their  power.*  Nor  will 
an  injunction  be  allowed  where  the  application  is  made  for  it  at 
such  a  time  that,  according  to  the  rules  of  practice,  the  defend- 
ants cannot  be  heard  in  opposition  to  it  until  after  the  day  of 
election  ;  so  that  the  operation  of  the  injunction  would  be  the 
same,  whether  the  court  at  the  hearing  granted  it  or  denied  it. 
It  is  held  ihat  such  an  application  ought  to  be  summarily  dis- 
missed.^ 

§615.  Illegal  or  fraudulent  elections. — Shareholders''  reme- 
dies herein. — There  are  various  ways  in  which  an  illegal  or  fraud- 
ulent election  of  directors  or  managers  of  an  incorporated  com- 
pany can  be  investigated,  the  fraud  unearthed,  and  the  illegality 
set  aside.  At  common  law,  the  action  of  quo  warranto,  in  the 
name  of  the  State,  upon  the  relation  of  the  parties  aggrieved, 
will  lie  upon  probable  cause  shown  to  try  the  title  of  the  candi- 
date who  claims  an  election.     The  statutes  of  the  several  States 


1  Webb  V.  Ridgely,  38  Md.  .364(1878);  '  Where  a  bill  was  filed  to  restrain 

Brown   v.  Pacific  Mail  Steamship  Co.,  5  certain  shareholders  from  selling  or  as- 

Blatchf.  525  (1867);  People  v.  Albany  <fe  signing  their  stock,  or  from  voting  upon 

Susquehanna  R.   R.  Co.,   55    Barb.    344  it  at  an  ensuing  election,  whicli  was  to 

(1869);   Hafer  v.  New  York,  (fee,  R.   R.  be  held  within  three  days  from  the  dated 

Co.  (Ohio),  14  Week.  Law  Bui.  68  ( 1 885).  of  the  filing  of  the  bill,  the  court  held  tliat 

See  Iloppin  v.  Buffum,  9  R.  1.  513  (1870);  inasmuch  as  the  probable  effect  of  the  in- 

Griffith  V.  .Jewett  (Ohio),  15  Week.   Law  junction  would  bo  to  change  the  result  of 

Bui.  419  (1886).  the  election,  and  the  consequent  control 

'  Brown  v.  Pacific  Mail  Steamship  Co.,  of  the  affairs  of  the  company,  without  al- 

xupra.  lowing  the  shareholders  sought  to  bo  ro- 

^  Ryder  r;.  Alton,  (fee,  R.    R.    Co.,   13  strained,  to  be  heard  in  their  own  defense, 

111.  516  (1851).  the  injunction  ought  to  be  denied.    Ililies 

*  Camden,  .fee,  R.  R.  Co.  v.  Elkina,  37  v.  Parish,  14  N.  J.  Eq.  380  (1862). 
N.  J.  Eq.  273  (1883). 

629 


§615.]  CORPORATE  ELECTIONS.         [CH.  XXXVH. 

will  in  general  be  found  to  prescribe  an  action  in  such  cases  in 
the  nature  of  the  older  common  law  action  of  quo  warranto^  and 
nnder  these  statutes  this  is  still  a  common  remedy.'^ 

In  comparatively  recent  times,  a  concurrent  remedy  has  been 
provided  in  a  court  of  chancery.  While  it  is  true,  as  a  general  pro- 
position, that'such  a  court  has  no  jurisdiction  to  try  or  determine 
the  validity  of  a  corporate  election,^  unless  such  jurisdiction  is 
conferred  by  statute,  nevertheless,  whenever  the  question  arises 
incidentally  in  connection  with  a  suit  in  which  a  court  of  equity 
has  jurisdiction,  the  legality  or  validity  of  an  election  may  be 
passed  upon,^  and  it  has  been  held  that  fraud  will  give  a  court  of 
equity  jurisdiction  to  set  aside  an  election  of  directors.*  And 
where  the  process  of  a  court  has  been  unlawfully  or  unjustly 
used  to  control  a  particular  election,  the  proceedings  in  court 
being  dropped  immediately  after  the  election,  all  the  acts  done, 
by  virtue  of  such  control,  being  in  fraud  of  the  rights  of  the 
shareholders,  will  be  summarily  vacated  and  set  aside,^  and  it  has 
been  held  that  upon  general  principles  of  equity  jurisprudence, 
and  irrespective  of  statutory  provision,  the  shareholders  in  a 
private  corporation  have  such  a  pecuniary  interest  in  its  affairs 
as  will  give  them  standing  in  a  court  of  chancery,  to  try  the 
validity  and  regularity  of  an  election  of  directors,  and  the  legal- 
ity of  the  acts  of  inspectors  in  receiving  or  rejecting  votes,  and 
declaring  the  result.® 

'  There  canaot  be  such  a  thing  as  a  R.  728  (1870):  Beecher   v.  Wells'  Flour- 

de  facto  officer  as  against  the  people  in  an  log  Mill  Co.,  1  Fed.  Rep.  276  (1880);  s.  c. 

action  at  the  suit  of  the  people  to  try  the  1  McCrary,  62. 

title  of  the  office.    The  doctrine  of  officers  ^Mechanics    National   Bank,    etc.    v. 

de  fndo   applies  only  to   and  in  favor  of  Burnet  Mfg.  Co.,  32  N.  J.  Eq.  236  (1880); 

third  persons,   and   to   protect   innocent  Johnston  v.  Jones,  23  Id.  216  (1872). 
parties  who  have  trusted  to  tlie  apparent  ■•  Davidson  v.  Grange,  4  Grant's  Chan, 

title  of  an  officer.     The  People  «;.  Albany,  (Up.  Can.)  377  (1854);  Wandsworth,  Ac, 

Ac,  R.  R.  Co.,  55  Barb.  344,  385  (1869).  Gas  Light  &  Coke  Co.  v.  Wright,  18  W. 

Cf.  Ex  parte  Willcocks,   7   Cowen,   402  R.    728    (1870),  where   the   court   said: 

(1827);  Boardman  V.  Halliday,  10  Paige,  "  Prima /a«>  the  persons  declared  elected 

228;  The  People   v.  Albertscn,  8  How.  were  directors.     If  this  had  been  done  by 

Prac.  363  (1853);  Weeks  v.  Ellis,  2  Barb,  means  of  a  conspiracy,  this  court  would 

325.       And    see   particularly   Mechanics  have  ftiund  its  arm  long  enough  to  deal 

National  Bank  of  Newark  v.  Burnet  Mfg.  with  such  a  fraud." 
Co.,  32  N.  J.  Eq.  236  (1880).  '  Putnam  v.  Sweet,  1  Chandler  (Wis.), 

'  Mickles  v.  Rochester  City  Bank,  11  286(1849).     Cf.  People  v.  Albany  &  i^us- 

Paige,  118  (1844);    Mechanics  National  quehanna  R.  R.  Co.,  55  Barb.  344  (1869). 
Bank  of  Newark  v.  Burnet  Mfg.  Co.,  32  «  In  the  Matter  of  Election  of  St.  Law- 

N.  J.  Eq.  236  (1880);  Johnston  v.  Jones,  rence  Steamboat  Co.,  44  N.  J.   Law.  529 

23  Id.  216  (1872);  Owen  v.  Whitaker,  20  (1882).     But  see  New  England  Mutual, 

Id.   122  (1869).      Cf.   Wandsworth,  (fee,  <fec,  Ins.  Co.  i;.  Phillips  (Mass.  1886),  13 

Gas  Light  &  Coke  Co.  v.  Wright,  18  W.  Am.  &  Eng.  Corp.  Cas.  104. 

630 


CH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  616. 


In  many  of  the  States,  statutes  have  been  enacted  which  give 
courts  of  equity  the  power  to  review  corporate  elections  at  the 
instance  of  the  parties  aggrieved.^  In  JSlew  York,  the  Supreme 
Court  setting  as  a  court  of  chancery,  is  empowered  to  review 
corporate  elections,  and  to  grant  such  relief  as  the  particular  cir- 
cumstances and  justice  of  the  case  seem  to  require.^  Under  these 
statutes  an  election  may  be  declared  void  by  reason  of  the  con- 
spiracy, frauds,  or  trickery  of  a  part  of  the  corporators.^ 

§  616.  But  only  a  shareholder  whose  rights  have  been  in- 
fringed and  who  is  equitably  entitled  to  complain,  may  institute 
the  proceedings.  Accordingly  a  transferee  of  one  of  the  share- 
holders who  participated  in  the  fraud  will  not  be  heard  to  im- 
peach the  result  of  that  fraud.*  And  in  general  the  plaintiff,  a 
relator  seeking  to  set  aside  a  corporate  election,  is  barred  of  relief 
if  he  himself  was  guilty  of  misconduct  or  neglect,  or  if  it  appears 
that  he  has  subsequently  acquiesced  with  knowledge  of  the  facts.' 
It  is  a  principle  of  law  also  that  the  legality  of  an  election  will 
not  be  inquired  into  upon  the  ground  that  illegal  votes  were  cast, 
unless  those  votes  were  challenged  at  the  election  at  the  time 
when  they  were  cast.^  Neither  can  an  election  be  successfully 
contested  if  ]t  be  shown  that  after  throwing  out  the  invalid  votes 
the  officers  declared  elected  would  still  have  a  valid  majority  o/ 
the  votes  cast  according  to  the  return.'     But  if  it  appear  that 


^  statutes  of  California,  1876,  §  5315  ; 
Brewster  v.  Hartley,  37  Cal.  15  (1869). 
Cf.  Wri'jfht  V.  Central  California  Colony 
Water  C  >.,  Sup.  Ct.  Cal.,  1885,  13  Am. 
<fc  Eng.  Corp.  Cas.  89. 

'■'  1  llev.  Stat.  chap.  XVIII,  title  IV, 
§  5  (page  603);  title  11,  art.  .second, 
§g  47-50  (pajre  598);  The  Schoharie  Val- 
ley K.  U.  Case,  12  Abb.  Prac.  {N.  S.)  394 
(1872). 

'  People  V.  Albany,  <fec.,  R.  R.  Co.,  55 
Barb.  344  (1860). 

*  Matter  of  the  Application  of  the  Syra- 
cuse, &c.  R.  R.  Co.,  91  N.  Y.  1  (1883). 

5  Wiltz  V.  Peters,  4  La.  Ann.  339 
(1849). 

"  In  the  Matter  of  the  Chenango,  <fec. 
Ins.  Co.,  19  Wend.  636  (1839),  wherein 
the  court  said  :  "It  is  quite  clear,  gener- 
ally speaking,  tliat  an  ille;;al  vote,  not 
challenged,  will  not  invalidate  an  elec- 
tion, nor  will  even  be  inquired  into."  Cf. 
The  Schoharie  Valley  R.  li.  Case,  12  Abb. 
Prac.  (N.  S.)  394  (1872). 


^  People  V.  Tuthill,  31  N.  Y.  550 
(1864);  Sx  parte  Murphy,  7  Cowen,  153 
(1827);  In  the  Matter  of  the  Ciienango, 
(fee.  Ins.  Co.,  19  Wend.  635  (1839);  State 
V.  Lehre,  7  Rich.  (Law),  235,  325  (1864); 
McNeely  v.  Woodruff,  13  N.  J.  Law,  352 
(1833);  First  Parish  in  Sudbury  i;. 
Stearns,  21  Pick.  148(1838);  Trusti-eaof 
the  School  District  v.  Gibbs,  2  Cush.  39 
(1848);  Wardens  of  Christ  Church  v. 
Pope,  8  Gray,  140  (1857).  Where  it  ap- 
peared that  there  were  two  illegal  votes 
cast  in  a  poll  of  thirty-seven,  the  candi- 
dates declared  elected  having  received 
twenty-one  votes,  imdiidin  ;•  tin;  two  ii'reg- 
ular  ones,  *he  court  held  that  the  election 
must  stand,  saying:  "  Rejecting,  there- 
fore, the  two  votes  which  were  held  to 
have  been  improperly  received  by  the 
general  term,  the  incumbetits  have  still  a 
majority  of  j)resiiin|>tively  legal  votes. 
The  (dection  is  not  to  be  set  aside  iind  de- 
clared void  merely  becMuso  two  votes 
were  received  from  persons  not  entitled 

631 


§§  617,  618.]  CORPORATE    ELECTIONS.  [CH.  XXXVII. 

the  person  declared  elected  did  not  have  a  clear  majority  of  all 
the  leo-al  votes  cast  he  vrill  be  ousted.^  The  courts  are  not  agreed 
upon  the  question  whether  a  person  under  such  circumstances, 
who  received  only  a  minority  of  all  the  votes  actually  cast,  but  a 
majority  of  the  votes  which  were  lawfully  cast,  may  be  declared 
elected.  In  some  cases  it  is  held  that  a  candidate  ^^ho  receives  a 
majority  of  lawful  votes  is  elected,  without  reference  to  the  num- 
ber of  illegal  votes  cast  against  him.'^  But  in  others  it  is  said  that 
the  court  will  merely  order  a  new  election.^ 

§  617.  Injunctions  against  elections. — An  injunction  will  in 
certain  cases  as  has  been  shown  *  be  granted  to  prevent  a  vote 
upon  particular  shares  of  stock,  but  an  injunction  forbidding  the 
holdino-  of  any  election  whatever  is  an  interference  with  the  man- 
ao-ement  of  corporate  affairs  to  which  the  courts  will  decline  to 
be  a  party,  and  such  an  injunction  would  if  granted  be  void.^ 

§  618.  Combinations  and  contracts  as  to  elections. — Stock- 
iiolders  owning  a  majority  of  the  stock  have  a  right  to  combine 
:and  secure  the  election  of  the  board  of  directors,^  provided  it  be 
done  without  fraud  in  forming  the  combination,''  and  a  contract 
to  sell  one's  stock  in  a  corporation,  and  to  resign  a  directorship 
and  the  presidency,  and  having  done  so  to  endeavRr  to  induce 
other  directors  to  resign,  in  order  that  the  purchasers  of  the  stock 
may  come  in  and  take  their  places  and  so  obtain  influence  in  the 
management  of  the  concerns  of  the  company,  where  there  was 
no  evidence  of  fraud,  has  been  held  a  contract  not  void  as  against 
public  policy.®     But  a  contract  made  by  a  stockholder  for  a  con- 

tto  vote   if  there   was  still  a  majority  of  '  People  v.  Albany,  <5:c.  R.  R.  Co.,  55 

Wal  votes  for  the  ticket  declared  to  be  Barb.  344  (1869).     Cf.  New  England  Mu- 

■alected."    People  v.  Tuthill.  supra,  p.  563.  tual,  &c.  Ins.  Co.  v.  Phillips  (Mass.  1886), 

'  People  V.  Devin,  11  111.  84  (1855).  13  Am.  &  Encr.  Corp.  Cas.  104,  where  it  is 

*  State  V.  Swearingen,  12  Ga.  23  held  that  a  bill  in  equity  for  an  injunction 
•(1852);  In  the  Matter  of  Election  of  St.  cannot  be  maintained  for  the  purpose  of 
Lawrence  Steamboat  Company,  44  N.  J.  determining  the  question  of  the  contested 
Law,   629  (1882);    Mousseaux  v.    Urqu-  election  of  the  directors  of  a  railway  com- 

Tiart,'   19  La.  Ann.  482   (!«'''');  ^^  P^^^^  P^^J-                                                      ^^  ^ 

Desdoity   1  Wend  98  (1828).     See  In  the  ''  Havemever  v.  Havemeyer,  43  X  Y. 

Matter  of  the  Lon-^  Island  R.  R.  Co.,  19  Super.  Ct.  506,  513  (18*78);  s.  c.  affirmed, 

"Wend    37(1837)      (7/.  Downing  i).  Potts,  86    N.  Y.    618(1881);   Barnes  r.  Brown, 

23  N   J.  Law,  66  (1851).  80  N.    Y.    527,    537    (1880);     Faulds  v. 

3  State  V.    McDaniel,  22  Ohio  St.  354  Yates,  57  HI.  416  (1870). 

<1872)-  People  v.   Phillips,  1  Denio,  388  '  People  v.  Albany,  (fee.  R.  R.  Co.,  55 

rfl845)  •  In  the  Matter  of  the  Long  Island  Barb.    344    (1869).     See   Fisher  v.  Bush, 

k  R.  Co.,  19  Wend.  37  (1837).  35  Hun,  641  (1885). 

*  8  614,  SMPra.  *  Barnes    v.    Brown,    80   N.    i.    527 

632 


CH.  xxxvir.] 


CORPORATE   ELECTIONS. 


[§  618. 


sideration,  to  vote  for  a  particular  person  for  manager  of  the  com- 
pany and,  in  the  event  of  liis  election,  to  vote  for  an  increase  of 
the  salary  attaching  to  that  position,  is  illegal  and  cannot  be  en- 
forced,^ The  right  to  vote  upon  stock  cannot,  however,  be  de- 
nied or  abridged  because  of  alleged  wrongful  motives  influencing 
the  holder  in  buying  and  holding  the  stock.^  And  a  compact 
whereby  the  holders  of  a  majority  of  the  stock  in  a  railway  corpo- 
ration, in  exchange  for  transferable  trust  certificates,  transfer 
their  shares  to  a  board  of  trustees,  who  take  the  legal  title  to  the 
stock,  receive  the  dividends  and  account  to  the  equitable  owners, 
and  vote  upon  the  stock  at  corporate  meetings,  the  object  of  the 
arrangement  being  to  prevent  other  parties  from  gaining  a  con- 
trolling interest  in  the  company,  and  to  secure  the  property  from 
an  anticipated  lease  to  another  corporation,  is  not  illegal  nor  con- 
trary to  public  policy.^ 


(1880).  In  this  case  the  president  of  a 
company  who  owned  a  controllin:^  inter- 
est in  the  stock,  entered  into  a  formal 
contract  with  two  persons  who  desired  to 
become  stockholders,  to  sell  to  them  all 
his  stock,  to  resign  the  presidency  and  a 
directorship,  and  to  use  his  influence  to 
get  other  directors  to  resign,  to  the  end 
that  his  two  vendees  might  come  in  and 
assume  the  control  of  the  corporate  af 
fairs.  Of  this  contract  the  court  say: 
"  There  was  nothing  in  the  written  con- 
tract between  the  parties  which  required 
the  plaintiff  to  transfer  the  control  and 
management  of  the  corporation  to  Brown 
and  Seligman  ;  but  I  will  assume  that  it 
was  the  understanding  and  a  part  of  the 
scheme  that  he  should  do  so.  Brown  and 
Seligman  were  attempting  to  procure  the 
control  of  the  corporation  and  of  its  fran- 
chises for  a  legitimate  purpose.  There  is 
no  reason  to  suppose  that  they  meant  to 
perpetrate  any  fraud  on  the  stockholders. 
They  were  dealing  with  a  person  who 
held  a  majoritj'  of  the  stock  and  who  in 
virtue  thereof  had  the  right  and  the  pow- 
er to  control  the  corporation.  .  .  He 
had  the  right  to  sell  out  all  his  stock  and 
interest  in  the  corporation,  and  in  doing 
80  he  perpetrated  no  wrong  upon  any  one. 
It  is  the  general  rule  .  .  that 
those  who  have  the  largest  interest  in  cor- 
porations may  control  them.  .  .  When 
Brown  and  Beliirman  succeeded  to  the  in- 
terest of  the  plaintiff,  holding  a  majority 
of  the  stock  ...  it  was  proper  that 
they   should  have  the   control.  It 


[the  contract]  was  simply  the  mode  of 
transferring  the  control  of  the  corporation 
to  those  who  by  the  policy  of  the  law 
ought  to  have  it,  and  I  am  unable  to  see 
how  any  policy  of  the  law  was  violated 
or  in  what  way,  upon  the  evidence,  any 
wrong  was  thereby  done  to  any  one." 
See,  however,  contra,  Fremont  v.  Stone, 
42  Barb.  169  (1864).  But  the  directors 
have  no  power  to  contract  with  an  out- 
sider that  he  shall  for  a  consideration  be 
made  a  director  in  the  company.  Sey- 
mour V.  Detroit  Copper,  <fec.  Mills,  56 
Mich.  117  (1885). 

'  Woodruff  V.  Went  worth,  133  Mas.s. 
309  (1882). 

*  Thus  votes  cannot  be  rejected  be- 
cause it  appears  that  the  stockholder  of- 
fering them  bought  his  stock  for  the  pur- 
pose of  obtaining  control  of  the  corpora- 
tion. Pender  v.  Lushington,  L.  R.  6 
Chan.  Div.  70  (1877).  the  corporation 
cannot  refuse  to  register  transfers  made 
merely  to  increase  the  voting  capacity  of 
the  stock.  In  re  Stranton  Iron  A  Steel 
Co.,  L.  R.  16  Eq.  559  (1873).  See  also 
People  V.  Kip,  4  Cowen,  372,  note  (1822): 
State  V.  Smith,  48  Vt.  266  (1876). 

•''  Griffith  V.  Jewett,  Cincinnati  Su- 
perior Conrt.  May,  1866,  15  Week.  Law 
Bui.  419.  Speaking  of  tliis  trust  agree- 
ment, tlie  court,  in  an  exccedini^ly  able 
and  luminous  opinion,  say:  "  The  agree- 
ment may  be  finally  reduced  to  this: 
The  entire  beneficial  interust  in  the  stock 
is  severally  vested  in  the  certificate-hold- 
ers, the  voting  power  in  the  trustees,  and 

633 


§§  019,  620.] 


CORPORATE   ELECTIONS. 


[CH.  XXXVIT. 


§  019.  Failure  to  elect  officers. — A  failure  to  elect  officers  at 
the  stated  time  does  not  work  a  dissolution  of  the  corporation. 
The  old  directors  continue  in  office  until  their  successors  are  duly 
elected.^  And  even  when  the  failure  to  elect  has  extended  over 
a  period  of  several  years  and  there  are  by  reason  thereof  no  di- 
rectors in  office,  the  old  directors  having  wholly  abandoned  their 
trust,  the  stockholders  may  at  any  time  in  a  lawful  manner  pro- 
ceed to  the  election  of  a  new  board  of  directors.^  But  if  the  ma- 
jority fail  or  refuse  to  hold  an  election  and  the  corporate  property 
is  thereby  endangered,  a  court  of  equity  may  appoint  a  receiver 
to  take  charge  of  it,^  and  will,  in  a  proper  case,  authorize  a  wind- 
ing up.* 

§  620.  Wlw  may  l)e  a  director  or  corporate  officer. — In  gen- 
eral any  one  who  may  be  an  agent  may  be  elected  a  director  of  a 
private  corporation,  and  at  common  law  it  is  not  necessary  that  a 
director  be  a  stockholder,^  nor  even  a  citizen  of  the  State  by  which 


the  situation   does  not   differ  materially 
from  what  it  would  be  if  the  stockholders 
retaining  their  shares  had  simply  united 
in   a  proxy  authorizing  the    trustees   to 
cast  the  vote  of  all  of  them  for  directors. 
We    can    perceive    no    reason    why  any 
number  of  shareholders,  either  by  means 
of  a  proxy  or  by  vesting  the  legal  title  in 
another,  may  not  authorize    him  to  vote 
upon  their  stock,  and  as  such  is  the  sub- 
stance  of  this  agreement  we  consider  it 
not  illegal.    So  long  as  the  parties  to  it,  or 
their  successors  in  interest,  are  satisfied 
•with  it,  no  other  person  may  coniphiin." 
In    this   case  it  was,  however,  held  that 
this  compact  was  not  irrevocable  though 
expressly  declared  to  be  so,  and  that  at 
any  time  any  shareholder  who  wished  to 
do  so   might  withdraw  his  stock  and  de- 
mand an  ordinary  certificate.     In   New 
York,  where  certain  stockholders  "  for  mu- 
tual pretection  and  to  prevent  the  sales  of 
the  company's  franchise  by  a  majority  of 
the  present  board  of  directors,  who  are 
and    who    represent  a   minority    of    the 
shares  of  the  capital  stock,"  entered  into 
a  sealed  agreement  not  to  sell  their  stock 
nor  to  vote  by  proxy  without  the  unani- 
mous consent  of  all  the  parties  to  the  con- 
tract, it  was  held  that  the  agreement  was 
void,  as  in  restraint  of  trade  and  against 
pubhc   policy,  and  because  an  agreement 
not  to  vote  by  proxy  was  a  pernicious 

034 


and  unlawful  provision.     Fisher  v.  Bush, 
35  Hun,  641(1885). 

'  State  V.  Bonnell,  35  Ohio  St.  10,  17 
(IS'ZS);  Smith  v.  Silver  Valley  Mining 
Co.,  64  Md.  85  (1885).  See  New  York 
Laws  of  1848,  chap.  40,  §  4. 

2  People  V.  Twaddell,  18  Hun,  427 
(1879).  In  Reillv  v.  Oglebay,  25  West 
Va.  36,  43  (1884),  it  is  held  that  where 
there  is  no  board  of  directors  the  share- 
holders themselves  may  lawfully  assume 
and  perform,  pending  a  regular  election, 
the  duties  which  ordinarily  belong  to  a 
board  of  diiectors.  See  here  in  Smith  v. 
Silver  Valley  Mining  Co.,  64  Md.  85 
(1885) ;  8.  c.  10  Am.  &  Eng.  Corp.  Cas.  1. 

^  Lawrence  v.  Greenwich  Fire  Ins. 
Co.,  1  Paige.  587  (1829). 

■*  Brown  v.  Union  Ins.  Co.,  3  La.  Ann. 
177,  182  (1848);  Curry  ji.Woodwi.rd,  53 
Ala.  375  (1875);  Knbwiton  «.  Ackley,  8 
Cush.  93(1851).  See  Bruce  v.  Piatt,  80 
N.  Y.  379(1880). 

5  State  V.  McDaniel,  22  Ohio  St.  354, 
367(1872);  Wii-ht  v.  Springfield,  etc.  R. 
R.  Co.,  117  Mass.  226  (1876);  In  the 
Matter  of  Election  of  St.  Lawrence  Steam- 
boat Co.,  44  N.  J.  Law,  529  (1882)  ;  Fx 
parte  Stock,  33  L.  J.  Chan.  731  (1864).  Of. 
Dispatch  Line  of  Packets  v.  Bellamy 
Manfg.  Co.  12  N.  H.  205  (1841);  Bar- 
tholomew V.  Bentlev,  1  Ohio  St.  37 
(1852). 


CH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  620. 


the  corporation  is  created.^  But  in  modern  corporations  having 
a  capital  stock  it  is  now  almost  universally  the  rule  that  directors 
can  be  chosen  only  from  the  stockholders ;  that  to  be  eligible  to 
that  ofBce  a  stockholder  must  own  a  specified  amount  of  stock ; 
and  that  a  majority  at  least  of  the  board  of  directors  must  be 
citizens  of  the  State  or  country  in  which  the  corporation  exists.^ 
The  qualification  of  directors  in  respect  of  residence  or  citizenship 
and  the  ownership  of  stock  is  usually  determined,  in  the  absence 
of  statutory  regulation,  by  a  charter  provision.  If  not,  the  corpo- 
ration may  prescribe  it  by  a  by-law  or  special  resolution.^  A 
married  woman  may,  in  New  York,  be  a  director  in  an  incorporated 
company  ;^  so  also  may  one  who  holds  stock  transferred  to  him  in 
trust  for  the  express  purpose  of  qualifying  him  for  the  position  ;'^ 
and  where  a  person  has  the  right  to  vote  on  stock  as  a  stockholder, 
even  though  that  right  rest  only  upon  a  power  of  attorney,  he  is 
eligible  to  any  corporate  office  to  which  any  stockholder  is  eligi- 
ble, and  accordingly  may  be  elected  a  director/  The  election  of 
one  not  a  shareholder  or  a  director  in  a  corporation  in  which  it  is 
required  that  the  directors  be  owners  of  a  certain  amount  of  stock 
is  valid,  and  such  a  person,  upon  acceptance  of  the  directorship, 
is  bound  to   take  and   pay  for  the  required  number  of   shares.' 


'  Kerchner  v.  Gettys,  18  S.  C.  521 
(1882). 

^  The  provision  of  the  New  York 
Manufacturing  Companies  Act,  upon  this 
point,  has  been  widely  copied  in  the  acts 
of  many  other  States.  It  is  there  enacted, 
that "  The  stock,  property,  and  concerns  of 
snch  company  shall  be  managed  by  not 
less  than  three  or  more  than  thirteen 
trustees,  who  shall  respectivelj'  be  stock- 
holders in  such  company  and  citizens  of 
the  United  States,  and  a  majority  of 
•whom  shall  be  citizens  and  residents  of 
this  State,  who  shall,  except  the  firEt 
year,  be  annually  elected  by  the  stock- 
holders," &c.  New  York  Laws  of  1848, 
chap.  40,  8  3.  In  FentiBylvaniii  it  is 
enacted,  that  the  president  Jind  a  miijority 
of  the  Vjoard  of  directors  of  every  railroad 
corporation  crciited  by  the  laws  of  that 
State,  must  be  and  remain  r(;sident  within 
the  State  duiitif(  the  time  they  hold  tlicir 
office.  Brightlv's  I'urdon's  Digest,  122'J, 
§  86,  n-'.Z.  §  \m. 

3  People  V.  Northern  R.  R.  Co.,  42  N.  Y. 
217  (1870);  Cammayer?!.  United  Church, 
2  Sandf.  Chan.  186  (1844).  But  where 
the  articles  of  asscciation  do  not  require 


that  a  director  be  a  shareowner,  but  the 
directors  themselves  pass  a  resolution, 
which  is  never  confirmed  by  the  share- 
holders, that  the  qualification  in  future 
shall  be  the  ownership  of  250  shares  of 
£1  value  each,  it  was  held  that  such  reso- 
lution could  not  alter  the  constitution  of 
the  company,  or  render  one  who  became 
a  director  subsequently  liable  for  that 
amount  of  stock  on  the  winding  up.  In 
re  Hritisli  Provident  Life,  itc.  Associa- 
tion, L.  R.  5  Chan.  Div.  oOf.  (1870).  Cf. 
Lord  Claud  Hamilton's  Ciise,  L.  R.  8 
Chan.  548  (1873). 

••  People  V.  Webster,  10  Wend.  554 
(1833). 

'  V>mU]  V.  Monroe.  18  ITun.  310  (1879). 
Conlrn,  Burtlioleiiiew   v.  Bentley,  1   Ohio 
St.  37  (1852). 
,    "  State  V.  Ferris,  42  Conn.  500(lK7r>). 

'  Jn  re  The  Great  Oceanic  Telegrtiph 
Co.,  41  L.  J.  Chan.  283  (1872)  ;  Pearson's 
Case,  L.  R.  5  Chan.  Div.  336  (1877); 
Hay's  Case,  L.  R.  10  Chan.  593,  (Oi 
(1H75).  Cf.  I'e  Itiiviirnc's  Case,  L.  R.  6 
Clian.  Div.  3(10.322(1877);  7n  re  Kngle- 
fiehl  Colliery  Co.,  L.  R.  8  Chan.  Div.  388 
(1877);  hire  Empire  Assurance  Co.,  L. 

635 


§  621.]  CORPORATE   ELECTIONS.  [CH.  XXXVII. 

Where  the  qualification  of  one  to  act  as  director  of  a  company  con- 
sists in  his  being  the  proprietor  of  a  certain  number  of  shares,  the 
qualification  will  not  be  lost  by  a  pledge  of  the  shares.^  But  an 
absolute  sale  of  the  sto'ck  at  any  time  prior  to  the  termination  of 
the  directorship  immediately  disqualifies  the  director  who  sells, 
and  he  can  no  longer  act.^  Where  one  accepts  the  office  of  director 
without  owning  the  required  number  of  shares  of  stock,  and  is  in 
consequence  under  obligation  to  qualify  himself  by  taking  stock, 
he  is  not  obliged  to  take  the  stock  from  the  company,  but  may 
purchase  or  procure  the  shares  as  he  is  able,  in  the  open  market, 
or  at  private  sale.^  The  election  of  an  unqualified  person  to  a 
corporate  office  is  merely  voidable,  and  not  void.* 

B.— Other  Corporate  Functions  Belonging  to  the 
Stockholders  as  Distinguished  from  the  Duties 
OF  Directors. 

§  621.  The  general  method  of  transacting  business. — It  is 
a  general  rule  that  in  the  transaction  of  the  ordinary  business  of 
a  corporation,  no  particular  formalities  are  necessarily  to  be  ob- 
served. The  proceedings  must  be  conducted  in  an  orderly  man- 
ner, in  accordance  with  the  general  usage,  and  where  the  charter 
or  by-laws  prescribe  a  particular  manner  of  conducting  the  busi- 
ness, in  the  manner  so  prescribed.^  Mere  irregularities  in  the 
manner  of  conducting  the  business  are  immaterial  if  the  sense  of 
the  meeting  has  been  fairly  expressed.^     And   such   irregularities 


R.  6  Chan.  469  (ISYl);  McKay's  Case,  2  (1875).  Co/i/ra,  Hayward's  Case,  L.  R. 
Chan.  Div.  1  (1875).  Contra,  Marquis  of  13  Eq.  30  (1871);  also  Fowler's  Case,  L. 
Abercorn's  Case,  4  De  C,  F.  &  J.  78  R.  14  Eq.  316  (1872);  and  rf.  Hnmley's 
(1862).  Where  the  articles  of  association  Case,  L.  R.  5  Chan.  Div.  705  (1877);  Bar- 
require  that  the  directors  own  25  shares,  ber's  Case,  Id.  963(1877);  Forbes' Case, 
as  a  qualification  for  their  office,  one  who  L.  R.  8  Clian.  768(1873);  Chapman's  Case, 
is  elected  and  acts  as  director  without  L.  R.  2  Eq.  567  (1866) ;  Maitland's  Case,  3 
taking  any  shares,  is  liable  on  the  winding  Giff.  28  (1861 ). 

up  for  the  qualification  number  of  shares.  ■*  People  v.  Albany.  <fec.  R.  R.  Co.,  55 

Stephenson's    Case,    45    L.  J.    Chan.  488  Barb.  344  (1869).     (7/.  Craw  i;.  Easterly, 

(1876).  Cf.  7n  re  British  and  American  Tel-  54  N.  Y.  679  (1873) ;  Easterly  v.  Barber, 

€graph  Co.,  L.  R.  14  Eq.  316  (1872).  65  Id.  252  (1875). 

1  Cumming    v.    Prescott,     2    Y.  <fe  C.  ^  Johnston  v.  Jones,  23  N.  J.  Eq.  21G 

Exch.  488  (1837).  (1872);   People  v.  Albany,  Ac.  R.  R.  Co., 

'Craw   V.    Easterly,    54    N.  Y.    679  55  Barb.  344  (1869)  ;  State  of  Nevada  i;. 

(1873);    Easterly  v.  Barber,   65  Id.    262  Pettineli,  10  Nev.  141  (1875);  Common- 

(1875).  wealth  v.    Woelper,    3   Serg.    <fe   R.    29 

3  Brown's    Case,    L.  R.   9  Chan.    102  (1817). 

(1873) ;  Karuth's  Case,  L.  R.  20  Eq.  506  "  Philips  v.  Wickham,    1   Paige,   590 

636 


CH.  XXXVII.]  CORPORATE  ELECTIONS.  [§  622. 

or  informalities,  if  they  exist,  are  waived  by  tlie  acquiescence  of 
those  members  who  have  a  right  to  complain.  Accordingly, 
presence  at  the  meeting  and  participation  in  the  proceedings  will 
be  held  to  waive  the  irregularity.  So  also  equally  will  a  failure 
upon  the  part  of  those  members  not  present  to  protest  promptly, 
"upon  learning  of  the  informality,  be  a  waiver.-'  In  the  absence 
of  proof  to  the  contrary,  the  presumption  of  law  is  that  a  corpo- 
rate meeting  was  duly  called  and  convened,  and  that  the  proceed- 
ings were  lawful  and  regular.^  When  the  irregularity  or  infor- 
mality affects  a  substantial  right  of  the  stockholder,  or  amounts 
to  fraud,  he  may  have  his  action  to  set  aside  what  has  been  done 
to  his  prejudice.^ 

§  622.  Stockliolders  can  act  only  at   corporate  meetings. — 

Stockholders  can  lawfully  act  in  their  corporate  capacity  only  at 
a  corporate  meeting,  duly  called  and  convened.  They  cannot 
bind  either  themselves  or  the  corporation  in  any  other  way  than 
by  a  vote  at  such  a  meeting.  Consequently,  all  votes  taken  else- 
where than  at  such  a  meeting,  and  all  separate  consents,  either 
oral  or  in  writing,  whereby  the  stockholders  assume  to  bind  them- 
selves or  the  company,  are  invalid  and  void.* 


(1829);  Downing  v.  Potts,  23  N.  J.  Law,  111.  406  (1858);  The  King  v.  Trevenen,  2 
66(1851);  People  «.  Albany,  <fec.  R.  R.  Barn.  &  Aid.  339  (1819);  Musgrave  v. 
Co.,  55  Barb.  344  (1869);  Matter  of  Nevinson,  2  Lord  Raymond,  1358  (1737). 
Wheeler,  2  Abb.  Pr.  (N.  S.)  361  (1866);  «  Blanchard  v.  Dow,  32  Me.  557 
Gorham  w.  Campbell,  2  Gal.  135  (1852);  (1851);  Ashtabula,  &c.  R.  R.  Co.  v. 
Hughes?;.  I'arker,  20  N.  H.  58  (1849);  Smith,  15  Ohio  St.  328  (1864). 
Hardenburgli  v.  Farmers,  <fec.  Bank,  3  "  See  part  IV,  iiifra.  Cf.  MacDou- 
N.  J.  Eq.  68  (1834);  People  v.  Peck,  11  gall  z;.  Gardiner,  L.  R.  1  Chan.  Div.  13 
Wend.  604  (1834).  in  this  case  the  ir-  (1875),  where  the  extreme  ground  is 
regulariiy  complained  of  was  want  of  due  taken  that  a  stockholder  cannot  go  into 
notice,  but  inasmuch  as  the  meeting  was  the  courts  and  complain  of  irregularity 
generally  attended,  and  the  time  of  the  in  the  proceedings  of  a  corporate  meet- 
meeting  thoroughly  understood,  and  no  ing,  even  thouoh  it  materially  affects  his 
one  complained  at  the  time  of  want  of  rights  upon  the  theory,  as  it  "seems,  that 
notice,  the  court  held  the  proceedings  a  court  of  equity  will  not  interfere  in  the 
valid,  saying  :  "The  object  of  the  no-  mere  contests  or  disngreemenls  of  the 
tice  is  that  the  voters  may  be  fully  ap-  members  of  a  private  corporation, 
prised  of  the  election,  and  may  attend  *  Commtjnwealtli  v.  Cuilen,  13  Penn. 
and  exercise  their  rights.  There  is  no  St.  133  (1850) ;  Finley  Shoe,  <fec.  Co.  v. 
pretence  in  this  case  that  every  voter  was  Kurtz,  34  Mich.  89  (1876);  Peirce  v. 
not  present,  for  they  appear  to  have  come  New  Orleans  Builiiiug  Co.,  9  La.  397,  404 
from  a  distance  ;  the  time  w;is  well  under-  (1836),  where  the  court  says:  "We 
stood,  and  had  been  the  .same  for  many  know  of  only  two  ways  in  which  such  a 
years.  No  evil  resulted  from  the  omis-  corporation  as  the  one  now  under  con- 
sion  if  there  was  any;  no  fraud  was  im-  sideration  can  act,  to  wit  ;  either  through 
puted,  and  all  parties  attended,  and  there-  its  president  and  directors,  or  at  a  meet- 
by  admitted  notice."  ing  of  the  stockholders  duly  convoked. 
'  Slate  V.  Lehre,  7  Rich.  Law,  234,  The  act  by  whicii  the  defendanls  were 
326(1854);  Prettyman  v.  Supervisors,  19  incorporated  does  little  more  than  give 

687 


§  623.] 


CORPORATE  ELECTIONS. 


[CH.  XXXVI. 


§  623.  Stocliholders  may  make  hy-laws. — One  of  the  most  im- 
portant fnnctions  which  shareholders  perform  in  their  corporate 
capacity,  is  the  enactment  of  by-laws  to  regulate  the  corjDoration 
and  the  order  of  corporate  meetings.^  The  power  to  make  by-laws 
is  a  general  power,  subject  only  to  the  qualification  that  the  by-laws 
must  be  reasonable,  must  not  abridge  the  substantial  rights  of  the 
stockholders,  or  be  against  public  policy  or  the  law  of  the  land.^ 


the  corporation  a  name,  and  a  legal  ca- 
pacity. It  provides  for  the  appointment 
of  directors,  but  is  silent  as  to  the  man- 
ner in  which  the  corporators  are  to  be 
convoked,  and  how  they  are  to  vote, 
whether  per  capita  or  according  to  the 
amount  of  shares  held  by  each.  In  these 
respects  their  proceedings,  and  the  valid- 
ity of  their  acts,  must  be  judged  of  ac- 
cording to  the  principles  of  law  applica- 
ble to  corporations  in  general.  If  the 
two  minority  meetings  be  laid  out  of  view 
as  void,  the  whole  rests  upon  the  assent 
as  expressed  by  a  majority  of  the  stock- 
holders, not  in  a  meeting  of  stockholders, 
but  by  each  one  separately  and  at  differ- 
ent limes,  and  evidenced,  not  by  the 
minutes  of  their  corporate  proceedings, 
but  by  a  separate  paper  in  the  possession 
of  a  committee.  We  cannot  see  in  this 
any  legal  evidence  of  the  consent  of  the 
corporation,  either  according  to  its  char- 
ter or  the  general  principles  of  law." 
Of.  Graham  v.  Boston,  Hartford  &  Erie 
R.  R.  Co.,  118  U.  S.  161  (1886);  Granger 
V.  Grubb,  7  Phila.  350  (1870). 

>  People?^.  Crossley,  69  111.  195  (1873); 
Kearney  v.  Andrews,  10  N.  J.  Eq.  70 
(1854);  People  v.  Kip,  4  Cowen,  382,  note 
(1822);  Carroll  v.  MuUanphy  Savings 
Bank,  8  Mo.  App.  249,  253  (1880);  Com- 
monwealth V.  Woelper,  3  Serg.  &  R.  29 
{1817)  ;  Juker  v.  Commonwealth,  20 
Penn.  St.  484  (1853)  ;  Newling  c.  Francis, 
S  Term  Rep.  189  (1789).  Cf.  Samuel  v. 
Holladay,  1  Woolw.  400  (1869). 

-  Taylor  v.  Griswold,  14  N.  J.  Law, 
222  (1834);  Brewster  v.  Hartley,  37  Cal. 
15,24(1869);  Commonwealth  v.  Gill,  3 
Wharton,  228  (1837);  People  v.  Phillips, 
1  Denio,  388  (1845);  Rex  v.  Head,  4 
Burr.  2515  (1770).  Cf.  Rex  v.  Spencer, 
3  Burr.  1827  (1766)  ;  Petty  v.  Tooker,  21 
N.  Y.  267  (1860),  affirming  s.  c.  sub  rtom. 
Parish  of  Bellport  v.  Tooker,  29  Barb. 
256 ;  Burrel  v.  Associate  Reformed 
Church,  44  Barb.  282;  Watkins  v.  Wil- 
cox, 4  Hun,  220  (1875);  s.  c.  affirmed,  66 
N.  Y.  654  (1876);  Graw  v.  Prussia  Emi- 
grated, &c.  Society.  36  N.  Y.  160  (1867). 

638 


In  the  Matter  of  the  Long  Island  R.  R. 
Co.,  19  Wend.  37,   41   (1837),  the  court 
say :     "  The  corporation  possess  the  pow- 
er to  make  by-laws  not  inconsistent  with 
any  existing  law,  for  the  management  of 
its  property,  the  regulation  of  its  affairs, 
and  for  the  transfer  of  stock  (2  R.  S.  602 
§  1,  sub.  6).     This  is    the  broadest   gen- 
eral power  conferred  upon  it ;  but  it  is 
not  new,  and  would  have  existed  as  inci- 
dental.    When  taken  as  incidental  it  must 
be  exercised  in  conformity  to  the  general 
law  of  the  land,  that   being  the  rule  to 
regulate  the  proceedings  of  artificial  bod- 
ies, as  well  as  the  conduct  of  natural  per- 
sons, independently  of  express  provisions 
of  the  charters  of  those  companies  to  the 
contrary.     This  general  law  has  ascer- 
tained the  rights  of  person  and  of  prop- 
erty of  the  citiz?n,  and  established  modes 
of  proceeding  in  case  of  a  violation  of 
them  ;  and  corporate  bodies    must  con- 
form to  tiiem,  in  seeking  redress,  the  same 
as  individuals.     The  former  can  no  more 
take  the  remedy  into  their  own  hands 
than  can  the   latter.     So  strict  has  this 
salutary    principle    of    subjection    been 
held  in  England,  that  even   a   by-law  in 
pursuance  of  an  express  power  in  a  char- 
ter granted  by  the  King,  is  void,  if  con- 
trary to  the  common  law  or  Act  of  Parlia- 
ment.    (1  Kyd  on  Corp.  109;  Wilcox  on 
Corp.  95;  Angell  &  Ames,  196;  8  Co.  125  a, 
127  b;    2  Inst.  47;    IT.  R.  118).     Thus, 
a  by-law  imposing  a  forfeiture  of  goods 
is  void,  thongh  the  letters  patent  author- 
ized it;  and  a  power  granted  to  a  corpo- 
ration  of  dyers  to  search,  and   if  they 
found  cloth  dyed  with  logwood,  to  seize 
it  as  forfeited,  was  adjudged  void  as  con- 
trary to   magna   charta.     On   the    same 
principle,  by-laws  in  restraint    of  trade 
are  adjudged  void.     (11  Co.  53;    1  Burr. 
12;  4  Id.  1951  ;  7  Dowd   <fe   Ryl,  601  ;  1 
Bacon's  Abr.  547  ;  Angell  <fe  Ames,  184  ; 
Willock,  142).     So  a  by-law  that  may  be 
lawful  cannot  be  enforced  by  an  extraor- 
dinary penalty,  such  as  imprisonment  or 
forfeiture  of  goods,  or  by  distress    and 
sale  of  goods,  for,  by  the  general  law  of 


OH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  624. 


When  illegal  by-laws  which  materially  affect  the  rights  of  any 
shareholder,  are  enacted,  the  shareholder  is  not  without  a  remedy. 
He  may,  in  a  proper  case,  and  in  a  prescribed  manner,  assert  his 
right  in  the  courts. 

§  624.  The  quorum. — The  right  of  the  majority  to  rule  in 
the  management  of  the  affairs  of  a  private  corporation,  is  fully 
established.^  They  may  control  the  company's  business,  prescribe 
its  general  policy,  make  themselves  its  agents,  and  take  reason- 
able compensation  for  their  services.^  The  minority  have  a  right 
to  be  heard,  and  it  is  the  duty  of  the  majority  to  give  a  due  con- 
sideration to  their  arguments  and  wishes  concerning  the  manage- 
ment of  the  corporate  business.^  It  is  generally  necessary,  in 
order  to  the  valid  transaction  of  the  corporate  business,  that  a 
quorum  of  the  stockholders  be  present,  in  person  or  by  proxy,  at 
the  meeting,  and,  in  the  absence  of  evidence  to  the  contrary,  it 
will  be  presumed,  when  the  validity  of  the  acts  of  a  corporate 
meeting  is  the  issue,  that  a  quorum  was  present.^  One  person 
cannot  constitute  a  quorum.  It  takes  at  least  two  members  to 
make  a  corporate  meeting,'^  and  where  one  person  owns  a  majority 
of  the  stock,^  or  all  of  it,''  or  all  but  two  shares,^  he  does  not  in 
consequence  thereof  acquire  the  right  to  act  for  the  corporation, 
or  as  the  corporation,  independently  of  the  directors.  But,  in  the 
absence  of  an  express  provision  to  the  contrary,  a  majority  in  in- 
terest of  the  stockholders  constitutes  a  lawful  quorum  for  the 


the  kingdom,  no  man  is  to  be  imprisoned, 
or  dispopsessed  of  his  goods  and  chattels 
nisi  per  legale  judicium  pnrium  suonim, 
vel per  legem  terrcp,;  and  if  such  penalties 
were  allowed,  corporations  would  be  en- 
abled to  set  up  private  particular  laws  in 
contradiction  to  the  laws  of  the  land, 
which  is  against  the  nature  and  essence  of 
a  by-law.  (Clark's  Case,  5  Co.  64  ;  3  Salk. 
76  ;  Willcock,  98  ;   1  Bacon's  Abr.  551.)  " 

'  City  of  Covington  v.  Covington,  Ac. 
Bridge  Co.,  10  Bush,  69,  76  (1873);  East 
Tennessee,  <fec.  R.  K.  Co.  v.  Gammon,  5 
Sneed  (Tenn.),  567  (1859);  McHride  v. 
Porter,  17  Iowa,  203  (1864);  Faulds  v. 
Yates,  57  111.  416  (1870);  Leo  v.  Union 
Pacific  R.  R.  Co.,  19  Fed.  Hep.  283(1884j; 
8.  c.  17  Id.  273(1883);  Barnes  w.  Hrown, 
80  N.  Y.  527  (1880). 

''  Meeker  v.  Winthrop  Iron  Co.,  17 
Fed.  Rep.  48  (1883);  s.  c.  sub  nom.  Win- 
thrcip  Iron  Co.  v.  Meeker,  1U9  U.  S.  180 
(1883). 


'  Natusch  V.  Irving,  2  Cooper's  Chan. 
358  (1824).  by  Lord  Eldon ;  Const  v. 
Ilarrie,  Turn.  &  R.  496  (1824).  See  also 
Blisset  V.  Daniel,  10  Hare,  493  (1853); 
Wood  V.  Woad,  L.  R.  9  Exch.  190(1874). 

••  Citizens'  Mutual,  <fec.  Ins.  Co.  t-. 
Sortwell,  8  Allen,  217  (1864). 

'  Sliarpe  v.  Dawes,  46  L.  J.  (Q.  B.) 
104  (1876).  The  rule  of  course  is  other- 
wise if  there  is  but  one  stockholder. 

*  Hopkins  ?>.  Roseclarc  Lead  Co.,  72 
111.  373  (1874).  Ho  cannot  sell  the  cor- 
porate property. 

^  Button  ?'.  Hoffman,  61  Wis.  20 
(1884),  where  it  is  held  that  such  a  stock- 
holder is  not  the  corporation.  Contra, 
Swift  V.  Smith,  6  East,.  Rep.  574  ;  8.  o'. 
3  Cent.  Rep.  899  (Md.  1886);  34  Alb. 
Law  Jour.  257. 

"  Knglaiid  v.  Dearborn,  141  Mass.  690 
(1886).  Such  a  stockholder  cannot  mort- 
gage the  corporate  property. 

639 


§  625.] 


CORPORATE   ELECTIONS. 


[CH.  XXXVII. 


transaction  of  business,  and  a  majority  of  the  quorum,  although 
a  minority  of  the  whole  number  of  stockholders,  may  decide  any 
question,  and  bind  the  corporation  upon  any  matter  upon  which 
the  shareholders  may  lawfully  act.^  At  a  meeting  duly  convened, 
those  shareholders  who  own  a  majority  of  the  stock  have  power 
to  transact  business,  although  they  are  a  minority  of  the  whole 
number  of  shareholders.^ 

§  G25.  Stockholders,  as  such,  cannot  contract  for  the  corpo- 
ration.— A  corporation  can  act  only  through  individual  agents, 
who  are  the  corporate  officers  or  other  persons.  The  stockhold- 
ers themselves,  in  their  capacity  as  stockholders,  have,  in  meet- 
ing assembled,  no  power  to  act  as  agents  in  the  transaction  of 
corporate  business.  They  cannot,  by  a  direct  vote,  enter  into 
contracts  which  will  bind  the  corporation.  It  is  held,  under  the 
operation  of  this  rule,  that  the  corporation  cannot  authorize 
outside  parties,  or  even  stockholders,  to  make  a  specific  contract 
for  the  corporation.  The  management  of  the  corporate  affairs  is 
intrusted  to  the  directors.  They  are  the  constituted  agents  of 
the  corporation,  and  to  their  judgment  and  discretion  must  be 
left  the  control  and  direction  of  the  company's  business.^     Ac- 


1  Sargent  v.  Webster,  13  Mete.  497 
(1847);  Sx  parte  Willeocks,  7  Cowen, 
402  (1827);  People  v.  Walker,  2  Abb.  Pr. 
421  (1856) ;  s.  c.  23  Barb.  308  ;  Field  v. 
Field,  9  Wend.  394  (1832);  Madison  Ave., 
<fec.  Church  v.  Baptist  Church,  5  Robert. 
(N.  Y.  Super.  Ct.)  649  (1867) ;  Everett  v. 
Smith,  22  Minn.  53  (1875);  Gifford  v. 
New  Jersey  R.  R.  Co.,  10  N.  J.  Eq.  171 
(1854);  Dudley  v.  Kentucky  High  School, 
9  Bush,  578 ;  Durfee  v.  Old  Colony,  <fec. 
R.  R.  Co.,  5  Allen,  230,242  (1862);  New- 
Orleans,  (fee.  R.  R.  Co.  V.  Harris,  27  Miss. 
517,  537(1854);  Brown  v.  Pacific  Mail 
Steamship  Co.,  5  Blatchf,  525  (1867); 
Case  of  St.  Mary's  Church,  7  Serg.  &  R. 
517  (1822)  ;  Craig  v.  First  Presbyterian 
Church,  88  Penn.  St.  42  (1878).  Cf. 
Treadwell  v.  Salisbury  Manfg.  Co.,  7 
Gray,  393  (1856);  Stevens  v.  Rutland, 
&c.  R.  R.  Co.,29  Vt.  545(1851);  Stevens 
V.  South  Devon.  Ry.  Co.,  9  Hare,  313 
(1851). 

2  Granger  v.  Grubb,  7  Phila.  350 
(1870).  Upon  the  question  of  the  force 
and  effect  of  acts  done  by  less  than  a  quo- 
rum, see  People?).  Cook,  14  Barb.  259,  316 
(1852);  People  v.  Albany,  &c.  R.  R.  Co., 
55  Id.  344,  385  (1869);  s.  c.  7  Abb.  Prac. 
(N.  S.)266,  306;   1  Lans.  344. 

640 


^  Conro  ),'.  Port  Henry  Iron  Co.,  12 
Barb.  27  (1851);  McCuUough  v.  Moss,  5 
Denio,  667  (1846);  Railway  Co.  v.  AUer- 
ton,  18  Wall.  233  (1873);  Union  Gold 
Mining  Co.  v.  Rocky  Mountain  Nat.  Bank, 
2  Col.  565  (1875);  Methodist  Episcopal 
Church  V.  Sherman,  36  Wis.  404  (1874); 
Salem  Bank  t'.  Gloucester  Bank,  17  Mass. 
1.  29  (1820);  State  of  Louisiana  v.  Bank 
of  Louisiana,  6  La.  746(1834);  Bank  of 
Kentucky  v.  Schuylkill  Bank,  1  Parsons 
Sel.  Cas.  180,  236  (1846).  Cf.  People  v. 
Metropolitan  Ry.  Co.,  26  Hun,  82  (1881); 
Howland  v.  Myer,  2  Sandf.  Super.  Ct.  186; 
affirmed  3  N.  Y.  290  (1850).  State  of 
Nevada  v.  Curtis,  9  Nev.  325  (1874); 
Union  Mutual,  <fec.  Ins.  Co.  v.  Keyser,  32 
N.  H.  313  (1855);  Black  v.  Delaware, 
<fec.  Co.,  22  N.  J.  Eq.  130  (1871); 
Matter  of  Wheeler,  2  Abb.  Pr.  (N.  S.) 
361  (1866);  Gashwiler  v.  Willis,  33  Cal. 
11  (1867);  Twin  Lick  Oil  Co.  v.  Marbury, 
91  U.  S.  587,  689  (1875);  Park  v.  Grant 
Locomotive  Works,  40  N.  J.  Eq.  114 
(1885).  See  also  Fleckner  v.  United 
States  Bank,  8  Wheaton,  338  (1823); 
Whitwell  V.  Warner,  20  Vt.  425  (1848); 
Ridgway  v.  Farmers'  Bank,  12  Serg,  <fe 
R.  256  (1824)  In  Metropolitan  Elevated 
Ry.  Co.  V.  Manhattan  Ry.  Co.  (New  York 


CH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  625. 


cordinglj,  a  single  stockholder  cannot  make  a  contract  for  and  in 
the  name  of  the  corporation  which  shall  have  any  binding  force 
or  validity,  except  by  subsequent  ratification  or  adoption  in  the 
regular  manner.^ 

In  general  the  only  powers  vested  in  the  stockholders,  in  re- 
spect of  the  management  of  the  corporate  enterprise,  are  the  elec- 
tion of  directors,  the  increase  or  reduction  of  the  capital  stock, 
the  power  of  dissolving  the  corporation,  of  transferring  the  whole 
of  the  corporate  property,  and  a  few  others  of  minor  importance.^ 


C.  P.  April,  1884),  11  Daly,  377;  s.c.  15  Am. 
<fe  Eng.  Ry.  Cas.  1,  Van  Brunt,  J.,  saj^s: 
'■  Directors,  as  I  shall  hereafter  attempt 
to  establish,  are  the  agents  of  the  corpo- 
ration, havin<2:,  as  such,  exclusive  author- 
ity to  act  within  their  sphere.  But  they 
are  also  in  some  respects,  merely  the  ex- 
ecutive agents  of  the  stockholders,  and  as 
such  miy  perform  certain  other  acts,  if 
specially  authorized  thereto  by  their  prin- 
cipals, and  in  respect  to  such  action  they 
are  simply  the  a'j;ents  of  the  shareholders, 
as  well  as  of  the  corporation.  The  share- 
holders, the  principals,  having  fixed  the 
terras  and  conditions,  which  they  had  a 
right  to  do,  upon  which  the  directors, 
their  agents,  were  authorized  to  part  with 
the  possession  of  tiie  property  in  their 
charge,  and  to  commit  the  possession  and 
management  thereof  into  other  hands; 
what  right  have  the  agents  to  radically 
change  or  alter  these  terms  and  conditions 
without  consulting  their  principals. 
The  directors  thus  being  the  agents  of 
the  corptjration,  what  are  their  pow- 
ers, and  from  whence  are  they  de- 
rived, and  how  must  corporative  powers 
residing  in  the  corporation,  the  right  to 
exercise  which  is  not  vested  in  the  direc- 
tors, be  brought  into  operation  ?  These 
questions  are  so  intimat;  ly  connected  that 
they  must  be  disposed  of  together.  The 
powers  of  directors  are  such  as  are  con- 
ferred by  the  charter  of  their  corpora- 
tion and  the  laws  pertainin":  tliereto,  and 
such  corporative  powers  as  are  not  con- 
ferred by  law  upon  the  directors,  remain 
in  the  corporation  to  be  exercised  or  at 
least  set  in  motion  by  its  component 
parts,  the  shaiehoMers.  In  the  case  at 
bar,  the  charter  provided  that  tlie  direc- 
tors were  to  manage  the  bu.siness  and  af- 
fairs of  the  company:  and  the  question 
involved  in  this  bnincli  of  the  case  is 
whether  this  language  conferred  the  right 
to  exercise  every  corporate  power  pos- 
cessed  by  the  corporation,  or  merely  to 


manage  the  ordinary  business  and  aflFairs 
of  the  company  for  the  carrying  on  of 
which  it  was  organized,  leaving  the  right 
remaining  in  the  sliarehokiers  composing 
the  company  to  set  in  motion  or  confirm 
corporate  action  within  the  limits  of  its 
powers,  but  extraordinary  and  unusual 
in  its  nature.  Within  the  sphere  of  their 
duties,  the  right  of  the  directors  to  act, 
is  undoubtedly  exclusive,  and  further, 
all  corporate  acts  must  be  done  through 
them,  as  they  are  the  exclusive  executive 
and  administrative  authority,  but  never- 
theless all  corporate  powers  do  not  reside 
in  the  board  of  directors." 

'  Robinson  v.  Hemstreet,  21  Fla.  342 
(1885);  Morelock  v.  Westminster  Water 
Co.  (Md.  1886),  4  Atlantic  Rep.  404.  Cf. 
Leggett  V.  New  Jersej'  Manfg.  &  Banking 
Co.,  1  Saxton's  Chan.  (N.  J.)  541  (1832); 
s.  0.  23  Am.  Dec.  728  and  the  note.  See 
also  Rice  v.  Peninsular  Club,  52  Mich.  87 
(1883). 

"  Eidman  v.  Bowman,  58  111.444  (1871), 
where  the  court  says:  "That  the  direc- 
tors are  but  the  agents  or  trustees  of  the 
shareholders,  for  the  honest,  faithful,  and 
prudent  management  of  the  legitimate 
affairs  of  the  shareholders,  there  is  no 
doubt.  But  the  question  is  as  to  the  ex- 
tent of  their  powers.  Are  they  urdim- 
ited?  Are  all  of  the  powers  conferred  on 
the  company  delegated  to  them  by  their 
election  and  admission  to  their  office,  or 
are  theie  powers  which  are  still  reserved 
to  the  sharelioldei's,  and  which  cannot  be 
exercised  by  tliein  until  the  power  is  con- 
ferred by  the  shareholders?  It  would 
seem  t!iat  the  management  and  transac- 
tion of  all  business  for  which  the  com- 
pany was  created,  and  the  general  atfaira 
of  the  corporation,  devolved  upon  and 
may  clearly  be  exercised  b^'^  them  ;  and 
there  are  other  powers  that  are  as  cle;ir- 
ly  reserved  to  the  shareholders.  The 
power  to  appoint  or  elect  directors  does 
not  devolve  upon  thorn,  but  that  power  is 


[41] 


G41 


§  625.] 


CORPORATE   ELECTIONS. 


[CH.  xxxvir. 


Thus  for  example  the  directors  of  a  corporation  cannot  lease  the 
corporate  property,  or  modify  important  covenants  in  an  existing 
lease,  except  with  the  assent  of  the  stockholders.  Such  transactions 
are  for  the  stockholders  to  approve  or  disapprove  at  corporate 
meetings.^  It  is  not,  however,  within  the  power  of  the  stock- 
holders to  dictate  to  the  directors  how  to  act.  Accordingly,  where 
the  stockholders  at  a  corporate  meeting  give,  by  a  formal  vote, 
specific  directions  to  the  board  of  directors  upon  a  matter  which, 
is  within  the  proper  scope  of  the  discretion  of  the  board,  the  di- 
rectors are  not  bound  to  act  in  accordance  with  the  directions  so 
prescribed,  nor  will  any  court  compel  them  to  act  in  accordance 
with  such  dictation,  even  when  a  majority  of  the  stockholders 
appeal  for  relief.^     There  is  some  authority  for  the  proposition 


reserved  to  the  shareholders.  The  power 
to  sell  and  transfer  the  charter  and  fran- 
chises is  not  granted  to  them  ;  the  power 
to  dissolve  the  body  is  not  within  the 
scope  of  their  authority  ;  and  other  power 
which  they  are  unable  to  exercise  might 
be  enumerated.  Is  the  power  possessed 
by  them  to  effect  great  or  radical  changes 
in  the  organization  of  the  body  without 
the  consent  of  the  shareholders?  Can 
they  at  pleasure  and  without  the  consent 
of  the  shareholders  increase  or  diminish 
the  capital  stock  of  the  company,  and 
thus  materially  affect  the  value  of  the 
shares  and  the  amount  of  dividends.'* 
See  also  Hoyt  v.  Thompson,  19  N.  Y.  207 
(1859). 

1  'this  is  conclusively  established  in 
the  case  of  the  Metropolitan  Elevated  Ry. 
Co.  V.  Manhattan  Ry.  Co.  (N.  Y.  C. 
P.,  April,  1884),  Van  brunt,  J.,  15  Am.  & 
Eng.  Ry.  Cas.  1.  See  Cass  v.  Manchester, 
13  Rep.  167  ;  Flagg  v.  Metropoli- 
tan Railway  Co.,  20  Blatchf.  142;  Mar- 
tin V.  Continental  Pass.  Ry.  Co.,  14 
Phila.  10;  Woodruff  v.  Erie  R.  R.  Co., 
93  N.  Y.  609  (1883);  Abbott  v.  Johns- 
town, &c.  R.  R.  Co.,  80  Id.  27;  People 
V.  Albany,  &c.  R.  R.  Co.,  77  Id.  232; 
Trov,  &c.  R.  R.  Co.  v.  Boston,  <fcc.  i!.  R. 
Co.,"  86  Id.  107.  Cf.  In  the  Matter  of  St. 
Ann's  Church,  23  How.  Prac.  285;  Rob- 
ertson V.  Bullions,  11  N.  Y.  243  (1854) ; 
Elwell  V.  Dodge,  33  Barb.  339  ;  Matter  of 
Excelsor  Fire  Ins.  Co.,  19  Abb.  Prac. 
14;  Dana  v.  Bank  of  the  United  States, 
5  Watts  &  S.  246;  Fisher  v.  New  Ycrk, 
&c.  R.  R.  Co.,  46  N.  Y.  644;  Central 
Crosstown  Co.  v.  Twenty-third  St.,  &c. 
Co.,  54  How.  Prac.  183;  Duncomb  v.  New 

642 


York,  &c.  R.  R.  Co.,  84  N.  Y.  190  (1881) ; 
Jackson  v.  New  York,  &c.  R.  R.  Co.,  58 
N.  Y.  623  (1874). 

-  Conro  V.  Port  Henry  Iron  Co.,  12 
Barb.  27  (1851);  McCuUough  v.  Moss,  5 
Denio,  567  (1846);  Hoyt  v.  Thompson, 
19  N.  Y.  207  (1859);  Dispatch  Line  of 
Packets  v.  Bellamy  Manfer.  Co.,  12  N.  H. 
205,  226  (1841) ;  Salem  Bank  v.  Glouces- 
ter Bank,  17  Mass.  1,  29  (1820);  State 
of  Louisiana  v.  Bank  of  Louisiana,  6  La. 
746 ;  Commonwealth  v.  Trustees  of  St. 
Mary's  Church,  6  Serg.  &  R.  508  (1821); 
Dana  v.  Bank  of  the  United  States,  5 
Watts  &  S.  223,  245  (1843)  ;  Dayton,  <fec. 
R.  R.  Co.  V.  Hatch,  1  Disney,  84  (1855); 
Union  Gold  Mining  Co.  v.  Rocky  Moun- 
tain Nat.  Bank,  2  Col.  565  (1875);  Union 
Mut.  Fire  Ins.  Co.  v.  Keyser,  32  N.  H. 
313.  The  directors  can  lawfully  act  only 
when  duly  convened  as  a  board.  Gash- 
wiler  V.  Willis,  33  Cal.  11  (1867).  Cf, 
Granger  v.  Grubb,  7  Phila.  360  (1870), 
where  it  was  held  that  a  vote  ordered  by 
the  directors  to  be  taken  by  a  circular 
addressed  to  the  stockholders,  is  not  bind- 
ing, but  merely  advisory.  In  Bank  of 
the  United  States  v.  Dandridge,  12 
Wheaton,  64,  113(1827),  it  is  said  :  "The 
directors  are  elected  by  the  stockholders, 
and  manage  all  their  affairs,  in  virtue  of 
the  power  conferred  by  the  election. 
The  stockholders  impart  no  authority  to 
them,  except  by  electing  them  as  direc- 
tors. But,  we  are  told,  and  are  told 
truly,  that  the  authority  is  given  in  the 
charter.  The  charter  authorizes  the  di- 
rectors to  manage  all  the  business  of  the 
corporation.  But  do  they  act  as  indi- 
viduals, or  in  a  corporate  character  ?     I 


CH.  XXXVII.] 


CORPORATE    ELECTIONS. 


[§  626. 


that  when  the  legislature  gives  the  corporation  the  privilege  of 
altering  or  amending  the  charter  the  board  of  directors  arc  en- 
titled to  act  in  making  the  changes,  but  the  better  rule  is  that  the 
power  to  accept  an  amendment  of  the  charter  belongs  to  the  stock- 
holders and  can  be  exercised  only  by  them  in  corporate  meeting 
assembled.^ 


they  act  as  a   corporate   body  then  the 
whole  law  applies  to  them   as   to  other 
corporate   bodies.     If  they  act   as   indi- 
viduals then  we  have  a  corporation  which 
never  acts  in  its  corporate  character,  ex- 
cept in  the  instances  of  electing  its  direc- 
tors or  instructing  them.     The  corpora- 
tion possesses   many  important    powers 
and  is  as  a  corporation  to  perform  many 
important  acts,  scarcely  one  of  which  is 
to  be  performed  in  a  corporate  character. 
They  are  all  to  be  performed  by  agents, 
acting  as  individuals  under  general  powers 
conferred   by  the   charter."     So  also,  in 
Forbes  v.   Memphis,    &c.    R.    R.    Co.,    2 
Woods,  331  (1872),  the  court  thus  define 
the  rights  and  powers  of  the  shareholders : 
"A  commercial  or  other  business  corpo- 
ration is  constituted  for  the  specific  pur- 
pose of  suing  and  being  sued,  granting 
and    receiving,   buying  and  selling,   and 
doing  other  business  in  a  corporate  name 
and  capacity  totally  distinct  from  that  of 
any  or  all  of  its  members  considered  as 
individuals.     A  corporation  is  a  person. 
Its   property  is  not   the   property  of  its 
stockholders.     Its  rights   are    not   their 
rights.     They  have   only  an  indirect  in- 
terest therein.     Tlie  rights   of  a    stock- 
holder are  to  meet  at  stockiiolders'  meet- 
ings, to  participate  in  the  profits  of  the 
business,  and  to  require  that  the  corpo- 
rate property  and  funds  shall   not  be  di- 
verted  from    their  original    purpose.     If 
the  company  become    insolvent  it  is  the 
right  of  the   stockholders  to    have    the 
property  applied  to   the  payment  of  its 
debts.  I  do  not  know  of  any  other  rights, 
except    incidijnt:il    ones,     suljsidiary    or 
auxiliary  to   tlieso.     Of  course  a  stock- 
holder has  ordinarily  a  rigiit  to  a  certifi- 
cate for  ids  stock,  tc^  transfer  it   on  the 
company's  books,    and   to  inspect  these 
books.     For  the  invasion  of  these  rights 
by  the  officers  of  the  company  ho  may  sue 
at  law  or  in  equity,  according  to  tlie  na- 
ture of  the  case."     The  shareholders  can- 
not maintain  or  defend  suits  for  the  cor- 
poration.    Blackman  v.  Centrnl  R.  R.,  Ac. 
Co.    of    Ga.,    58   Ga.    189  (1877);     Silk 
Manfg.  Co.  v.  Campbell,  27  N.  J.  Law,  039 
(1859).     But  a  minority  or  even  a  single 


stockholder  may,  in  a  proper  case,  sue 
the  corporation  for  fraud.  Peabody  v. 
Flint,  6  Allen,  52,  65  (1863);  Allen  v. 
Curtis,  26  Conn.  456,  461  (1857).  See 
Part  IV,  infra. 

'  In  Railway  Company  v.  Allerton,  18 
Wall.  23:i,  235  (1873),  Bradley,  J.,  says: 
"  As  it  respects  the  constituency  or  capi- 
tal  and    membership,   tiiis    is    the  next 
most  important  and  fundamental  point  in 
the  constitution  of  a  body  corporate.    To 
change  it  without  the    consent   of     the 
stockholders    would    be    to  make    them 
members  of  an  association  in  which  they 
never    consented    to   become    such.       It 
would  change  the  relative  influence,  con- 
trol, and  profit  of  each   member.     If  the 
directors  alone  could  do  it,  they  could  al- 
ways perpetuate  their  own  power.    Their 
agency  does  not    extend  to  such  an  act 
unless  so  expressed  intheciiarter,  or  sub- 
sequent enabling   act;     and  such  subse- 
quent act,  as  before  said,  would  not  bind 
the  stockholders  without  their  acceptance 
of  it,  or  assent  to  it  in  some  form.     Kvca 
when  the   additional  stock  is  distributed 
to  each  stockholder  pro  rata,  it  Wduld  of- 
ten work  injustice,  because  many  of  the 
stockholders    might  be   unable    to    take 
their  respective   share,  and  might    thus 
lose  their  relative  interest  and  influence 
in    the    corporate    concerns."      See  also 
Marlborough  Manfg.  Co.  v.  Smith,  2  Conn. 
579,    583    (1818),  where    the   court    said: 
"The    directors   had   the  mau'igement  of 
the  concerns  of  the  company ;  but  this  did 
not   enable  tiicm  to  apply  to  the  legisla- 
ture for  an  increase  of  their  powers.   Such 
a{)plication  could  be  made  by  the  authdr- 
ity  of  the  com|)atiy  only.     The  resolve  of 
the    Assembly  giving  power  to  the  com- 
pany to  assess  the  stockholders  wns  void, 
because  the  application  was  made  by  the 
directors    only,     without,    any   authority 
from  th('  company.      Hut  if  the  power  had 
been  given  to  the  company'  it  c mid  only 
have  been    exercised  by  tin;  Htockholdtu's 
at  a  proper  meeting.      As  the  assoHstuciit 
in  question   was  niiide   by  tlio    directors, 
without  Muy  authority  from  the  company, 
it  is  void."     Sec  ^§  496-500,  supra. 

643 


§  626.]  CORPORATE    ELECTIONS.  [CH.  XXXVII. 

§  626.  The  expulsion  of  memT)ers. — In  joint-stock  companies, 
or  in  any  corporation  owning  property,  no  power  of  expulsion  can 
ho,  exercised  unless  expressly  conferred  by  the  charter  or  by 
statute.^  The  expulsion  by  virtue  of  a  by-law  has  been  held  to 
be  unlawful.^  A  member  who  has  been  unjustly  expelled  may 
Jiave  mandarmis  to  compel  the  corporation  to  restore  him  to  mem- 
bership.^ Accordingly,  where  a  corporate  body  strikes  oft  the 
name  of  one  of  its  members  without  giving  him  previous  notice 
■of  their  intention  so  to  do,  and  affording  him  opportunity  to  be 
lieard  in  his  own  defense,  a  mandamus  to  restore  will  be  granted,* 
vand  an  injunction  lies  to  restrain  a  board  of  brokers  from  irregu- 
larly expelling  one  of  their  members,^  but  not  as  against  a  medi- 
cal society.''  So  also  the  courts  will  not  grant  an  injunction  to 
restrain  a  corporation  from  initiating  new  members  upon  the  ap- 
plication of  a  member  of  the  corporation,  M^hen  no  danger  of 
pecuniary  loss  is  shown  as  likely  to  result  to  the  petitioner  from 
isuch  initiation.''  Where  the  expulsion  is  regular  and  authorized 
^y  the  charter  or  statute  it  is  conclusive  and  mandamus  will  not 
lie.*  An  act  of  expulsion  cannot  be  impeached  or  attacked  col- 
laterally.' At  common  law  there  were  three  causes  for  expul- 
sion :  where  the  member  was  guilty  of  an  infamous,  indictable  of- 


»  Evans  V.  Philadelphia  Club,  50  Penn.  N.  Y.    187(1865);     People  «.  New  York 

•St.  107  ( 1 865) ;  State  v.  Chamber  of  Com-  Benevolent  Soc,  3  Hun,  861  (1875) ;  Medi- 

merce,  20  Wis.  63  (1865);  also  State  v.  cal,    <fec.  Society  v.    Weatherly,  75    Ala. 

Chamber    of    Commerce,    47    Wis.    670  248. 

(1879).  In  Dickinson  w.  Chamber  of  Com-  ••  Delacy  v.  Neuse    River    Navisation 

merce,  29  Wis.  45  (1871),  it  is  held  tliat  Co.,   1   Hawks'  Law  (N.  C),  274  (1821). 

there  may  be  a  lawful   expulsion  under  The   member  must  have  a  fair  hearing, 

a  valid  by-law.  Southern   Plank    Road    Co.  «.    Hixon,  5 

'^People  V.  Saint  Francisco's  Benevo-  Ind.  165(1854). 

lent   Society,  24  How.  Prac.  216  (1862);  *  Leech  v.    Harris,  2  Brews.   (Penn.) 

Koehler    v.    Mechanics  Aid   Society,  22  571(1870).    Cy.  Society  of  Italian  Union, 

Mich.  86;     Green   v.   African  Methodist  <fec.  v.  Montedonico  (Ky.  1884),  4  Am.  <fe 

Epis.  Society,  1  Serg.  <fe  R.  254.     A  reso-  Eng.  Corp.  Cas.  22. 

lution  spread  upon  the  corporate  reoords  "  Gregg  v.  Mass.  Medical  Society,  111 

unjustly  expelling   a   member  is  a  libel,  Mass.  185  (1872). 

and  the  member  offering  the  resolution  is  ''  Thompson  v.  Society  of  Tammany, 

liable  to  an  action  thereupon.     Fawcett  17  Hun,  305  (1879). 

.V.  Charles,  13  Wend.  473  (1835).    Cf.  Ad-  «  Commonwealths.  Pike  Beneficial  So- 

ley  «;.   Whitstable    Co.,  19   Vesey,    S04  oiety,  8  Watts  &  S.  247  (1844)  ;  Peoples. 

<1815);     Chase   v.   East    Tennessee,  «fec.  Fire  Underwriters,  7  Hun,  248  (1876). 

Eailroad  Co.  5  Lea(Tenn.),  415  (1880).  »  Black  <fe    Whitesmith's   Society?;. 

3  Black    &.    White    Smith's    Society,  Vandyke,  2  Wharton  (Penn.),  309  ( 1836); 

Vandyke,  2  Wharton  (Penn.),  3'  9  (1836);  Commonwealth  v.  Pike  Beneficial  Society, 

•Cominonwealth    v.    German    Society,  15  8  Watts  cfe  S.  (Penn.)  247  (1844) ;  Society 

Penn.    St.    251  (1850);     People  v.  Saint  for  the  Visitntinn  of  the  Sick  v.  Meyer, 

Francisco's    Benevolent    Society,  supra;  52    Penn.   St.  125,  131  (1866).      Cf.  Com- 

-•State  V.  Carteret  Club,  40  N.  J.  Law,  295;  monwealth  v.  Oliver,  2  Parson  Sel.  Casea, 

jPeople  V.  Medical  Society  of  Erie  Co.,  32  420,  426  (1849). 

644 


CH.  XXXVII.] 


CORPORATE   ELECTIONS. 


[§  62  r. 


fense  ;  or  guilty  of  an  offense  against  liis  duty  as  a  corporator;  O'l* 
of  an  offense  compounded  of  these  two.^ 

§  627.  The  removal  of  db'ectors.— The  stockholders  have  in? 
general  no  power  to  remove  directors  before  the  expiration  of 
their  term  as  fixed  by  charter  or  statute.'^  The  corporators  may,, 
however,  as  of  course,  lawfully  accept  the  resignation  of  such  of 
the  officers  of  the  company  as  resign  their  offices.^  And  where 
the  stockholders  have  power  by  charter  or  statute  to  remove  the= 
directors  for  cause,  the  exercise  of  their  discretion  therein  will; 
not  be  reviewed  in  equity.^  So,  likewise,  where  such  a  power  is- 
given  to  the  stockholders,  a  court  of  chancery  will  not  enjoin  the 


'  James  Bagg's  Case,  1 1  Coke,  94,  99 
(1616);  Rex  v.  Towa  of  Liverpool,  2 
Burr.  723,  732  (1759);  State  v.  Cham- 
ber of  Commerce,  20  Wis.  63  (1865);  Peo- 
ple V.  New  York  Commercial  Association, 
18  Abb.  Prac.  271  (1864);  People  v.  Chi- 
cago Bonrd  of  Trade,  45  111.  112  (1867). 
Of.  Smith  V.  Stiiitb,  3  Desauss.  S.  C.  557 
(1813),  where  an  expulsion  for  miscon- 
duct was  sustained.  Woolsey  v.  Inde- 
pendent Order,  <fec.  (Iowa,  1883),  1  Am. 
&  Eng.  Corp.  Cas.  172  ;  Fisher  v.  Keane, 
L.  R.  11  Chan.  Div.  353;  Hopkinson  «. 
Exeter,  L.  R.  5  Eq.  63  ;  Dawkins  v.  An- 
trobus,  L.  R.  17  Chan.  Div.  615;  Gard- 
ner V.  Freeman  tie,  19  W.  R.  256;  People  v. 
New  York  Cotton  Exchange,  8  Hun,  216 
(1876);  Dean  v.  Bennett,  L.  R.  6  Chan. 
489.  In  Sturgis  v.  Board  of  Trade,  86 
111.  441  (1877),  it  was  held  that  the  reme- 
dy of  the  expelled  member  was  at  law 
and  not  in  equity.  But  see  State  v.  Lusi- 
tanian  Portui^uese  Society,  &c.,  15  La. 
Ann.  73  (I860);  Wood  v.  Woad,  L.  R. 
9  Exch.  190  (1874);  Boslwick  v.  Fire 
Department  of  Detroit,  49  Mich.  513; 
Hassler  v.  Phila.  Musical  Ass.,  14  Pliila. 
233;  Anaco  ida  Tribe  v.  Murbach,  13 
Md.  91 ;  State  v.  Georgia  Medical  Soc. 
38  Ga.  608;  Washington  Benevolent  Soc. 
j;.  Bacher,  20  Penn.  St.  425;  Riddell  v. 
Harmony  Fire,  &c.  Co  .  8  Phila.  3 10  ;  State 
V.  Adams,  44  Mo.  570;  Ilarmstead  v.  Wash- 
ington Fire,  cfcc.Co.,  8  Phila.  381  ;  Com- 
monwealtli  v.  I'liilanthroiiic  Scjc,  5  Hinn. 
486;  Commonwealth  v.  St.  Patrick  Soc, 
2  Id.  448;  People  v.  Fire  Underwriters, 
14  N.  Y.  Super.  Ct.  248.  Upon  the  gen- 
eral question  of  tlie  power  to  expel  mem- 
bers see  Angell  <fe  Ames  on  Corp.,  (5  410 
et  aeq  ;  2  Kent's  Com.  297. 

'  Imperial,  <fec.  Hotel  Co.  v.  Ilampson, 


L.  R.  23  Chan.  Div.  1,  7  (1882).  In  this 
case  the  court,  speaking  to  this  point,  say  : 
"The  only  other  question  is  whether  the 
power  is  inherent  in  a  corporation — it  is- 
quite  plain  to  me  it  is  not  incidental  to  a 
corporation.  As  regards  the  corporators 
themselves  it  has  been  decided  that  in 
ordinary  corporations  there  is  a  power 
of  removal  from  the  corporation  for  good 
cause.  From  the  nature  of  the  case  one 
would  assume  that.  ...  So  in  the 
same  way  you  might  make  by-laws  that 
whenever  a  corporator  was  iiicapablc  of 
exercising  his  functions,  either  from  per- 
sonal inca[)aeity  or  because  he  had  be- 
come infatnous  or  otherwise  unfit,  he 
might  be  removed  from  the  corporation  ;. 
but  all  that  is  a  necessary  incident  for 
carrying  out  the  purposes  for  whicii  the 
corporation  is  created,  and  it  stands  on  a 
totally  diffeieiit  footing  fr(jm  removing  a. 
person  from  an  office  in  tlie  corporation,  it- 
appears  to  ni(!  there  is  no  doctrine  of  the 
common  law,  and  there  ia  no  statutory 
provision  which  enables  you  to  vary  the 
contract  entered  into  between  the  mem- 
bers, that  the  directors  shall  hold  dttice 
for  a  given  perioil,  supposiog  thcu'c  Is  & 
contract  which  does  not  contain  the  power 
of  removal.  That  special  power  not  be- 
ing there,  I  think  disposes  of  the  notion 
that  you  can  remove  by  some  inheiont 
power  not  contained  in  the  staliile  or 
the  articles."  See  also  h'x  parte  Puinc, 
I  Hill,  (565  (I^^ll);  State  of  Ohio  v. 
Pry  CO,  7  Ohio  (pt.  2d),  82  (1836);  and 
for  a  contrary  ride.  Burr  »>.  McDonald,  H. 
Gratt.  206  (1846);  B;iyles8  v.  Ormo,. 
Freeman's  Ch.  (Miss.)  161  (1811). 

*  Cloutma-i  V.  Pike,  7  N.  II.  209  (1834). 

■•  Inderwick  v.  Snell,  2  Mac.  <k  G.  21& 
(1850). 

045 


§  627.]  CORPORATE   ELECTIONS.  [CH.  XXXVII. 

holdino-  of  a  meeting  called  by  the  stockholders  to  consider, 
amon^  other  matters,  the  removal  of  the  directors.^  But  where 
the  officers  depart  from  the  line  of  their  duty  and  are  guilty  of 
fraudulent,  or  negligent,  or  ultra  vires  acts,  which  the  majority  of 
the  stockholders  cannot  or  will  not  ratify,  any  one  of  the  stock- 
holders may  appeal  to  the  courts  for  relief.  The  officers  them- 
selves cannot,  however,  be  removed  by  the  corporation  for  such 
offenses.^ 

'  Isle  of  Wio-ht  Rv   Co.  v.  Tahourdin,  rectors  by  the  corporation,  see  Stat.  8  & 

L  R.  25  Chan.  Div.  320  (1883).     For  the  9  Yict.,  chap.  16,  g§  70,  88,  89,  90,  91  ; 

provisions  of  the  English  statute  in  detail  Vol.  IX,  Rev.  Stat.,  pp.  576  et  seg. 
upon  the    question  of  the  removal  of  di-  "  Vide  Part  IV,  infra. 


646 


CHAPTER    XXXVIIL 


DISSOLUTION. 


g  628.  Methods  of  dissolution. 

629.  Voluntary   dissolution    by   unani- 
mous consent. 

630.  Whether  a  majority  may  dissolve. 

631.  632.  Whether  a  minorit}'  may  dis- 
solve. 

633.  What  will  and  what  will  not  oper- 
ate to  dissolve. 

634.  Statutes  regulating  dissolution. 


§635.  The  English  statute. 

636.  A  lease  or  transfer  of  corporate 
property  and  franchises  as  a  means 
of  dissolution. 

637.  Dissolution  by  le2;islative  repeal 
of  forfeitures,  or  by  judicial  forfeit- 
ure, or  by  lapse  of  time. 

638.  639.  The  assets  upon  dissolution. 


§  628.  Methods  of  dissolution. — The  dissolution  of  a  corpora- 
tion may  be  brought  about  by  reason  of  (1)  the  forfeiture  of  its 
franchises  by  the  adjudication  of  a  court ;  (2)  the  loss  of  its  charter 
by  a  charter  provision  to  that  effect,  in  case  the  corporation  fails 
to  do  certain  things  within  a  certain  time^;  (3)  the  repeal  of  its 
charter  under  the  reserved  power  of  the  State ;  (4)  the  voluntary 
surrender  of  the  franchises  by  the  corporation ;  or  (5)  the  expira- 
tion of  the  time  limited  for  its  existence  in  the  charter.  Upon 
dissolution  by  any  one  of  these  methods,  the  stockholders  have 
certain  rights  in  the  corporate  assets.  A  consideration  of  the 
law  governing  dissolution  by  the  first,  second,  third,  and  fifth 
metliods  is  not  within  the  scope  of  this  treatise.  This  chapter  is 
accordingly  devoted  to  dissolution  by  a  voluntary  surrender  of 
the  franchises,  and  to  the  rights  of  stockholders  in  the  corporate 
assets  upon  a  dissolution  of  the  corporation  by  any  one  of  the 
five  methods  indicated. 

§  629.  Yoluntanf  dissolution  hy  unanimous  consent. — It  is 
an  unquestioned  rule  that  all  the  stockholders,  by  unanimous 
consent,  may  effect  a  dissolution  of  the  corporation  by  a  surren- 
der of  the  corporate  franchises.^     A  raih-oad  corporation  stands 


t 


78 
R. 


'   See   Brooklyn,  <fec.,  Co.  v.  Cit\ 
N.  Y.  529  ;   In  re    Hrooklyii,  Ac. 
Co.,  72  N.  Y.  245;   Id.,  75  N.  Y.  335. 

*  Washington  &  Baltimore  T.  P.  Road 
V.  Stale,  19  Md.  239  (1862);  Enfield  Toll 
Bridije  Co.  v.  Conn.  River  Co.,  7  Conn. 
28,  45  (1828);  Mobile  &  Ohio  R.  R.  Co. 
V).  State,  29  Ala.  573,  586  (1857);  Savage 


V.  Walshe,  26  Id.  619  (1855);  Attorney 
General  v.  Clergy  Society,  10  Rii;h.  Kq. 
604  (1869);  Chesapeake  &.  Oliio  Canal 
Co.  V.  Baltimore  &  Ohio  R.  R.  Co  ,  4 
(;ill  &  J.  1,  121  (1832);  Mclntire  I'oor 
School  V.  Zanosville  Canal,  die,  Co.,  9 
Ohio,  203  (1839);  Mumnio  v.  Potomac 
Co.,  8  Peters,  281,287  (1834);  La  Grange 

647 


629.] 


DISSOLUTION. 


[CH.  XXXVIII. 


upon  a  somewhat  different  footing  as  respects  its  voluntary  disso- 
lution, and  while  such  a  corporation  may  undoubtedly  abatidon 
its  charter  and  dissolve  itself,  yet  inasmuch  as  it  is  a  quasi  public 
corj3oration,  this  right  is  limited  or  qualified  as  to  the  power  to 
dispose  of  the  eminent  domain  franchises  which  it  is  exercising. 
The  legislature  may,  however,  release  it  from  this  limitation, 
and  transfer  those  duties  to  other  persons  or  another  corpora- 
tion.^ A  voluntary  dissolution  maybe  effected  by  an  express  act 
of  the  stockholders.^ 


<fe  Memphis  R.  R.  Co.  v.  Rainey,  7  Coldw. 
(Tenn.)  420  (1870);    Slee  v.   Bloom,   19 
Johns.  456  (182'i);  Webster  v.   Turner, 
12  Hun,  264  (1877).     Cf.  The  King  v. 
Amery,   2  Term   Rep.  515,   531   (1788); 
The  King  v.  Gray,  8  Modern  Rep.  3.n8, 
361 ;    McLaren  v.  Pennington,   1    Paige, 
102,    107   (1828)  :    Riddle   v.    Merrimac 
Locks,   7  Mass.  169,  185  (1810);  Hamp- 
shire V.  Franklin,  16   Id.  76,  87  (1819). 
In  Penobscot  Boom  Corp.  v.  Lamson,  16 
Me.  224  (1839),  the  court  say :  "  It  is  con- 
tended  also  that  if  the  corporation  has 
existed  it  has  been  dissolved.     In  what 
manner  corporations  may  be  dissolved, 
and  what  will  operate  as  a  dissolution, 
has   been  determined   in  many  decided 
cases.     A  corporation    will   not  be  dis- 
solved by  a  sale  of  the  franchise,  or  of 
all  the  corporate  property  and  a  settle- 
ment of  all  its  concerns  and  a  division  of 
the  surplus,  or  by  a  cessation  of  all  cor- 
porate acts,  or  by  any  neglect  of  corpo- 
rate duty,  or  any  abuse  of  corporate  pow- 
ers, or  by  doing  acts  which  cause  a  for- 
feiture of  the  charter  without  a  judgment 
declaring  such  forfeiture.     Such  dissolu- 
tion can  take  place  only  (1)  by  an  act  of 
the  legislature,  where,  as  in  this  State, 
power  is  reserved  for  that  purpose;  (2) 
by  a  surrender,  which  is  accepted,  of  the 
charter;  (3)  by  a  loss  of  all  its  members, 
or  of  an  integral  part,  so  tliat  the  exercise 
of  corporate  functions  cannot  be  restored , 
(4)  by  forfeiture,  which  must  be  declared 
by  judgment  of  coiirt."     s.  p.  Hodsdon  v. 
Gopeland,  16  Me.  314(1839).     In  Houston 
V.  Jefferson   College,   63   Penn.   St.    428 
( 1 869),  it  is  said  upon  this  point :  "  The 
general  right  of  a  private  corporation  to 
surrender   its    franchises    may   possibly 
have  exceptions,  but  undoubtedly  it  is 
the  rule.      This  is  generally  described  as 
an  inherent  right,  which  would  necessa- 
rily defeat  any  attempt  by  legislation  to 
enforce  upon  a  corporation   qualities  of 
perpetuity.     Such  a  thing  would  be  im- 

648 


possible  in  the  nature  of  things.  Corpo- 
rations, like  individuals,  die  by  the  decay 
or  loss  of  their  vital  functions,  and  this 
effectually  defies  authority  to  render  them 
perpetual.  A  surrender  of  a  franchise  is 
the  voluntary  death  of  the  corporation, 
and  is  one  mode  by  which  it  may  cease 
to  exist.  19  Johns.  478;  8  Pet.  381.  If 
anybody  ever  did  dispute  the  right  of  a 
corporation  to  surrender  its  franchise  of 
its  own  mere  motion,  it  is  not  likely  that 
such  a  contest  about  the  question  could 
be  long  maintained  where  both  parties, 
the  State  and  the  corporation,  the  grant- 
or and  grantee,  consent  to  it,  absolutely 
or  on  condition.  This  I  take  to  be  inca- 
pable of  dispute,  and  the  history  of  this 
college  will  show  that  this  is  just  what 
has  transpired  in  its  case.  It  is  undis- 
puted in  the  pleadings."  In  Graham  v. 
Railroad  Co.,  102  U.  S.  148  (1880),  it  was 
held  that  where  a  corporation,  solvent  at 
the  time,  and  without  intent  to  defraud 
creditors,  disposed  of  its  property  for  an 
inadequate  consideration  by  a  voluntary 
conveyance,  its  creditors  cannot  subse- 
quently question  the  transaction. 

'  Lauman  v.  Lebanon  VaUey  R.  R. 
Co.,  30  Penn.  St.  42  (1858).  Cf.  Port- 
land Dry  Dock,  Ac,  Co.  v.  Trustees  of 
Portland\  12  B.  Mon.  77  (1861). 

'^  Thus,  where  it  was  unanimously 
agreed  at  a  stockholders'  meeting — all 
tile  corporators  being  , present  in  person 
or  by  proxy — to  sell  all  the  corporate 
property,  to  cease  to  do  business,  and  to 
consider  the  corporation  dissolved,  it  was 
held,  in  a  suit  by  one  of  the  stockholders 
to  compel  the  directors  to  call  meetings 
and  continue  the  business,  that  the  acts 
of  the  corporation  constituted  a  surrender 
of  its  corporate  rights,  and  that  it  no 
longer  existed.  Webster  v.  Turner,  12 
Hun,  264  (1877).  Cf.  Abbot  v.  Am- 
erican Hard  Rubber  Co.,  33  Barb.  578 
(1861),  upon  the  right  of  a  proxy  to  vpte 
for  dissolution.     A  voluntary  dissolution 


CH.  XXXVIII.] 


DISSOLUTION. 


[§  629. 


It  is  not  entirely  settled  wlicther  an  acceptance  by  the  State 
of  the  surrender  of  the  corporate  franchise  is  necessary  to  com- 
plete the  dissolution.  It  is,  however,  a  general  rule  that  there 
must  be  an  acceptance,  either  by  the  legislature  by  which  the 
franchise  was  conferred  or  by  a  court  of  competent  jurisdiction 
as  representing  the  State,  in  order  that  the  surrender  may  operate 
fully  to  dissolve  the  corporation.^     A  decree  of  court  is  tlie  more 


is  generally  brought  about  by  formal  ac- 
tion by  the  stockholders.  In  such  cases 
the  officers  are  tlie  proper  parties  to  act 
for  the  corporation.  Bank  of  Switzerland 
V.  Bank  of  Turkey,  5  L.  T.  (N.  S.)  549 
(1862) ;  Treadwell  v.  Salisbury  Manfg. 
Co..  7  Gray,  393  (1856);  Jn  re  Suburban 
Hotel  Co.,  L.  R.  2  Chan.  737  (1867)  ;  i2e 
Factage  Parisien,  34  L.  J.  Chan.  140 
(1865);  s.  c,  13  W.  K.  214,  330;  Marr 
V.  Union  Bank,  4  Coldw.  (Tenn.)  484: 
Hancock  v.  Holbrook,  9  Fed.  Rep.  353 
(1881).  In  general,  however,  the  direc- 
tors of  a  corporation  are  its  ao-ents  to 
manage  its  affairs  and  carry  out  the  pur- 
pose and  object  of  its  formation,  and  not 
to  inflict  upon  it  political  death.  They 
cannot,  therefore,  move  for  the  dissolu- 
tion of  the  company  without  express  au- 
thority from  the  stockholders.  Abbot  v. 
American  Hard  Rubber  Co.,  33  Barb.  578 
(1861);  Buford  v.  Keolnik  Northern,  <fec., 
Packet  Co.,  3  Mo.  App.  159  (1876).  A 
corporation  cannot  sell  or  assign  its  fran- 
chise, either  in  whole  or  in  part,  unless 
specially  authorized  by  law.  Wood  v. 
Bedford  &  Bridgeport  R.  R.  Co.,  8  Phila. 
94  (1871)  (by  Sharswood,  J.).  Cf.  Gra- 
ham  V.  Railroad  Co.,  102  U.  S.  148  nsSO). 
As  to  a  forfeiture  for  a  non-user  of  the 
corporate  francliisoa,  in  New  York,  it  is 
provided  bv  st;'.tute  (1  New  York  Rev. 
Statute,  604,  §  4;  2  Id.  463,  §  38),  that  a 
corporation  shall  be  deemed  or  adjudged 
to  be  dissolved  when  it  shall  have  re- 
mained insolvent,  or  iieglectid,  or  refused 
to  pay  its  notes,  or  evidences  of  debt,  or 
suspenderl  its  business  for  one  year.  See, 
for  the  construclion  of  these  statutes, 
Denike  v.  New  York,  <fec..  Cement  Co.,  80 
N.  Y.  599  (1880),  where  it  is  held  that  a 
corporation  c.wmot  be  saiii,  under  these 
statutes,  to  have  cotntnitted  an  act  of  in- 
solvencv,  or  to  have  neijlected  or  refused 
to  pay  its  obligations,  because  its  demand 
notes  remain  outstanding^  until  payment 
has  been  demanded.  In  Brandt  v.  Bene- 
dict, 17  N.  Y.  93  (1858),  these  statutes 
are  held  to  be  cumulative,  and  not  a  limi- 


tation upon  the  common  law  rule  previ- 
ously existing  in  New  York.  According- 
ly, in  order  to  infer  a  surrender  of  corpo- 
rate franchises  from  insolvency  and  sus- 
pension of  business  for  less  than  a  year, 
the  circumstances  must  be  such  as  to 
show  that  the  corporation  has  lost  all 
power  to  continue  or  resume  its  business. 
So  in  Tennessee,  at  common  law,  it  is 
held  that  if  a  private  corporation  suffer 
all  their  property  to  be  sacrificed,  and 
the  corporate  management  relinquishes 
the  trust,  omits  the  annual  election,  and 
does  no  act  manifesting  an  intention  to 
resume  the  corporate  functions,  the 
courts  will,  in  favor  of  creditors,  presume 
a  virtual  surrender  of  the  corporate  rights 
and  a  dissolution  of  the  corporation.  La 
Granije  A  Memphis  R.  R.  Co.  v.  Rainey, 
7  Coldw.  (Tenn.)  420,  438  (1870). 

'  Portland  Dry  Dock,  &c.,  Co.  v.  Trus- 
tees of  Portland,  12  B.  Mon.  77(1851); 
La  Grange  &  Memphis  R.  R.  Co.  v.  Rainey, 
7  Coldw.  (Tenn.)  420(1870);  Polar  Star 
Lodge  V.  Polar  Star  Lodge,  16  La.  Ann.  5S 
(1861);  Currien  v.  Snntini,  Id.  27  (1861); 
Campbell  v.  Miss.  Union  Bank, 7  Miss.  625, 
681  (1842);  Norrisw.  Mayor  of  Smithville, 
1  Swan  (Tenn.),  164  (1851);  Mechanics 
Bank  r.  Heard,  37  Ga.  401  ( 1867) ;  Boston 
Glass  Co.  P.  Langdon,24  Pick.  49  (1834); 
Wilson  V.  Proprietors  of  Centriil  Bridge, 
9  R.  L  590  (1870);  l^enobscot  Boom 
Corp.  V.  Lamson,  16  Me.  224  (1839); 
Enfield  Toll  Bridge  Co.  v.  ('onn.  River 
Co.,  7  (-onn.  28,  45  (1828);  Ward  v.  Sea 
Ins.  Co.,  7  Paige,  294  (1838) ;  New  York 
Marbled  Iron  Works  v.  Smith,  4  Duer, 
362(1855).  Cf.  Nimmons  v.  Tajipan,  2 
Sweeney  (N.  Y.  Super.  Ct.).  652(1870); 
Revere  v.  Boston  Cojjper  Co.,  15  Pick, 
351  (1834).  In  Harris  v.  Muskingum 
Manfg.  Co.,  4  Blackf  ( Ind.)  267  (183<;), 
where  a  corj)oration  hcingsued  on  a  debt 
plead  a  voluntary  dissolution,  (he  court 
said  :  "  To  say,  merely,  mh  this  plea  does, 
that  the  corporation  iiad  been  dissolved 
by  the  consent  and  act  of  its  meinbers.  is 
not  sufficient.      A  corporation   cannot  bo 

049 


§  629.] 


DISSOLUTION. 


[cH.  xxxvin. 


usual  manner  in  which  such  a  surrender  is  accepted.^  But  some 
of  the  older  cases  intimate  that  the  acceptance  of  sucli  a  surrender 
should  be  by  the  legislature,  presumably  upon  the  theory  that 
the  surrender  should  be  directly  to  the  legislature,  because  the 
franchise  was  granted  by  that  body,  and  because  it  alone  can 
properly  receive  or  accept  back  a  relinquishment  of  the  franchises 
>and  privileges  which  it  confers.^  But  tlie  practical  difficulty,  in 
modern  times,  of  procuring  the  passage  of  a  special  act  for  this 
purpose,  for  every  dissolution,  is  sufficient  to  prevent  such  a  rule 
irom  obtaining  general  sanction.  Many  States  have  statutes 
authorizing  the  courts  to  accept  a  voluntary  surrender  of  cor- 


dissolved  by  the  consent  of  its  members, 
«xcept  it  be  by  the  surrender  of  their 
franchise  to  tlie  government,  and  an  ac- 
ceptance by  the  government  of  the  sur- 
render.     But   this  plea   shows   no  such 
surrender  and  acceptance,  and  is  conse- 
quently bad."     In  Town  v.  Bank  of  River 
Eaisiu,  2  Doug-.  (Mich.)  630  (1847),  the 
court   says:  "No  rule  is  belter   settled 
than   that    a    corporation    may   be   dis- 
solved by  the  surrender  of  its  franchises 
of   being  a  corporation  into   the   hands 
of  the   government.      .      .      ,      .      The 
modes    in  which    a    surrender  is   to  be 
made,  and    as   to  what   facts  constitute 
a    surrender,    have  been  a  fruitful  sub- 
ject of  discussion  in  the  courts  of  this 
country.     In  England  the  surrender  is  by 
deed  to  the  King,  by  whom  corporations 
are  usually  created  by  charter.     In  this 
country,  corporations  are  created  by  an 
act  of  the  legislature,  and  it  would  seem 
to   follow,  in  the  absence  of  any  statute 
prescribing  the  mode  in  which  a  surren- 
der is  to  be  made,  that  to  become  avail- 
able, it  must  be  accepted  by  the  authority 
which  created  the  corporation.     1  have 
no  doubt  that  a  surrender  made  by  the 
great  body  of  the   society,  and  accepted 
^y  the  legislature,  would  operate    as  a 
dissolution  of  the  corporation;  but  such 
a   surrender   and   acceptance  would  not 
perhajis,  in  this  country,  absolve  the  cor- 
poration from  any  of  its  liabilities.    .    .    . 
Regarding  an  act  of  incorporation,  when 
accepted,  as  a  contract  between  tlie  State 
and   the  corporation,  it  would  then  ap- 
pear  necessary,  in  order  to   dissolve    a 
corporation,    that    the  consent   of  both 
parties  should  be  obtained.     If,  therefore, 
the  members  of  a  corporation  are  desir- 
ous of  bringing  its  business  to  a  close,  a 
resolution  to  surrender  by  the  great  body 
of  the  corporators,  being  presented  to  the 

(550 


legislature,  and  assented  to  by  that  body 
in  the  form  of  a  legislative  act,  would  be 
effectual  to  dissolve  the  corporation.  So 
an  act  of  the  legislature  repealing  the 
charter,  if  assented  to  by  the  corporation, 
would  operate  as  a  dissolution.  That  a 
corporation,  by  its  own  act,  can  dissolve 
itself,  is  no  where  asserted,  nor  can  it  be 
sustained ;  this  must  be  done  by  the  con- 
currence of  ti)e  parties  to  the  compact,  or 
by  the  solemn  judgment  of  a  court  of 
competent  jurisdiction."  No  cause  of 
forfeiture,  however,  can  be  taken  advan- 
tage of  collaterally.  Chesapeake  &  Ohio 
Canal  Co.  v.  Baltimore  &  Ohio  R.  R.  Co., 
4  Gill  &  J.  1,  107  (1832). 

»  Boston  Glass  Co.  v.  Langdon,  24 
Pick,  49,  53  (1834);  Town  v.  Bank  of 
River  Raisin,  2  Doug.  (Mich.)  530,  539 
(1847);  La  Grange  <fe  Memphis  R.  R.  Co. 
V.  Rainey,  7  Coldw.  (Tenn.)  420,  438 
(1870) ;  Revere  v.  Boston  Copper  Co.,  15 
Pick.  351  (1834);  Mechanics  Bank  v. 
Heard,  37  Ga.  401  (1867);  Wilson  v. 
Proprietors  of  Central  Bridge,  9  R.  I.  590 
(1870);  Norris  v.  Mayor  of  Smithville,  1 
Swan  (Tenn.),  104  (1851);  Enfield  Toll 
Bridge  Co.  v.  Conn.  River  Co.,  7  Conn. 
28,  45  (1828);  West  v.  Carolina  Life  Ins. 
Co.,  31  Ark.  476  (1876). 

'  Accordingly,  in  England  the  surren- 
der at  common  law  was  to  the  King,  and 
must  be  accepted  by  him  in  order  to  work 
a  dissolution.  The  King  v.  Amery,  2 
Term  Rep.  515,  631  (1788);  The  King  v. 
Gray,  8  Mod.  Rep.  358  (1825).  See 
Town  V.  Bank  of  River  Raisin,  2  Doug. 
(Mich.)  630,  538  (1847),  where  the  court 
says  :  "  I  have  no  doubt  that  a  surren- 
der made  by  the  great  body  of  the  socie- 
ty, and  accepted  by  the  legislature,  would 
operate  as  a  dissolution  of  the  corpora 
tion." 


CH.  XXXVIU.] 


DISSOLUTION. 


[§  630. 


porate  franchises,  and  it  is  probable  that  the  courts  of  those  States 
which  have  no  such  statute,  would  take  the  ground  that  they 
possessed  a  common  law  power  in  a  proper  case  to  accept  such  a 
surrender. 

§  630.  Wlietlier  a  majority  may  dissolve. — A  diflScult  ques- 
tion, as  to  the  power  to  work  a  dissolution,  arises  when  those  stock- 
holders who  own  a  majority  of  the  stock  wish  to  dissolve  the 
corporation,  while  the  remaining  minority  of  the  stockholders 
oppose  it.  The  courts  are  not  entirely  agreed,  but  it  is  the  more 
general  rule  that  while  a  majority  of  the  stockholders  cannot,  in 
opposition  to  the  wishes  of  even  a  single  stockholder,  work  any 
radical  change  in  the  nature  and  character  of  a  going  concern,  such 
a  majority  may,  if  they  elect,  dissolve  the  corporation  by  a  sur- 
render of  the  franchises.^  It  has  been  held,  however,  when 
the  duration  of  the  corporation  is  fixed  by  the  charter,  that 
a  minority  may  prevent  a  dissolution.^     So  also  there  is  some 


'  Bank  of  Switzerland  v.  Bank  of 
Turkey,  5  L.  T.  (N.  S.)  549  (1862) ;  Tread- 
well  V.  Salisbury  Manfg.  Co.,  7  Gra^',  393 
(1856') ;  Hancock  v.  Hoi  brook,  9  Fed.  Rep. 
353  (1881);  Wilson  v.  Proprietors  of 
Central  Bridge,  9  R.  I.  590  (1870); 
Lauman  r.  Lebanon  Valley  R.  II.  Co.,  30 
Penn.  St.  42  (]»58)  ;  McCurdv  v.  Myers, 
44  Id.  535  (1863);  Revere"  ?».  Boston 
Copper  Co.,  15  Pick.  351  (1834);  Black 
1/.  Delaware,  <fec.,  Canjil  Co.,  22  N.  J.  Eq. 
130,  192,  404  (1871);  Zabriskie  v. 
Uackensack,  &c.,  R.  R.  Co.,  18  Id.  193 
(1867).  C/.  Kean  v.  Johnson,  9  N.  J. 
Eq.  401  (1853);  Mobile  &  Ohio  R.  R.  Co. 
V.  State,  29  Aln.  573  (1857);  Wilson  i;. 
Miers,  IOC.  B.(N.S.)  348  (1861).  Contra, 
Curien  v.  Santini,  16  La.  Ann.  27  (1861); 
Polar  Star  Lodge  v.  Polar  Star  Lodge, 
Id.  53  (1861).  In  Ward  v.  Society  of 
Attornies,!  Coll.  370(1844),  Bruce,  V.  C, 
granted  an  injunction  on  a  motion  made 
on  behalf  of  a  minority,  to  restrain  the 
majority  of  the  members  of  an  incor- 
porated society  of  attornies,  until  the 
minority  could  be  heard,  from  surrender- 
ing their cliartor,  with  a  view  to  obtain  a 
new  charter  foi"  a  different  object.  A 
court  is  not  bound  to  decree  a  dissolution 
of  a  corporation  merely  because  a  ma- 
jority of  the  directors  and  stockholders 
apply  for  a  repeal  of  the  charter,  and 
desire  the  dissolution.  liut  where  the 
owners  of  a  large  proportion  of  the  slook 
find  it  for  their  interest  to  witlidraw  tlieir 


capital,  it  will  be  deemed  presumptive 
evidence  that  the  interest  of  the  stock- 
holders generally  will  be  promoted  by 
a  dissolution  of  the  company.  In  the 
Matter  of  the  Niagara  Ins.  Co.,  1  Pai<ie, 
258(1828).  In  Stupart  v.  Arrowsmith, 
3  Sm.  &  G.  176  (1855).  a  bill  filed  by  a 
shareholder  on  behalf  of  himself  and 
others  to  set  aside  a  dissolution,  after 
three  j'ears  acquiescence,  no  fraud  or  im- 
position being  alleged,  was  dismissed  with 
costs.  6/.  Kent  v.  Jackson,  2  De  G.,  M. 
di  G.  49  (1852).  Denike  v.  New  York, 
(fee,  Cement  Co.,  80  N.  Y.  599,  606  (1880), 
where  the  court  very  explicitly  savs: 
"  All  the  stockholders  uniting  might  un- 
doubtedly surrender  the  franchises  of  a 
corporation  and  work  its  dissolution.  But 
can  a  portion  of  them  do  this  iti  the 
absence  of  statutory  authority  ?  There 
is  no  statute  in  this  State  which  author- 
izes a  portion  of  the  stockholders  to 
maintain  an  action  to  dissolve  a  manu- 
facturing corporation,  and  I  know  of  no 
decision  holding  that  they  can."  The 
action  to  dissolve  must  be  brought  by  the 
uttorney-genoral.  Wilmersdoerffer  v. 
Lake  Mnhopac  Improvement  (^'o.,  18  ITiiii, 
387  (1879);  New  York  Laws  of  187i», 
chap.  161,  g  2. 

'  Keiin  V.  Johnson,  0  N.  J.  Eq.  401 
C1853I,  where  tiie  court  lield  that  when 
the  life  of  the  corporation  is  limiti-d  in 
the  charter,  it  must  continue  until  the 
expiration  of  that  time,  unless,  |>crhap8,  in 

651 


§631.J 


DISSOLUTION. 


[CH.  XXXVIII. 


authority  for  the  same  rule  where  the  articles  of  association 
plainly  militate  against  the  idea  of  a  dissolution  by  the  ma- 
jority.i 

§  631.  Wlietlier  a  mmority  may  dissolve. — Stockholders 
owning  only  a  minority  of  the  stock  cannot,  at  common  law,  com- 
pel a  dissolution  before  the  expiration  of  the  time  limited  in  the 
charter  for  the  existence  of  the  corporation.^  But  where  the  com- 
pany is  insolvent,  or  is  doing  a  ruinous  business,  with  no  reason- 
able prospect  of  a  change,  it  has  been  held  that  a  minority  may 
force  a  dissolution,  where  the  majority  has  the  power  to  dissolve, 
but  is  unwilling  to  exercise  that  power.'-'  A  court  of  equity  has, 
in  the  absence  of  statutory  power,  no  jurisdiction  over  corpora- 
tions, for  the  purpose  of  decreeing  their  dissolution  and  the  dis- 
tribution of  their  assets  among  the  individual  corporators,  at  the 
suit  of  one  or  more  of  the  stockholders.*  In  Connecticut,  by 
statute,  a  court  of  equity  can  dissolve  a  corporation  only  under 
certain  speciiied  circumstances.  When,  therefore,  these  circum- 
stances do  not  exist,  a  bill  filed  by  a  stockholder  for  dissolution 
will  be  dismissed.^     In  New  York,  the  Supreme  Court  may,  at 


case  of  clear  loss,  and  that  if  no  time  is 
fixed  by  the  charter  for  the  existence  of 
the  company,  then  the  implied  contract 
of  the  corporators  with  each  other  is  that, 
so  long  as  the  officers  of  the  company  are 
prosperous,  it  shall  go  on,  unless  all  con- 
sent to  close  up.  Van  Schmidt  v.  Hunt- 
ington, 1  Cal.  55  (1850),  which  is  the  case 
of  a  New  York  joint-stock  association 
organized  for  the  purpose  of  mining  in 
Californiti.  A  provision  in  the  articles 
prohibited  a  dissolution  within  one  year 
alter  the  arrival  of  the  company  in  Cali- 
fornia. The  court  held  that  a  portion  of 
the  company  could  not,  under  these  cir- 
cumstances, dissolve  the  corporation  at 
their  pleasure,  but  it  appearing  that  the 
purpose  of  the  organization  could  not  be 
carried  out,  the  court  ordered  a  dissolu- 
tion. 

'  Black  V.  Delaware,  &c.,  Canal  Co., 
22  N.  J.  Eq.  130,  403  et  seq.  (1871). 

^  In  re  Joint  Stock  Coal  Co.,  L.  R.  8 
Eq.  146  (1869)  ;  In  re  London  Suburban 
Bank,  L.  R.  6  Chan.  641  (1871);  Foun- 
tain Ferry,  &c.  Co.  v.  Jewell,  8  B.  Mon. 
140  (1848);  Oilman  v.  Greenpoint  Sugar 
Co.,  4  Lans.  (N.  Y.)483  (1871).  Cf.  Mat- 
ter of  Pyrolusite  Manganese  Co.,  29  Hun, 

652 


429  (1883);    Denike  v.  New  York,    (fee. 
Cement  Co.,  80  N.  Y.  599  (1880). 

2  Be  Faotage  Parisien  Limited,  34  L. 
J.  Chan.  140  (1865);  s,  c.  13  xW.  R.  214, 
330  ;  Be  Great  ^'orthern  Copper  Mining 
Co.,  17  W.  R.  462  (J 869)  ;  Marr  v.  Union 
Bank,  4  Coldw.  (Tenn.)  484;  Masters  v. 
Eclectic  Life  Ins.  Co.,  0  Daly,  455  (1876), 
where,  however,  the  power  was  given  by 
statute. 

■•  Strong  V.  McCagg,  55  Wis.  624 
(1882);  Neall  V.  Hill,  16  Cal.  145(1860); 
Bayless  v.  Orne,  1  Freeni.  Chan.  (Miss.) 
161  (1843);  Belmont  v.  Erie  Ry.  Co.,  52 
Barb.  637  (1869);  Howe  v.  Deuel,  43 
Barb.  504(1865);  Latimer  v.  Eddy,  46 
Id.  61  (1864);  Fountain  Ferry,  <fec.  Co.  ®. 
Jewell,  8  B.  Mon.  140  (1848);  Verph.nck 
V.  Mercantile  Ins.  Co.,  1  Edw.  Chan.  84 
(1831).  See  New  York  Laws  of  187o,  eh. 
151 ;  New  York  Rev.  Stat.  vol.  2,  pp.  462, 
463.  See§634,in/'"«-  f7/".  Gal v/eyv. United 
States,  &c.  Refining  Co.,  13  Abb.  Prac. 
211  (1861);  8.  0.  36  Barb.  256;  Ramsey 
V.  Erie  Ry,  Co.,  7  Abb.  Prac.  (N.  S.) 
156,  181  (1869);  Baker  v.  Backus,  36  111. 
79(1863);  Follett  i;.  Field,  30  La.    Ann. 

161  (1878). 

5  Hardont;.  Newton,  14  Blatchf.   376 

(1878). 


GH.  xxxvin.] 


DISSOLUTION. 


r§  632. 


the  suit  of  tlie  attorney-general,  dissolve  coi-porations,  but  the 
jurisdiction  is  statutory.^  But  the  courts  of  that  State  have  no 
jurisdiction  over  a  foreign  corporation  so  as  to  compel  a  distribu- 
tion of  the  assets  among  the  stockholders,  even  when  the  trustees 
are  resident  there.'  In  England,  proof  of  the  impossibility  of 
carrying  on  the  contemplated  business  would  justify  a  winding 
up  order  upon  petition  of  a  minority  of  the  shareholders,  even 
in  the  absence  of  insolvency.'  In  Massachusetts  it  is  held  that 
neither  a  court  of  law,  nor  a  court  of  equity,  can  decree  a  dissolu- 
tion at  the  suit  of  a  single  shareholder.* 

§  632.  But  corporate  insolvency  is  generally  held  to  be  a  good 
ground  for  dissolution.^     Insolvency  as  a  ground  of  dissolution, 


'  2  N.  Y.  Rev.  Stat.  463,  §38;  Laws 
of  1870  (New  York),  chap.  151,  §2; 
Denike  v.  New  Yoi-k,  &c.  Cement  Co.,  80 
N.  Y.  599  (1880);  Wilmersdcerffer  v. 
Lake  Mahopac  Improvement  Co.,  18  Hun, 
387  (1879).  Cf.  Attorney  General  v. 
Bank  of  Chenango,  1  Hopkins'  Chan.  (N. 
Y.)  596  (1826). 

2  Redmond  v.  Enfield  Manfg.  Co.,  13 
Abb.  Prac.  (i\.  S.)  332  (1872).  But  they 
may  appoint  a  receiver  of  such  a  corpo- 
ration. Murray  v.  Vanderbilt,  39  Barb. 
140  (1863). 

^  Jn  re  Suburban  Hotel  Co.,  L.  R.  2 
Chan.  737(1867).  In  this  case,  however. 
Cairns,  L.  J.  said:  "I  am,  therefore,  un- 
able to  find  that  any  larger  rule  has  been 
laid  down,  and  I  certainly  do  not  think 
it  desirable  now  to  lay  down  a  larger  rule 
than  that  laid  down  by  Lord  Cottenham, 
and  followed  by  the  Master  of  the  Rolls, 
in  the  case  of  The  Anglo-Greek  Steam 
Company,  that  if  there  be  insolvenc}^  or 
anything  which  is  equivalent  to  a  test  of 
insolvency,  if  there  be  the  circumstances 
tliMt  the  company  has  not  for  a  certain 
time  commenced  business,  or  has  sus- 
pended busine-8,  that  is  a  test  given  to 
the  court  by  which  to  prove  that  the 
business  cannot  be  carried  on,  and  in 
those  cases  the  company  may  be  wound 
up.  It  is  not  necefesary  now  to  decide 
it:  but  if  it  were  siiown  to  the  court  that 
the  whole  substratum  f)f  the  iiartnorship, 
the  whole  of  the  business  wliich  the  com- 
pany was  incorporated  to  carry  oii,  has 
become  impossible,  I  appn-hend  that  the 
court  might,  either  under  the  Act  of 
Parliament,  or  on  generiil  principles,  or- 
der the  c<jMi|)any  to  he  wound  up.  Mut 
what  I  ;im  pre|iared  to  hold  is  tlii.s:  I  hat 
this  court,  and  the  winding-up  process  of 


the  court,  cannot  be  used,  and  ought  not 
to  be  used,  as  the  means  of  evoking  a  ju- 
dicial decision  as  to  the  probable  success 
or  non-  success  of  a  company  as  a  com- 
mercial speculation.  This  company  may 
become  successful,  or  may  continue  to  be 
unprofitable,  as  I  believe  it  has  hitherto 
been  ;  and  it  may,  therefore,  hereafter  re- 
appear in  this  court  under  different  cir- 
cumstances, but  it  is  not  for  this  court 
now  to  pronounce  and,  above  all,  not  for 
this  court  to  pronounce  on  opinion  evi- 
dence, that  this  islikel}-  to  be  an  unprofit- 
able  speculation  ;  and  that,  therefore,  at 
the  wish  of  a  minority  of  shareholders, 
against  the  will  of  a  large  majority,  the 
company  should  be  wound  up  and  put  an 
end  to."  Cf.  In  re  Tumacacori  Mining 
Co.,  L.  R.  17  Eq.  534  (1874). 

••  Folger  V.  Columbian  Ins.  Co.,  99 
Mass.  267  (1868).  But  see  the  cases  in 
the  following  note. 

^  State  V.  Bank  of  South  Carolina,  1 
Spear  (S.  C),  433,  451,466  (1843);  Com- 
mercial Bank  of  Natchez  v.  State,  14  Miss. 
599,617(1846);  Planters'  Bank,  &c.  v. 
State,  15  id.  163  (1846);  State  v.  Real 
Estate  Hank.  5  Ark.  695  (1844);  People 
V.  Washington  Bank,  6  Co  wen,  210,  216 
(1826) ;  I'eople  v.  Bank  of  Hudson,  6  Id. 
217(1826)  ;  State  V.  Seneca  Co.  Bank,  R 
Ohio  St.  171  (1855).  Contra,  State  v. 
Bailey,  16  Ind.  46,  51  (1861).  (?f.  Ferris 
V.  Strong,  3  Kdw.  Chan.  (N.  V.)  127 
(1837).  The  fact  that  a  coi'])oralion  ia 
insolvent  will  not  authorize  it  to  apply  to 
a  court  of  equity  for  a  receiver  to  wind 
up  its  affairs,  The  receiver  should  be 
iippoiiileil  oidy  at  the  instance  of  the 
creditor.  Huijh  )'.  McRao,  Chase's  Doc. 
466(1869).  (J/:  People?;.  Erie  ily.  Co., 
36  How.  Prac.  129(1868). 

653 


§  632.]  DISSOLUTION.  [cH.  xxx\^^. 

means  inability  to  pay  debts  that  are  due.     Accordingly,  a  court 
will  not  order  a  company  to  be  wound  up  by  reason  of  any  lia- 
bilities not  immediately  payable,  unless  it  is  reasonably  certain 
that  the  existing  and  probable  assets  will  be  insufficient  to  meet 
the  existing  liabilities.     In  no  case  will  an  account  be  taken  of 
the  possible  liabilities  or  profits  which  may  accrue  in  respect  of 
future  business.^     When  the  circnmstances  are  such  as  to  warrant 
a  forfeiture,  it  has  been  held  that  any  stockholder  may  institute 
proceedings  to  that  end,^  but  it  is  doubtful  whether  this  can  be 
considered  good  law.     A  virtual  dissolution,  but  not  a  dissolution 
in  law,  occurs  when  the  corporation  is  enjoined  from  the  exercise 
of  the  corporate  functions,  or  deprived  of  its  property,  by  injunc- 
tion and  a  decree  appointing  a  receiver.     And  again,  if  the  cor- 
poration ceases  to  do  business,  or  complete  the  enterprise  for 
which  the  incorporation  was  effected,  or  if  it  becomes  impos- 
sible to  carry  on  the  corporate  business,  then  a  single  sliareholder 
may  apply  to  a  court  of  equity  for  a  winding  up  of  the  cor- 
poration.^    But  it  has  been  held  that,  even  though  the  corpora- 
tion is  inert  and  the  officers  do  not  act,   and  have  all  become 
non-residents,  still  it  is  not  competent  for  a  few  stockholders  to 
commence  an  action  for  a  receiver  and  division  of  the  corporate 
assets.^     And  the  mere  misconduct  of  the  corporate  officers  will 
not  authorize  a  dissolution  at  the  suit  of  a  minority  of  stock- 
holders.^     When  a  corporation  is   insolvent   and  the  corporate 
officers  are  appointed  by  the  stockholders  to  wind  it  up,  in  the 

'  In  re  European  Life   Assurance  So-  planck  »».  Mercantile    Insurance    Co.,  \ 

ciety,  L  R.  9  Eq.  122  {\%6^).     See  also  Edw.  Chan.  (N.  Y.)  84  (1831). 
Re  Factage  Parisien,  34  L.  J.  Chan.  140 ;  *  Waterbury  v.  Merchants'  Union  Ex- 

8    c    13  \V.   R.   214,   330;     In  re  Great  press  Co.,  50  Barb.  161  (1867);  People  j;. 

Northern  Copper  Mining  Co.,  17   W.  R.  Albany,   <fec.   R.   R.   Co.,    55  Barb.    344 

462  (1869);  Re  Suburban   Hotel  Co.,  L.  (1869) ;  Belmont  v.  Erie  Ry.  Co.,  52  Id 

R.  2  Chan.  737  (1867);  /«  re  Tumacacori  637(1869).     It  is,  however,    no  ground 

Minino-  Co.,  L.  R.  17  Eq.  534.     Cf.  Mas-  for  dissolving  a  corporation,  on  a  petition 

ters   V.    Eclectic    Life   Ins.    Co.,  6  Daly,  of  a  majority  in  numbers  of  the  stocb- 

455  (1876);  Harden  v.  Newton,  14  Blatchf.  holders  who,  however,  own  but  a  minori- 

376  ;  Huo-'h  v.  McRae,  Chase's  Dec.  466.  ty  of  the  stock,  that  one  who  owns  a  ma- 

^'Ward  V.  Sea  Insurance  Co.,  7  Paige,  jority  of  the  stock  controls  the  elections, 

294(1838).     But  see  Curienv.  Santini,  16  makes  himself  the  manager  and    general 

La  Ann.  27  (1861);  Polar  Star  Lodge  ?;.  agent   of  the  concern,  and  conducts  the 

Polar  Star  Lodge,  Id.  53  (1861).  business  as  he  pleases,  that,  according  to 

3 /«  re  Suburban  Hotel  Co.,  L.  R.  2  his  reports,  the  business  has  not  been 

Chan.  737,750  (1867);  Cramer  v.  Bird,  prosperous,  that  he  refuses  to  make  any 

L.  R.  6  Eq.  143  (1868);  /«  re  Joint  Stock  change  in  the   manner   of  conducting  it, 

CoalCo,L.  R.   8  Eq.   146  (1869);  hire  or  to  buy  the  shares  of  the   petitioners. 

Suburban  Bank,  L.  R.  7  Chan.  641  (1871);  and  that  under  a  diSferent   management 

Pratt  V.  Jewett,  9  Gray,  34  (1857).  the  business  could  be  made    profitable. 

4  Croft  V   Lumpkin  Chestatee  Mining  Pratt  v.  Jewett,  9  Gray,  34  (1857).     Ihe 

Co.     61  Ga.  465  (1878).      But  c/.   Ver-  Wabash  Ry.  Case,  U.  S.C.C.  111.  Dec.1886. 

654 


CH,  xxxvnr.] 


DISSOLUTION. 


[§  633. 


absence  of  an  allegation  of  fraud,  no  court  can  step  in  and 
appoint  a  receiver  to  take  possession  of  the  property  and  conduct 
tbe  business  of  closing  up  the  affairs.^  But  if  the  majority  of  the 
stockholders  neglect  or  refuse  to  act  in  the  premises,  the  corpora- 
tion being  defunct  and  insolvent,  a  receiver  may  be  appointed  to 
wind  it  up.=^  Upon  a  voluntary  dissolution  of  a  corporation,  any 
of  its  officers  or  stockholders  may  be  appointed  receivers  if  not 
otherwise  disqualified.^  But  the  corporate  officers  or  directors 
have  no  power,  without  authority  from  the  stockholders,  to  take 
steps  to  dissolve  the  corporation.*  All  the  stockholders  need  not, 
however,  be  made  parties  to  a  dissolution  suit  which  is  regularly 
brought.^  When  the  corporate  business  is  ended,  the  stockhold- 
ers are  entitled  as  a  matter  of  right  to  a  dissolution  of  the  cor- 
poration.* 

§  633.   What  ivill  and  tvhat  ivill  not  operate  to  dissolve. — 

There  are  certain  acts  or  omissions  of  the  shareholders  which, 
while  they  may  impair  the  free  exercise  of  the  corporate  func- 
tions, and  expose  the  corporation  to  an  action  on  the  part  of  the 
State  for  a  dissolution  or  forfeiture  of  the  franchises,  do  not  in 
themselves  constitute  a  dissolution.  Thus,  a  failure  to  elect  cor- 
porate officers  at  the  time  prescribed  in  the  charter  or  by-laws, 
does  not  work  a  dissolution  of  the  corporation. '^     Nor  will  a  resio-- 


'  FoUettv.  Fielcl,30La.Ann.l61  (ISTS). 

'  Lawrence  v.  Greenwich  Fire  Ins. 
Co.,  1  Paige,  587  (1829). 

3  In  the  Matter  of  the  Eagle  Iron 
Works,  8  Taige,  38.5  (1840).  See  ^  2429, 
N.  Y.  Code  of  C.  P. 

*  Ward  V.  Sea  Insurance  Co.,  7  Paige, 
294  (1838);  Abbot  v.  American  Hard 
Rubber  Co.,  33  Barb.  578  (18GI). 

'  Von  Schmidt  v.  Huntington,   1    Cal 
55  (185U). 

"  Frothingham  v.  Viavm^y,  (>  Hun,  366 
(1876);  Taylor  V.  Earle,  8  Id.  1  (1876); 
McVicker  v.  Koss,  55  Barb.  247  (1869). 

■"  Rose  V.  Turnpike  Co.,  3  Watts 
(Pc-nn.),  46  (1834);  L.lii-Ii  Bridge  Co.  v. 
Lehigh  Coal  &  Navigation  (Jo.,  4  Rawie 
(Penn.),  8,23  (1.''32);  romnionwealth  v. 
Cullen,  13  Penn.  St.  133  (1850) ;  Hoboken 
Building,  itc.  Association  v.  Martin,  13 
N,  J.  K(|.  427  (1861);  Evarts  v.  Killing- 
worth  Manfg.  Co.,  20  Conn.  447  (18.'')<)); 
Nashville  Bank  v.  I'ctway,  3  Humph. 
(Tenn  )  522  (1842);  Boston  GIah.s  .Manfg. 
Co. »'.  Langdon,24  Pick.  49(1834);  Russell 
V.  McLellan,  14  Id.  6:i  (1833);  Cahill  v. 
Kalamazoo,  &c,,  Ins.  Co.,  2  Doug.  (Mich.) 


124,  140  (1845);  Harris  v.  Mississippi 
"Valley,  &c.,  R.  R.  Co.,  51  Miss.  602  (1875), 
where  the  court  say :  "  This  allegation 
assumes  that  by  reason  of  the  non-election 
of  the  board  of  directors  (within  the  time 
slated)  the  corporation  hasbcen  dissolved. 
The  legislature,  in  the  particulars  of  the 
charter  referred  to,  has  very  carefully 
guarded  against  that  consequence.  The 
rule  is  tliat  a  corporation  is  dissolved 
when  it  has  lost  the  power  of  perpetuat- 
ing itself ;  when  (according  to  its  nature), 
from  the  loss  of  its  chief  otlieer,  or  an  in- 
tegral part,  anil  in  its  imperfect  slate,  it 
has  not  tlie  capacity  to  resu>citate  or  re- 
store itself  by  a  new  election.  So  long 
as  there  r(!niains  the  caj)acity  of  reviving 
restoration,  it  is  not  d<'ad.  Angcll  &, 
Ames  Corp.,  i-i^  768,  7">9.  No  loss  of 
members  destroys  a  corporation  so  long 
as  a  sufficient  nuinher  remain  to  continue 
the  successif)n  and  fill  up  vacancies.  Nor 
does  I  he  mere  failure  of  the  trustees  or 
directors  to  meet  dissolve  the  body. 
State  V.  Trustees  Vinccnnes  University, 
5  Ind.  80,81.  That  case,  both  iti  the 
questions  of  law  and  fact,  is  very  similar 

055 


§  633.] 


DISSOLUTION. 


[CH.  XXXVIII, 


nation  of  all  the  officers  have  that  effect.^  The  corporate  rights 
and  franchises  are,  in  such  a  case,  merely  dormant  until  other  offi- 
cers are  elected.^  Again,  the  sale  and  assignment  of  all  the  cor- 
porate property  will  not  necessarily  dissolve  the  corporation,  or 
operate  as  a  surrender  of  the  franchises.^  The  fact  that  one  per- 
son owns  all  the  stock  does  not  affect  the  corporate  existence,* 


to  this.  The  point  ruled  was,  if  enough 
trustees  remained  to  fill  up  vacancies  and 
restore  the  corporation  to  vitality,  al- 
though the  board  may  not  have  kept  up 
its  regular  meetings,  the  corporation  was 
not  dissolved."  s.  p.  People  v.  Runkle,  9 
Johns.  147  (1812);  Philips  v.  Wickham, 
1  Paige,  590  (18-::9);  Slee  v.  Bloom,  5 
Johns.  Chan.  366  (1821);  s.  c,  19  Johns. 
456  (1822);  St.  Louis,  <fec.,  Loan  Associ- 
ation V.  Augustin,  2  Mo.  Appeal,  123 
(1876);  Knowlton  v.  Ackley,  8  Gush.  93 
(1851);  People  ?^.  Wren,  5  111.  269(1843); 
President  &  Trustees,  (fee.  v.  Thompson, 
20  Id.  197  (1858).  Cf.  Smith  v.  Smith,  3 
Desauss.  (S.  C.)  657(1813);  Ward  v.  Sea 
Insurance  Co.,  7  Paige,  294  (1838);  Peo- 
ple V.  Twaddell,  18  Hun,  427  (1879).  In 
Blake  v.  H inkle,  10  Yerg.  (Tenn.)  218 
(1836),  the  court  said:  "  liy  the  charter 
of  the  bank,  granted  in  1815,  the  exist- 
ence of  tlie  corporation  will  continue  till 
the  year  1841.  Wo  dissolution  is  alleged 
in  the  bill,  as  the  result  of  judicial  or  leg- 
islative action,  but  the  corporation  is 
stated  to  have  been  dissolved  by  the  non- 
election  of  officers  and  other  acts  incon- 
sistent with  the  charter.  The  failure  to 
elect  directors  or  other  officers  could  not 
produce  a  dissolution  of  the  corporation, 
nor  could  it  prevent  the  institution  of  an 
action  at  law.  For  it  is  provided,  with 
regard  to  this  bank,  by  the  act  of  1821, 
c.  197,  §  5,  that,  in  such  event,  demand 
shall  iDe  made  and  process  served  upon, 
the  late  president,  cashier,  or  an}'  direc- 
tor." It  seems  that  it  makes  no  differ- 
ence whether  the  old  officers  are  author- 
ized to  hold  over  or  not,  and  tlie  rule  is 
the  same  in  public  and  private  corpora- 
tions. Philips  V.  Wickham,  1  Paige,  590 
(1829);  People  v.  Wren,  5  111.  269(1843). 

'  Muscatine  Turn  Verein  v.  Funck, 
18  Iowa,  469  (1865);  Evarts  v.  Killing- 
worth  Manfg.  Co.,  20  Conn.  447  (1850). 

5  Philips  V.  Wickham.  1  Paige,  590 
(1829).  Cf.  Lea  v.  American  Atlantic,  Ac, 
Canal  Co.,  3  Abb.  Prac.  (N.  S.)  1  (1867). 

=*  Barclay  v.  Talman,  4  Edw.  Ciian.  123 
(1842);  De  Camp  v.  Aylward,  52  Ind. 
468  (1876);  Richwald  v.  Commercial  Ho- 
tel Co.,  106   111.  439  (1883);  Rollins  v. 

656 


Clay,  33  Me.  132  (1851);  Kansas  City 
Hotel  Co.  V.  Sauer,  65  Mo.  279  (1877); 
Trov,  <fec.,  11.  R.  Co.  V.  Kerr,  17  Barb. 
581"  (1854).  In  State  v.  Merchant,  37 
Ohio  St.  251  (1881),  it  was  held  that  the 
right  of  stockholders  of  a  railway  com- 
pany to  meet  and  elect  directors  of  the 
corporation  is  not  affected  by  the  sale  of 
the  property  of  the  company  by  a  receiv- 
er under  an  order  of  the  court.  The 
court  said :  "  The  appointment  of  the  re- 
ceiver and  the  sale  of  the  property  of  the 
railway  company  have  no  bearing  on  the 
question  before  us.  These  facts  did  not 
work  a  dissolution  of  the  corporation, 
and  while  the  corporation  continued  it 
was  competent  for  the  stockholders  to 
elect  directors."  Robertson,  C.  J.,  in 
Smith  V.  Gower,  2  Duval,  17  (1865), said: 
"  The  sale  of  the  road  neither  passed  to  the 
purchaser  the  liabilities  of  the  appellants, 
nor  destroj'ed  the  corporation.  The  cor- 
porate existence  of  the  company  still  con- 
tinued for  more  than  one  purpose,  and 
certainly  for  the  purpose  of  collecting 
and  paying  its  debts."  Ace.  State  v. 
Rives,  5  Ired.  Law  (N.  C),  297  (1844); 
Bruffett  V.  Great  Western  R.  R.  Co.,  25 
111.  353  (1861). 

4  Newton  Manfg.  Co.  v.  White,  42  Ga. 
148  (1871),  where  the  court  say:  "The 
fact  that  in  an  association  under  the  act 
of  1847,  one  of  the  stockholders  finally 
buys  up  and  owns  all  the  stock  and  prop- 
erty of  the  balance,  and  the  whole  lodges 
in  him,  does  not  deprive  such  person 
from  the  use  and  rights  of  the  charter  to 
carry  on  the  business  imder  the  name 
adopted ;  and  the  fact  of  being  the  sole 
owner,  if  he  goes  on  and  uses  sucli  name, 
does  not  ab;ite  suits  at  law  or  equity  filed 
against  such  corporation,  although  indi- 
vidual property.  No  corporation,  once 
legally  existing,  dies,  in  contemplation  of 
law,  without  some  act  forfeiting  its  fran- 
chises; but  it  will  be  recognized  by  the 
law  as  long  as  it  carries  on  its  legitimate 
busine.-s  in  its  corporate  name,  and 
through  agents  and  j)ersons  who  use  that 
name  in  its  trade  or  business.  It  would 
be  an  anomalous  doctrine  that  one  should 
purchase  all  the  stock  of  such  a  joint- 


CH.  XXXVIII.] 


DISSOLUTION. 


[§  633. 


nor  is  the  corporation  dissolved  b}-  a  cessation  of  all  corporate 
acts.*  But  a  foreclosure  sale  of  all  the  property  and  franchises  of 
a  corporation  will  close  out  and  foreclose  the  whole  interest  of 
the  stockholders  therein.^  There  may,  however,  be  a  valid  agree- 
ment between  a  railway  corporation,  the  mortgagees  in  trust  of 
its  road,  and  the  bondholders,  that  after  a  sale  under  the  mort- 
gage the  company  should  be  so  reorganized  that  the  stockholders 
and  unsecured  creditors  of  the  old  company  should  become  stock- 
holders in  the  new  company.  Such  an  agreement  would  modify 
to  that  extent  the  effect  of  the  mortgage  sale.**  In  general,  a  cor- 
poration having  capital  stock  does  not  suffer  dissolution  by  reason 
of  the  death  of  all  its  members,  since  the  stock  passes  at  once  to 
their  legatees  or  distributees.*  JSior  is  insolvency  in  itself  disso- 
lution,^ even  though  a  receiver  has  been  appointed.^  When  two 
or  more  corporations  are  consolidated  or  amalgamated,  such  con- 
solidation or  amalgamation  may  operate  to  dissolve  the  original 


stock  company  privately,  and,  without 
giviriiT  notice  of  such  ownership,  should 
carry  on  the  business,  use  the  corporate 
name,  brands,  stamps,  and  trade-marlis, 
and  keep  books  in  its  name,  buy  and  sell 
in  its  name,  and  be  permitted  to  plead 
its  dissolution  when  sued  by  the  very 
name  in  which  it  contracted,  in  violation 
of  the  terms  of  its  existence  that  it  could 
sue  and  be  sued  by  tliat  name.  Every 
corporation  speaks  by  men,  and  its  arti- 
ficial existence  blends  with  that  of  its 
ajjents  and  officers.  The  corporate  name 
is  nothing  without  the  living  men  who 
use  that  name;  but  when  used  by  those 
who  are  its  proper  agents,  it  is  liable  by 
that  name  to  suit  under  the  provisions  of 
its  charter."  See  also  Sharp  v.  Dawes, 
46  L.  J.  (Q.  B.)  104  (1876);  Button  v. 
Ilofftnan,  Gl  Wis.  20  (1884);  Swift  v. 
Smith  (Md.,  1886^  6  East.  Rep.  574; 
England  v.  Dearborn,  141  Mass.  590 
(1886);  Hopkins  v.  Koseclare  Lead  Co., 
72  111.  373  (1874).  The  rule  is  the  same 
wliere  two  persons  buy  all  the  stock. 
Russell  V.  McLellan,  14  I'ick.  63  (18:13). 
The  corporation  still  subsists,  and  the 
two  purchasers  do  not  bc'Come  partners, 
or  joint-tenimts,  or  tenants  in  common  of 
the  corporate  property.  (!f.  Common- 
wealth V.  Cullen,  13  Penn.  St.  133  (1850). 
'  AttorncyGi-nera!  v.  Bank  of  Niagara, 
Hopkins'  Chan.  (\.  Y.)  103  (1825)  ;  Bap- 
tist Meeting  House  v.  Webb,  66  M'-.  398 
(1877);  liollins  v.  Clay,  33  Me.  132  ('.851 ); 
Harris  v.   Nesbit,   24    A.la.    398   (1864); 


Kansas  City  Hotel  Co.  v.  Sauer,  65  Mo. 
279,  288  (1877);  Nimmons  v.  Tiippan,  2 
Sweeney  (N.  Y.).  652  (1870);  Mickles  v. 
Rochester  City  Bank,  11  Paige,  118 
(1844);  State  v.  Barron,  58  N.  H.  370 
(1878);  Troy,  Ac,  R.  R.  Co.  v.  Kerr,  17 
Barb.  581  (1854 ).  Gf.  Re  Jackson  Marine 
Ins.  Co.,  4  Sandf.  Chan.  (N.  Y.)  559 
(1847);  Conro  v.  Gray,  4  How.  Prac.  166 
(1849).  See  also  2  Rev.  Stat,  of  N.  Y. 
463,  464,  §§  38,  56. 

2  Vatable  v.  New  Y'ork,  <fec.,  R.  R.  Co., 
96  N.  Y.  49  (1884);  Thornton  v.  Wabash 
Ry.  Co.,  81  Id.  462,  467  (1880).  r,/. 
Mickles  v.  Rochester  City  Hank,  1 1  Paige, 
118,  127(1844);  Sullivan  v.  Portland  A 
Kennebec  R.  R.  Co.,  94  U.  S.  806  (1876). 

^  Smith  V.  Chicago,  «fec.,  R.  R.  Co.,  18 
Wis.  17(1864).  , 

*  Boston  Glass  Manfg.  Co.  y.  Langtlon, 
24  Pick.  49,  52  (1834);  Russell  v.  McLel- 
lan, 14  Pick.  63,  69  (1833).  Of.  Chesa- 
peake &  Ohio  Canal  Co.  v.  Baltimore,  Ac, 
R.  R.  Co.,  4  Gill  &  J.  1,  121. 

*  Mo.seby  v.  Burrow,  52  Texas,  396 
(1880);  Valley  Bank  <t  Savings  institu- 
tion v.  Sewing  Society,  28  Kan.  423 
(1882). 

*  State  V.  Merchant.  37  Ohio  St.  25 i 
(1881);  Taylor  on  (Corporations,  tj  433. 
A  national  bank  in  voluntary  liquidation, 
under  if  52.i(»of  th(!  Revised  Statrs,  in  not 
thereby  dissolved  as  a  corporation,  but 
may  sue  and  b(f  sued  for  tlu'  |iiir|io;sc  of 
wimlirig  up  its  busincas.  National  Bank 
V.  Insurance  Co.,  104  (J.  S.  54  (1881). 


[42] 


(;57 


§  634.J 


DISSOLUTION. 


[cH.  XXX vni. 


corporations,  or  it  may  not.  Generally,  as  it  seems,  the  consoli- 
dation operates  to  dissolve  the  old  corporation,  but  this  is  not 
universally  the  case.^ 

§  634.  Statutes  regulating  dissolution. — There  are  iu  nearly 
all  of  the  States,  statutes  which  regulate  the  dissolution  of  incor- 
porated companies,  and  prescribe  in  detail  the  formalities  to  be 
observed  in  a  winding  up.^  They  usually  contain  a  provision 
that  the  corporate  existence  shall  be  continued  for  a  fixed 
time,  pending  the  proceedings  for  dissolution,  so  that  suits  may 
be  brought  by  and  against  the  corporation  for  the  purpose  of 
closing    the    business    and    disposing   of    the   assets.^       Under 


'  In  Ohio,  the  consolidation  of  two  or 
more  railway  companies,  pursuant  to 
the  statute  of  April  10,  1856  (4  Ci^rwen, 
2791),  worts  their  dissolution.  Shields 
V.  Ohio,  95  U.  S.  319  (1877).  This  is 
also  the  case  in  Georoia.  Railroad  Co. 
V.  Georeia,  98  U.  S.  359(1878);  Atlanta, 
Ac,  R.'R.  Co.  V.  State,  63  Ga.  483  (1879). 
"Where  an  Indiana  and  Ohio  railway  cor- 
poration were  consolidated,  it  was  held 
in  Indiana  that  the  Indiana  corporation 
was  dissolved,  but  that,  for  the  purpose 
of  enforcing  the  payment  of  a  debt,  the 
Ohio  corporation  would  be  assumed  to 
be  still  in  existence.  Eaton  &  Hamil- 
ton K.  R.  Co.  i-.  Hunt,  20  Ind.  457  (1863). 
Generally  a  consolidation  works  the  dis- 
solution of  the  old  corporations.  Clear- 
water V.  Meredith,  1  Wall.  25,40  (1863); 
McMahon  i'.  Morrison,  16  Ind.  172(1861); 
State  V.  Bailey,  16  Id.  46  (1861);  Powell 
V.  North  Slissouii  R.  R.  Co.,  42  Mo.  63 
(1867) ;  Racine,  <fec.,  R.  R.  Co.  v.  Farmers 
Loan  &  Trust  Co..  49  111.  331,  349  (1868). 
But  each  case  depends  upon  iis  own  pe- 
culiar circumstances,  and  the  rule  is  by 
no  means  a  universal  ofie.  In  Wabash, 
(fee,  R.  R.  Co.  V.  Ham,  114  U.  S.  587, 
595  (1884),  the  couit  said:  "But  upon 
the  consolidation,  under  express  author- 
ity of  statute,  of  two  or  more  solvent 
corporations,  the  business  of  the  old  cor- 
porations is  not  wcund  up,  nor  their 
property  sequestrated  or  dit^tribuied,  but 
the  very  object  of  the  consolidntion 
and  of  the  statutes  which  permit  it  is  to 
continue  the  business  of  the  old  corpora- 
tions. Whether  the  old  corporations  are 
dissolved  into  the  new  corporatic  n,  or  are 
contiiiued  in  existence  under  a  new  name 
and  with  new  poweis;  and  whether,  in 
either  Ci:se,  tiie  consolidated  company 
takes  the  propeity  of  each  of  the  old  cor- 
porations, chargeu  with  a  lien  for  the  pay- 

058 


ment  of  the  debts  of  that  corporation,  de- 
pend upon  the  terms  of  the  agreement  of 
consolidation,  and  of  the  statutes  under 
whose  authority  that  consolidation  is  ef- 
fected." See  also  Stale  v.  Merchant,  37 
Ohio  St. 251  (1881);  Proutv  r.  Lake  Shore, 
<fec..  R.  R.  Co.,  52  N.  Y.  363  (1873). 

'■*  Massachusetts — Gen.  Stat.,  chap.  68, 
§g  35-39.  Iowa— Code,  §  1074.  Illinois 
—Rev.  Stat.,  p.  577,  §  25!  Ohio— Act  of 
May  1 ,  1852  (3  Curwen,  1876).  Alabama 
— Code,  §  1775  ei  s(q.  New  \rrk — 
2  Rev.  Stat.,  461,  484,  ^§  39-41  ;  Laws 
of  1849,  chap.  226;  1 '  Rev.  Stat.,  600 
(7th  ed.,  1530);  Code  of  Civil  Procedure, 
§§  1785,  1786,  241 9 rf  seg.  Pennsylvania 
— Brio-htlev's  Purdon's  Digest  "(1862), 
197;  in  re'Franklin  Teleoraph  Co.,  119 
Mass.  447  (1876);  Fisher'r.  World,  <fec., 
Life  Ins.  Co.,  15  Abb.  Prac.  (N.  S.)  363 
(1873);  People  v.  Central  City  Bank,  53 
Barb.  412  (1867);  Mooney  v.  British, 
(fee,  Life  Ins.  Co.,  9  Abb.  Prac.  (N.  S.) 
103  (1869);  Matter  of  Pvrolusite  Man- 
ganese Co.,  29  Hun,  429  (1883);  In  the 
Matter  of  DuBois,  15  How.  Prac.  7 
(1856);  s.  c.  sub  nom.  Case  of  the  West- 
chester Iron  Co  ,  6  Abb.  Prac.  386,  note. 
In  California  theie  is  no  statutory  pro- 
vision for  the  dissoluiion  of  corporations 
for  literary  purposes,  having  no  stock- 
holders. Accordingl}-,  upon  the  disin- 
coiporation  of  such  a  corporation,  it  it 
owe  no  debts,  all  its  personal  estate,  and 
all  its  real  property,  a<qiureil  by  pur- 
chase for  value,  vests  by  operation  of  law 
in  the  State.  People  r.  President  <fc  Trus- 
tees of  the  College  of  California,  38  CaL 
166  (1869). 

^  Stetson  1'.  City  Bank  of  New  Orleans, 
12  Ohio  St.  577(1861);  McGoon  r.  Scales, 
9  Wall.  23  (1869);  Mariners  Pank  v.  Se- 
wall,  50  Me.  •^20  (1861);  Muscatine  '!  urn 
Verein  v.  Funck,   18   Iowa,  469  (1865); 


CH.  XXXVIII.] 


DISSOLUTION. 


[§635. 


statutes  in  some  of  the  States  an  information  in  the  nature 
of  quo  warranio  may  be  filed  at  the  relation  of  a  shareholder 
against  an  illegally  existing  corporation,  to  compel  a  dissolution,^ 
And  in  some  jurisdictions  there  are  provisions  for  the  appoint- 
ment of  receivers  to  wind  up  the  business.^  By  the  National 
Banking  Act  it  is  provided  that  a  national  bank  "may  go  into 
liquidation  and  be  closed  by  the  vote  of  its  shareholders,  owning 
two-thirds  of  the  stock."  This  liquidation  is  effected  through  a 
receiver,  appointed  by  and  acting  for  the  comptroller  of  the  cur- 
rency.^ The  statute  provides  in  detail  the  mode  of  procedure, 
and  the  duties  of  the  receiver  in  such  cases.^  The  statutory  lia- 
bility of  the  shareholders  in  incorporated  companies,  for  the  debts 
of  the  concern,  upon  a  dissolution,  is  considered  elsewhere.^ 

§  635.  T}ie  JEnglish  statute. — In  England,  there  is  a  statute 
providing  for  the  winding  up  of  companies  known  as  "  the  wind- 
ing up  act,"  ^  under  which  the  business,   not  only  of  corpora- 


Thornton  V,  Marginal  Freight  Ry.  Co., 
123  Mass.  32  (1877);  Folger  v.  Chase,  18 
Pick,  63  (18:^6) :  Crease  v.  Babc^ck,  10 
Mete.  525,567  (1846);  Re  Independent 
Ins.  Co.,  1  Holmes,  103;  Franklin  Bank 
V.  Cooper,  36  Me.  179 ;  Neviit  v.  Bank  of 
Port  Gibson,  14  Miss.  513  (1846).  The 
life  of  the  corporation  is  frequently  ex- 
tended by  these  statutes  for  three  years. 
Herron  v.  Vance,  17  Ind.  595  (1861); 
Foster  v.  Essex  Bank,  16  Mass.  215(1819); 
Blake  v.  Portsmouth,  <fec.,  R.  R.  Co.,  ;59 
N.  H.  435  ( 1 859 ) ;  Van  Glalm  v.  r>e  Rosset, 
81  N.  C.  467  (1879) ;  Michigan  St;ite  Bk.  v. 
Gardner,  15  Gray,  362  (1860).  Sometimes 
five  years.  Tuskaloosa,  &c..  Association 
V.  Green,  48  Ala.  346  (1872).  In  Herron 
V.  Vance,  vif/ra,  the  court  says:  "The 
question,  therefore  is,  whether  these  stat- 
utes confer  authority  to  sue  in  this  case 
in  the  name  of  the  receiver,  and  if  so, 
whether  enouj^h  is  shown  in  the  com- 
plaint? In  tliis  counection  il  may  throw 
some  light,  in  givin<.;  the  proper  construc- 
tion, to  notice  the  twelfth  section  of  an 
act  establishing  general  provisions  re- 
specting corporations.  1  R.  .S.,  p.  239,  that 
provides  wheie  the  charter  of  a  corpora- 
tion shall  expire,  that  within  three  years 
the  proper  court,  shall,  on  application,  Ac, 
appoint  a  reciiver,  or  trustee,  to  take 
charge  of  the  estate,  eff  cts,  (fee,  '  with 
power  to  prosecute  and  dL-fend,  in  the 
name  of  the  corporation  or  otherwise, 
all  suits,  (fee'     And  the  sixth  eection  of 


the  same  act  continues,  as  bodies  corpo- 
rate for  three  years,  all  corporations 
whose  '  charters  shall  expire  by  limita- 
tion, forfeiture,  or  otherwise,'  to  enable 
them  to  prosecute  and  defend  suits,  settle, 
jfec.  Taking  these  two  sections  together, 
it  is  apparent  that  all  corporations  organ- 
ized under  the  provisions  of  that  act,  are, 
for  certain  purposes,  considered  as  in 
being  for  three  years  after  they  shall 
have  ceased  to  legally  exist,  for  the  pur- 
pose of  their  organization;  that  is,  that 
the  affairs  of  said  corporation  may  be 
properly  closed  up,  if  necessary,  by  suits 
to  be  conducted  in  the  name'of  tlie  de- 
funct body,  which  the  law  makers  ap- 
pear, perhaps  correctly,  to  have  thought 
could  not  be  done  without  an  act  upon 
the  subject."  Cf.  Lincoln,  «tc.,  Bank  v. 
Richardson,  1  Me.  79  (182ii). 

'  Albert  v.  State,  65  Ind.  413  (1879). 

'  So  in  Connecticut — Lothrop  v.  Sted- 
man.   13  Blatchf   134,143(1875)      New 
York— Owen  v.  Sniith,31  Barb.641  (1861). 
North  Carolina — Van  Glahn  v.  De  Rosset 
81  N.  C.  467(1879). 

^  Rev.  Stat,  of  (J.  8..  1873-74,  tit.  62, 
chap.  4,  §  5220. 

•'  Kennedy  v.  Gibson,  8  Wall.  498 
(1869);  B;mk  of  Bethel  v.  Paliquioquo 
l'.ank.  It  W:dl.  383  (1870);  Hank  v.  Ken- 
nedy, 17  Wall.  19  (1872);  In  re  Plutt, 
Receiver,  1  Benedict,  534  (1867). 

"  See  Chap.  XII,  sujira. 

"  Stat.  26  &  26  Vict.  chap.  89,  §  129. 

659 


§  636.] 


DISSOLUTION. 


[CH.  XXXVIII- 


tions,  but  also  of  the  English  joint-stock  companies,  is  closed  up, 
upon  prescribed  conditions,  by  a  voluntary  dissolution.^ 

§  636.  A  lease  or  transfer  of  corporate  jyropertij  and  fran- 
chises as  a  means  of  dissolution. — A  corporation  is  sometimes 
formally  dissolved  for  the  purpose  of  transferring  its  assets  to 
another  corporation.  In  such  a  case,  payment  for  the  property 
and  franchises  of  the  old  corporation  is  occasionally  made,  not 
in  cash,  but  in  the  stock  of  the  new  corporation.  When  this  is 
done,  it  is  a  settled  rule  that  the  shareholders  of  the  old  corpora- 
tion cannot  be  compelled  to  accept  such  a  payment.^  Such  of 
them  as  do  not  voluntarily  join  the  new  corporation  are  entitled 


1  The  material  parts  of  act  are  as  fol- 
lows :  "A  company  under  this  act  may  be 
wound  up  voluntarily. 

"(1.)  Whenever  the  period,  if  any, 
fixed  for  the  duration  of  the  company  by 
the  articles  of  association  expires,  or 
whenever  the  event,  if  any  occurs,  upon 
the  occurrence  of  which  it  is  provided 
by  the  articles  of  association,  that  the 
company  is  dissolved,  and  the  company 
in  general  meeting  has  passed  a  resolu- 
tion requiring  the  company  to  be  wound 
up  voluntarily. 

"  (2.)  Whenever  the  company  has 
•  passed  an  extraordinary  resolution  to  the 
effect  that  it  has  been  proved  to  their 
satisfaction  that  the  company  cannot,  by 
reason  of  its  liabilities,  continue  its  busi- 
ness, and  that  it  is  advisable  to  wind  up 
the  same."  .  Stat.  25  &  26  Vict.,  chap. 
89,  i^  129.  See  the  foUowirg  cases  for  a 
coDs\ruction  of  the  provisions  of  the 
above  act.  Jnre  Exmouth  Docks  Co.,  L. 
R.,  17  Eq.  181  (1873);  Jn  re  Sanderson's 
Patents  Association,  L.  R.,  12  Eq.  188 
(1871);  In  re  Bradford  Navigation  Co., 
L  R.,  10  Eq.  331  (1870);  Princess  of 
Reuss  V.  Bos,  L.  R.,  5  H.  of  L.  176  (1871) ; 
In  re  Commercial  Bank  of  India,  L.  R.,  6 
Eq  517(1868);  /w  j-e  London  India  Rub- 
ber Co.,  L.  R.,  1  Chan.  329  (1866);  In  re 
Pen-y-Van  Colliery  Co.,  L.  R.,  6  Chan. 
Div  477  (1877);  In  re  Uinted  Service 
Co.,'l.  R.,7Eq.  76(1868). 

"^  Jn  re  Empire  Assurance  Corpora- 
tion," L.R.,  4  Eq.  341  (1867),  where  the 
court  snys  :  "  I  think  it  is  impossible  to 
give  to  the  word  '  amalgamate  '  the  force 
which  is  contended  for.  It  is  difficult  to 
say  what  the  word  '  amalgamate  '  means. 
I  confess  at  this  moment  I  have  not  the 
least  conception  of  what  the  full  legal 

660 


effect  of  the  word  is.     We  do  not  find  it 
in  any  law  dictionary,  or  expounded  by 
any   competent    authority.      But   I   am 
quite  sure  of  this,  that  the  word  '  amalga- 
mate '  cannot  mean  that  the  execution  of 
a  deed  shall  make  a  man  a  partner  in  a 
firm  in  which  he  was  not  a  partner  be- 
fore, under  conditions  of  which  he  is  in 
no  way  cognizant,  and  which  are  not  the 
same  as  those  contained  in  the  former 
deed.     It   is   true  that  in  this  instance 
partners,  engaged  in  a  concern  for  insur- 
ance of  a  particular  character,  have  au- 
thorized their  directors  to  amalgamate 
with  another  company.      It  is  possible 
that  this  authority  may  go  thus  far.    .     . 
In   carrying  out  this,  the  directors  may 
possibly  be  authorized  by  the  clause  to 
say,  '  you  who  do  not  like  this  arrange- 
ment must  simply  lose ;  we  have  amal- 
gamated one  company  with   the  other ' 
(which  seems  to  be  a  process  of  annihila- 
tion or  extinction,  rather  than  anything 
else),  '  and  we  ha\e  placed  all  your  assets 
in  the  hands  of  another  concern.'     But 
that  does  not  imply  that  the  dissentient 
shareholders,  besides  losing  all  their  as- 
sets, are  personally  bound  to  take  their 
part  and   lot  in  the  new  concern.     It  is 
one  thing  to   say  (not  '  probably,'  but), 
'  possibly  you  may  find  all  the  assets  gone, 
and  your  shares  of  no  value;  '  but  it  is  a 
prodigious  step  further  to  say  that  a  dissen- 
tient shareholder,  having  been  concerned 
in  an  insurance  company,  shall  be  obliged 
to  become  subject  to  all  the  liabilities  of 
another  company."    s.  p.  Clinch  v.  Finan- 
cial   Corporation,    L.    R..    4   Chan.    117 
(1868);  State*).  Bailey,  16  Ind.  46(1861); 
Lauman  v.  Lebanon  Valley  R.  R.  Co.,  30 
Penn.  St.  42  (1858). 


OH.  xxxvm.] 


DISSOLUTION. 


[§  636. 


to  the  value  of  their  shares  in  the  old  corporation  in  cash,  and 
may  have  an  injunction  until  thej  are  secured.^  To  compel  the 
stockholders  of  the  old  corporation  to  accept  the  stock  of  the  new- 
corporation  in  payment  for  their  interest  in  the  old,  would  be  in 
effect  to  compel  them  to  join  the  new  corporation,  or  what  is  the 
same  thing,  to  compel  them  to  consent  to  the  consolidation.^  The 
old  corporation  may,  however,  lawfully  accept  payment  for  its 
assets  in  shares  of  stock  in  the  new  corporation,  and  may  then 
distribute  tliat  stock  ratably  among  such  of  the  old  stockholders 
as  are  willing  to  accept  it,  selling  the  rest  of  the  shares  and  pay- 
ing to  the  remainder  of  the  old  stockholders  cash,  to  the  extent  of 
their  interest  in  the  assets  of  the  old  corporation.^ 

When  the  regular  business  of  the  corporation  has  been  brought 
to  a  close  the  shareholders  have  a  right  to  an  immediate  distribu- 
tion of  the  corporate  assets.*  They  cannot,  therefore,  be  com- 
pelled to  accept  other  property  or  rights  in  lieu  of  cash.  Ac- 
cordingly, a  lease  of  the  company's  property  and  franchises  with 
an  annual  rent  reserved  to  be  distributed  among  the  stockholders 
as  a  dividend,  is  not  legal  as  against  dissenting  stockholders,  un- 
less provision  is  made  for  paying  them  the  value  of  their  stock  in 
cash.'     Such  a  method  of  winding  up   the  corporation  is  legal 


'  state  V.  Bailey,  16  Ind.  46  (1861); 
Gratz  V.  Penn.  R.  R.  Co.,  41  Peun.  St.  447 
<1862);  Kelly  v.  Mariposa  Land  <fe  Min- 
ing Co.,  4  Hun,  632  (1875).  Of.  New 
Jersey  Zinc  Co.  v.  New  Jersey  Franklin- 
ite  Co.,  13  N.  J.  Eq.  322  (1861);  s.  c.  15 
Id.  418  (1862). 

'^  Ex  parte  Bag.shaw,  L.  R.,  4  Eq.  341 
(1867);  Clinch  v.  Financial  Corp.,  L.  li., 
4  Chan.  117(1868);  Bird  i'.  Bird's  Patent, 
«fec.,  Sewage  Co.,  L.  R.,  9  Chan.  358 
(1874);  McCurdv  v.  Meyers,  44  Penn. 
St.  535  (1863);  Frothingham  V.  Barney, 
6  Hun,  306  (1876). 

3  Treadwell  v.  Salisbury  Mfg.  Co.,  7 
Gray,  392  (1856).  Cf.  Wilson  v.  Pro- 
prietors of  Central  Bridge,  9  R.  I.  590 
(1870).  See  also  Buford  v.  Keokuk  North 
ern  Line  Packet  Co.,  3  Mo.  App.  159 
(1876);  Black  v.  Delaware,  <fec..  Canal 
Co.,  22  N.  J.  Eq.  130,415  (1871);  s.  c. 
24  Id.  455  (1873);  Lauman  v.  Lebanon 
Valley  R.  R.  Ci.,  30  Penn.  St.  42  (1858); 
Middlesex  R.  R.  Co.  v.  Bo.ston,  <fec.,  11.  R. 
Co.,  115  .Ma-^s.  347,  351  (1874);  Conro  v. 
Port  Henry  Iron  Co.,  12  Barb.  27  (1851); 
Gratz  t).  Penn.    R.    R.   Co.,  41    Penn.  St. 


447;  Winch  v.  Birkenhead,  <fec.,  R.  R 
Co.,  5  De  G.  <fe  Sm.  562  (1852);  Midland 
Ry.  Co.  V.  Great  Western  Ry.  Co.,  L.'R., 
8  Chan.  841  (1873);  Featherstonhaugh  v. 
Lee  Moor  Porcelain  Clay  Co.,  L.  R.,  1 
Eq.  318  (1865). 

■*  Frothiiigham  v.  Barney,  6  Ilun.  366 
(1876)  ;  Taylor  v.  Earle,  8  Id.  1  (1876); 
McVicker  c.  Ross,  55  Barb.  247  (1869). 
In  these  cases  it  is  intimated  that,  upon  a 
dissolution,  the  stockholders  are  entitled 
to  a  public  sale  of  the  assets  as  dislin- 
guisiied  from  a  lease  or  consolidation. 

'  Black  V.  Delaware,  (fee.,   Canal   Co 
24  N.  J.  Eq.  455  (1873);  Middlesex  r! 
R.  Co.   V.   Boston,  <fec.,  R.   R.   Co.,   115 
Mass.  .351  (1874);  State  v.  Bailey,  16  Ind. 
46  (ifi61);  Conro  v.  Port  Henry"lron  Co  . 
12  Barb.  27  (1851);  Gralz  ;•.   Penn.  \i 
H.   Co.,   41    Penn.    St.   447;    Winch    v. 
Birkenhead,  Ac,  II.  R.  Co.,  5  DoC.  «fe  Sm 
662   (1852);    Midland  Ry.   Co.  v.  Great 
Western    Ry.    Co.,   L.    R., 
(1873).       Cf.    Fcatherstonl 
Moor  Porcelain  Clay  Co., 
318  (1866). 

rw;i 


V. 

8  Chan.  841 

High     V.  Leo 

L.  R.,    1  Eq. 


§  C37.]  DISSOLUTION.  [CH.  xxxvin. 

only  when  every  dissenting  stockholder  is  given  the  full  value  of 
his  interest  in  the  corporate  property  in  cash.^  A  court  of  equity 
will  not  interfere  with  a  voluntary  winding  up  unless  there  be 
fraud  or  an  inequitable  overbearing  of  the  rights  of  a  dissenting^ 
minority.^  There  are  a  few  cases  to  the  effect  that  a  dissenting 
shareholder  may  prevent  entirely  such  a  dissolution  and  con- 
solidation,^ but  these  cases  seem  to  hold  that  such  a  dissolution  is 
a  fraud  upon  the  stockholders  and  the  law,  in  that  a  consolidation 
is  thereby  effected  indirectly  when  it  could  not  be  effected  di- 
rectly. 

§  637.  Dissolution  hy  legislative  repeal  or  forfeiture,  or  hy 
judicial  forfeiture,  or  l)y  lapse  of  time. — The  stockholders  of  a 
corporation  have  little  or  nothing  to  do  with  the  dissolution  of  a 
corporation  which  is  effected  in  any  one  of  these  methods.  The 
assets  after  the  dissolution  belong  to  the  stockholders  and  the 
corporate  creditors.  Yet  the  dissolution  itself  depends  upon  the 
will  of  the  stockholders  only  when  it  is  a  voluntary  dissolu- 
tion. Nevertheless  if,  in  effecting  the  dissolution  in  one  of  the 
other  methods,  a  fraud  is  perpetrated  on  the  stockholders,  they 
are  not  without  remedy.  Thus  a  court  of  equity  will,  upon  the 
application  of  a  shareholder,  open  or  vacate  a  judgment  dissolv- 
ing a  corporation,  even  when  the  shareholder  was  not  a  party  to 
the  action  instituted  by  the  attorney-general,  when  there  is  rea- 
sonable ground  to  believe  that  there  was  fraud  or  collusion   in 


•  Black  «).   Delaware,  (fee,  Canal  Co.,  (1865);    People    v.  Hektograph  Co.,    10 

24  N.  J.  Eq.  455  (1878);  s.  c.  22  Id.  130,  Abb.  N.  C.  (N.  Y.)  358  (1882);  Booth  v. 
415(1871);  Lauman  v.  Lebanon  Valley  Bunce,  33  N.  Y.  139  (1865).  C/.  White- 
R.  R.  Co.,  30  Penn.  St.  42  (1858);  In  re  Mountains  R.  R.  Co.  i).  White  Mountains, 
United  Ports  (fe  General  Ins.  Co.,  L.  R.,  &c.,  R.  R.  Co.,  50  N.  H.  50  (1870);. 
8  Chan.  1002  (1873);  Perrett's  Case,  L.  Hodges?;.  New  England  Screw  Co.,  1  R, 
R.,  15  Eq.  250  (1873);  Ex  parte  Fox,  L.  I.  312  (1850);  s.  c.  3  R.  L  1  (1853); 
R.,  6  Chan.  176,  184  (1871);  Bagshaw's  Rorke  v.  Thomas,  56  N.  Y.  559  (1874); 
Case,  L.  R.,4  Eq.  341  (1867);  Clinch  v.  Barclay  v.  Quicksilver  Mining  Co..  9 
Financial  Corporation,  L.  R.,  5  Eq.  450,  Abb.  Prac.  (N.  S.)  283  (1870);  s.  c.  & 
472;  s.  c.  L.  R.  4  Chan.  117.  Cf.Jn  re  Lans.  25  (1872).  See  also  Bronson  v. 
Anglo-Greek  Steam  Co.,  L.  R  ,  2  Eq.  1  La  Crosse  Ry.  Co.,  2  Wall.  288  ;  Mussina 
(1866);  Clearwater  f.  Meredith,  1  Wall.  v.  Goldthwaite,  34  Texas,  125  ;  Shawhan 

25  (1863");  Nugent  v.  Putnam  Co.,  3  Biss.  v.  Zinn,  79  Ky.  300  ;  Young  v.  Moses,  53 
105  (1871);  Nugent  v.  Supervisors,  19  Ga.  628;  Talbot  w.  Scripps,  31  Mich.  268 ; 
Wall.  241  (1873) ;  McMahan  v.  Morrison,  Putnam  v.  Sweet,  1  Chandler  (Wis.),  286, 
16  Ind.   172  (1861);  Mowry  v.  Indiana,  334. 

Ac,  R.  R.  Co.,  4  Biss.  78.  ^  Kean  v.  Johnston,  9  N.  J.  Eq.  407  ; 

'  In  re  Beaujolais  Wine  Co.,  L.  R.,  3  Zabriskie  v.  Hackensack,  tfec,  R.  R.  Co., 

Chan.    15  (1876);  In  re  London  <fe  Mer-  18  Id.  178.     See  also  Lauman  u.  Lebanon, 

cantile   Discount  Co.,  L.    R.,  1  Eq.  277  Ac,  R.  R.  Co.,  supra. 

662 


cii.  xxxvin.] 


DISSOLUTION. 


[§  638. 


obtaining  the  judgment,  operating  to  the  injury   of  the  share- 
holder.^ 

§  638.  The  assets  upon  dissolution. — Upon  the  dissolution 
of  a  corporation  the  corporate  assets  of  every  kind,  after  the  pay- 
ment of  corporate  debts  belong  to  the  shareholders,  and  are  to  be 
distributed  among  them  proportionately  according  to  the  number 
of  their  shares.^  At  common  law  it  was  the  rule  that  upon  tlie 
dissolution  of  a  body  corporate  its  real  estate  reverted  to  tlie 
grantor,  its  personal  property  to  the  State  or  sovereign,  and  the 
debts  due  to  it  and  from  it  were  forgiven  and  extinguished.^ 

This  rule  arose  at  a  time  when  private  corporations  for  busi- 
ness purposes  were  comparatively  unknown,  and  it  had  its  origin 
in  the  disposition  to  limit  the  accumulation  of  property  in  the 
hands  of  the  church.     The  injustice  of  its  application  in  modern 


'  People  V.  Hektograph  Co.,  10  Abb. 
N.  C.  (N.  Y.)  358  (l'882).  See  also  the 
cases  in  note  2,  p.  602. 

■^  Krebs  V.  Carlisle  Bank,  2  Wall.  (C. 
C.)  33  (I85i>) ;  Hea'h  v.  Barmore,  50  N. 
Y.  302(1872);  Burr  ill  i;.  Bushwick  R.  R. 
Co.,  75  N.  Y.  211  (1878);  James  w.  Wood- 
ruff, 10  Paige.  541  (1844);  Frolhingliam 
V.  Barney,  6  Ilun,  3G6  (1876);  Wood  v. 
Dnmmer,  3  Mason,  308,  322  (1824); 
Dudley  v.  Price's  Admr.,  10  B.  Mon.  84 
(1849).  See  Fish  v.  Nebraska  City  Barb 
Wire,  Ac,  Co.,  25  Fed.  Rep.  795  (1885). 
Cf.  In  re  Hodges  Distillery  Co.,  L.  R,,  6 
Chan.  51  (1870);  Thornton  v.  Marginal 
Freight  Ry.  Co.,  123  Mass.  32  (1877); 
Nathan  y.  Whitlock,  9  Paige,  152  (1841); 
Lea  V.  American  Atlantic,  <fec.,  Canal  Co., 
3  Abb.  Prac.  (N.  S.)  1  |1867);  Curren  v. 
State  of  Arkansas,  15  Hosv.  304,  307 
(18.i3);  Hastings  v.  Drew,  76  N.  Y.  9 
(1879);  affirming  s.  c.  50  How.  Prac.  254 
(1874)  ;  Wilde  v.  Jenkins?,  4  Paige,  481 
(1834). 

»  Hightowrr  v.  Thornton.  8  Ga.  486 
(1850);  Life  Association  of  America  v. 
Fas-ett,  102  111.  315  (1*^8:!);  Commercial 
Bank  v.  Lockwood,  2  Harr.  (Del.)  8 
(1835);  State  v.  Rives,  5  Ired.  (N.  C.)  297 
(1844);  White  v.  Campbell,  5  Hutn|)h. 
(Penn.)  38  (1S44);  Fox  v.  Horah,  1  Irel. 
Eq.  ( N.  C.)  358  (184  1 ) ;  Mallov  v.  Mallett, 
6  Jones'  Eq.  (N.  (".)S45  (1803)';  Presi.lent, 
<tc.,  of  Port  Gibson  v.  Moore,  21  Mis.s. 
157  (1849);  Bingiiam  i'.  Weidcrwa.x-,  1 
N.  Y.  509  (1848);  Owen  v.  Smith,  31 
Barb.    641  (1860);    Miami,   &c.,   Co.    v. 


Gano,  13  Ohio  St.  269 ;  State  Bank  v.  The 
State,  1  Blackf.(Ind.)  268  (1823);  Angell 
&   Ames  on  Corp.,  §  779  ;  Coke  on  Litt. 
13  b.     See  also  Proceedings   between  the 
King  and  the  City  of  London,  8  Howell's 
State    Trials,    1087    (1682);     Attorney- 
General    V.    Lord   Gower,    9   Mod.    224 
(1740);  The  King  v.  Pasmore,    3   Term 
Rep.  199  (1789).     Tlie  common  law  rule 
is  harsh  and  inequitable,  and  has   never 
been  fully  ailopted  or  acted  on   in  New 
York,   and     the   rule   was   changed    by 
statute  [Act  of  April  9,  1811,  1  R.  S.  248, 
600,  §4;^  9,  10],  for  the  relief  of  the  cred- 
itors of  the  corj)Oration.     Owen  v.  Smith, 
31  Barb.  641  (I860);  Bank  of  Mississippi 
V.    Duncan,   56     Miss.    166,   173    (1878), 
where    the   court  said:     "It   was  firmly 
settled  by  the  decision  of  the  High  Court 
of  Erroi'S  and  Appeals  of  this  State,  that 
banks  in  this  Slate   were  subject  to  the 
operation  of  the  common  law  incidents  to 
the  dissolution  of  a  corporation,  i.e.,  the 
extinction  of  all  its  rights  and  liabilities, 
except  in  eo  far  as  changed  by  statute. 
Con.mc'cial  Bank    v.   Chambers  et  ul.  8 
Smed.  <k  M.  9 ;  Coulter  et  «/.   v.  Robert- 
son, 24  Miss.  278.      And  it  was  exjircssly 
declared    that  the  right  of  stnckholdtrs 
were   not  prc^served  by  the  Act  of  J  uly 
26,  1843,  but  were  left  to  their  fato  as  at 
common     law,    which     was    to    perish. 
Coulti'r  et  ul.  v.  Robinson,  24  Miss.  278." 
Cf.  with  this   case,   Bacon  v.    Robertson, 
18    How.    (U.    S.)   480    (1855);   Lum    v. 
Robertson,    6  Wall.  277  (1867);  Curran 
V.  Slate  of  Arkansas,  15  How.  304  (1853). 

663 


§  638.] 


DISSOLUTION. 


[cH.  xxxvm. 


times  to  corporatious  having  a  capital  stock  is  so  palpable,  that 
the  courts  refuse  to  recognize  it,  and  in  many  of  the  States  the 
rule  is  expressly  abrogated  by  statute.^  A  court  of  equity  will 
wholly  disregard  the  rule  of  the  common  law,  and  treat  the 
property  and  effects  of  the  corporation  upon  dissolution  as  a  trust 
fund  for  the  payment  of  creditors  and  stockholders.^  In  some 
jurisdictions  the  common  law  rule  still  prevails  as  to  land  held  by 
railway  corporations,  and  in  some  other  cases.^  And  a  few  courts, 
upon  general  principles,  still  incline  to  uphold,  though  with  evi- 
dent reluctance,  the  common  law  rule  in  all  its  strictness.*     In 


'  Robinson  v.  Lane,  19  Ga.  3.ST  (1856); 
Lothrop  V.  Stedman,  13  Blatchf.  134 
<1875);  Blake  w.  Portsmouth,  &c.  R.  R. 
Co.,  39  N.  H.  435  (1859);  Matter  of 
Woven  Tape  Skirt  Co.,  8  Hun,  508  (1876); 
Mumma  v.  Potomac  Co.,  8  Peters,  281 
(1834);  Bacon  v.  Robertson,  18  How.  480 
(1855);  Lum  y.  Robertson,  6  Wall.  277 
.(1867) ;  Read  v.  Frankfort  Bank,  23  Me. 
318  (I8i3);  Newfoundland  Rv.  Construc- 
tion Co.  V.  Sehack,  40  N.  J.  Eq.  222 
(1885);  Fox  v.  Horab,  1  Ired.  Eq.  (N.  C.) 
358  (1841);  Bingham  v.  Weiderwax,  1 
N.  Y.  509  (1848);  Curry  v.  Woodward, 
53  Ala.  371  (1875)  ;  New  York  Laws  of 
1876,  chap.  442.  See  Hamilton  v.  Ac- 
cessory Transit  Co.,  26  Barb.  416  (1857); 
■Commonwealth  i>.  City  of  Boston,  9  Gray, 
451  (1857).  The  fee  simple  of  lands  in 
New  York,  appropriated  for  the  use  of  the 
State  canals,  is  in  the  State,  and  there  is 
DO  reversion  in  the  former  owner,  upon 
an  abandonment  of  the  public  use.  Rex- 
ford  V.  Knight,  11  N.  Y.  308  (18.54),  af- 
firming s.  c.  15  Barb.  627.  Cf.  Common- 
Tvealth  V.  Fisher,  1  Penr.  &  W.  (Penn.), 
462  (1830)  ;  Plitt  v.  Cox,  43  Penn.  St.  486 
(1862).  Contra,  State  v.  Rives,  5  Ired. 
<N.  C.)  297  (1844).  So  also  of  lands  taken 
under  the  right  of  eminent  domain  for 
public  parks.  Brooklyn  Park  Commis- 
sioners V.  Armstrong,  45  N.  Y.  234(1871); 
reversing  s.  o.  3  Lans.  429 ;  De  Varaigne 
V.  Fox,  2  Blatchf  95  (1848);  Hey  ward  v. 
City  of  New  York,  7  N.  Y.  314  (1852); 
Dingley  v.  City  of  Boston,  100  Mass.  544 
(1868);  Haldeman  v.  Penn.  R.  R.  Co.,  50 
Penn.  St.  425  (1865),  or  lands  conveyed 
to  a  religious  corporation.  Towar  v. 
Hale,  46  Barb.  361  (1866).  And  the 
common  law  rule  that  real  estate  held  bj' 
a  corporation  at  the  time  of  its  dissolu- 
tion reverts  to  the  grantor,  does  not  any 
longer  prevail.    Accordingly,  where  land 

664 


is  conveyed  absolutely  to  a  corporation 
having  stockholders,  no  reversion  or  pos- 
sibility of  reverter  remains  in  the  grant- 
or. Heath  v.  Barmore,  50  N.  Y.  302 
(1872). 

•^  Powell  V.  North  Mo.  R.  R.  Co.,  42 
Mo.  63  (1867);  Wood  v.  Dummer,  3  Mason, 
308(1824);  Lum  v.  Robertson,  6  Wall. 
277  (1867).  See  Murray  v.  Vanderbilt, 
39  Barb.  140  (1863).  In  Ingraham  v. 
Terry,  11  Humph.  (Tenn.)  572  (1851),  it 
was  held  that  the  dissolution  of  a  cor- 
poration by  the  expiration  of  its  charter 
works  an  abatement  of  a  suit  pending  for 
the  recovery  of  debts  due  to  the  corpo- 
ration, in  the  absence  of  legislative  pro- 
vision for  such  contingency.  Ace.  Greeley 
V.  Smith,  3  Story  C.  £.  657  (1845). 
Contra  McCoy  v.  Farmer,  65  Mo.  244 
(1877);  Life  Association  of  America  v. 
Fassett,  102  111.  315  (1882).  Cf.  Salt- 
marsh  V.  Planters,  «fec.  Bank  of  Mobile, 
17  Ala.,  761  (1850);  Carey  v.  Giles,  10 
Ga.  9  (1851);  Merrill  v.  Suffolk  Bank,  31 
Me.  57  (1849).  It  was  formerly  held  in 
Delaware,  that  it  was  not  within  the  pow- 
er of  the  legislature,  by  renewing  a  char- 
ter, to  revive  the  liabilities  of  a  corpora- 
tion when  they  had  been  cancelled  by 
dissolution.  Commercial  Bank  v.  Lock- 
wood,  2  Harr.  (Del.)  8,  183  (1835).  Con- 
tra, Colchester  v.  Seaber,  3  Burr.  1866 
(1766);  Erie,  &c.  R.  R.  Co.  v.  Casey,  26 
Penn.  St.  287  (1856). 

3  State  V.  Rives,  5  Ired.  (N.  C.)  297 
(1844);  Acklin  v.  Paschal,  48  Texas,  147 
(1877);  St.  Philip's  Church  v.  Zion,  Ac. 
Church,  23  S.  C.  297  (1885).  Cf.  Hop- 
kins V.  Whitesides,  1  Head,  31.  But  see 
Erie,  &c.  R.  R.  Co.  v.  Casey,  26  Penn. 
St.  287(1856). 

^  St.  Philip's  Church  v.  Zion,  <fec. 
Church,  23  S.  C.  297  (1885);  Hopkins  v. 
Whitesides,  1  Head  (Teun.),  31;  Bank  of 


OH.  XXX Tin.] 


DISSOLUTION. 


[§  639. 


England  the  rule  has  not  been  applied  to  insolvent  or  dissolved 
moneyed  corporations. 

§  639.  Where  corporate  assets  are  placed  in  the  hands  of  a 
corporate  officer,  or  other  person,  for  distribution,  a  stockholder 
may  file  a  bill  in  equity  for  his  part,  but  in  such  a  suit  the  corpo- 
ration is  a  necessary  party.^  The  remedy  in  such  a  case  is  always 
in  equity,  and  not  at  law.^  The  stockholders  may  insist  on  the 
Statute  of  Limitations  as  a  bar  to  the  claim  of  corporate  cred- 
itors upon  the  assets.^  The  rights  of  the  stockholders  in  the  assets 
upon  a  dissolution  depend  upon  the  law  of  the  c«>untry  creating 
the  corporation.^  And  these  rights  cannot  be  taken  from  the 
stockholders  by  an  act  repealing  the  charter.^  But  in  one  case  it 
is  held  that  assets  ought  to  be  distributed  in  proportion  as  the 
subscriptions  to  the  stock  have  been  paid.^  And  this  is  the  rule 
by  statute  in  New  York,  upon  the  voluntary  dissolution  of  a 
corporation.^  Debts  due  from  the  stockholder  to  the  corporation 
are  in  any  event,  as  of  course,  to  be  deducted  from  his  interest 
in  the  assets.*  And  an  assignment  or  transfer  of  stock  by  a 
stockholder,  after  the  dissolution  of  the  corporation,  is  merely  an 
equitable  assignment  of  his  interest  in  the  assets  of  the  concern, 
as  it  may  appear  upon  the  settlement.^ 


Mississippi  v.  Duncan,  56  Miss.  166  (1878); 
Coulter  V.  Robertson,  24  Id.  278  ;  Acklin 
V.  Paschal,  48  Texas,  147  (1877). 

'  Young  V.  Moses,  53  Ga.   628  (1875). 

-  Brown  v.  Adams,  5  Hiss.  181  (1870). 
C/".  Pacirtc  R.  R.  Co.  v.  Cutting,  27  Fed. 
Rep.  638  (1886). 

•'  Johnston  v.  Talley,  60  Ga.  540 
(1878).  Cy.  Traer  v.  Clews,  115  U.  S.  528 
(1885). 

*  Hamilton  v.  Accessory  Transit  Co., 
26  Barb.  46  (1857). 

'  Lothrop  V.  Stedman,  13  Blatchf.  134 
(1875). 


«Krebs  v.  Carlisle  Bank,  2  Wall.  (C. 
C.)  33  (1850). 

^  3  Rev.  Stat.,  chap.  XVIII,  art.  3, 
§83. 

*  James  v.  Woodruff,  10  Paige,  541 
(1844);  Purton  v.  New  Orleans,  <fcc.  R. 
R.  Co.,  3  La.  Ann.  19(1848). 

'  James  v.  Woodruflf.  10  Paige,  541 
(1844);  8.  c.  affirmed,  2  Denio,  574  (1845) 
Chappell's  Case,  L.  R.  6  Chan.  902  (1871); 
Bank  of  Commerce's  Appeal,  73  Penn.  St 
59  (1873).  See  Callanan  v.  Edwards.  32 
N.  Y.  483  (1865);  Sewall  v.  Chamber- 
lain,  16  Gray,  581. 


665 


PART  IV. 

STOCKHOLDERS'  WRONGS  AND  REMEDIES  AGAINST 
DIRECTORS,  MAJORITY  OF  STOCKHOLDERS,  AND 
OTHERS,  FOR  BREACH  OF  TRUST,  &c. 


CHAPTER  XXXIX. 

FRAUDULENT  ACTS  OF  DIRECTORS,  MAJORITY   OF   STOCK- 
HOLDERS,   AND   THIRD   PERSONS. 


A. — The  Occasion,  Scope,  and  Puepose 
OF  THE  Subject  Herein. 

§  640-42.  The  cause  and  occasion  of  this 
subject. 

643.  The  three  classes  of  stockholders' 
wrongs  herein. 

644.  The  corporation  is  ordinarily  the 
party  to  remedy  these  wrongs. 

645.  Eut  the  corporation  failing  to  do 
so,  a  stockholder  may  bring  the 
action. 

646.  The  facts  and  conditions  which 
allow  and  sustain  a  stockholder's 
suit  herein. 

B. — Frauds  of  Corporate  Directors, 
OF  A  Majority  of  the  Stockholders, 
or  of  Third  Persons,  to  Remedy 
WHICH  A  Stockholder  may  Bring 
Suit. 

647.  Different  methods  of  perpetrating 
these  frauds. 

648.  Directors  as  trustees. 

649.  Director  or  other  corporate  officer 
interested  in  construction  com- 
pany. 

660.  Secret  gifts  to  directors  from  per- 
sons contracting  with  the  corpora- 
tion. 


§651.  Frauds  by  promoters  on  the  cor- 
poration. 

652.  Sales  of  property  by  corporate 
officers  to  the  corporation. 

653.  Purchases  by  directors  from  the 
corporation. 

654-56.  Reorganization  and  purchases 
of  corporate  property  by  a  major- 
ity of  tlie  stockholders. 

657.  Voting  salaries  or  compensation 
to  corporate  cfficers. 

658.  Contracts  between  corporations 
having  one  or  more  directors  in 
common. 

659.  Foreclosures  of  mortgage  on  cor- 
porate property,  and  collusion 
with  directors,  whereby  no  defense 
is  made  to  the  foreclosure. 

660.  Directors'  purchases  of  property 
needed  by  the  corporation. — Buy- 
ing up  tiie  debts  of  the  corpora- 
tion, and  loans  to  the  corporation. 

661.  Embezzlement  and  misuse  of  cor- 
porate funds  by  directors. 

662.  Frauds  by  a  majority  of  the  stock- 
holders upon  the  minority. 

663.  Stockholders'  actions  against  third 
person  for  frauds  against  the  cor- 
poration. 


A.— The  Occasion,  Scope,  and  Purpose  of  the  Sub- 
ject Herein. 

§  640.   The  cause  and  occasion  of  this  subject. — Perhaps  the 
most  striking  feature  of  the  era  of  modern  industrial  develop- 

666 


CH.   XXXIX.]  FRAUDS   OF   DIRECTORS.  [§  641. 

ment  is  the  growth,  wealth,  and  power  of  corporations.  They 
have  dug  the  canals,  built  the  railways,  established  the  factories, 
carried  the  ocean  commerce,  and  assumed  control  of  the  industries 
of  Europe  as  well  as  of  America.  They  have  absorbed  a  large 
part  of  the  surplus  wealth  of  the  world,  and  have  accumulated 
or  distributed  enormous  gains  and  profits.  But  these  gains  and 
profits  have  not  always  been  honestl_y  preserved  and  administered 
for  the  benefit  of  those  who  are  entitled  thereto — the  stockhold- 
ers of  the  company.  Corporations,  with  their  vast  capital  stock,, 
their  great  income,  their  rapidly  changing  personal  property,  and 
their  large  purchases  and  sales,  have  proved  to  he  a  temptation 
which  corporate  officers  are  too  often  unable  to  withstand.  These 
companies  have  been  found  to  be  eflBcient  instruments  of  fraud, 
speculation,  plunder,  and  illegal  gain.  In  these  latter  days  the 
robbery  and  spoliation  of  corporations  and  stockholders  by  the 
corporate  directors  and  managers,  have  been  systematized  inta 
well-known  methods  of  proceeding,  and  the  carrying  out  of  such 
plans  has  become  a  profession  and  an  accomplishment.  The 
skill,  audacity,  experience,  and  talent  of  the  highest  order  of  ad- 
ministrative ability  have  reduced  to  a  certainty  the  methods  of 
diverting  the  profits,  capital,  and  even  the  existence  of  the  cor- 
poration itself,  to  the  enrichment  of  the  corporate  managers  and 
their  coconspirators.  Corporations  become  insolvent  and  stock- 
holders lose  their  investments,  while  individuals  become  million- 
aires. Illegitiiiiate  gains  are  secured  and  enormous  fortunes 
are  amassed  by  the  few  at  the  expense  of  the  defrauded,  but  gen- 
erally helpless,  stockholders. 

The  expense,  difficulty,  and  delays  of  litigation  ;  the  power,^ 
wealth,  and  unscrupulousness  of  the  guilty  })arties ;  the  secrecy, 
skill,  and  evasive  nature  of  their  methods  ;  and  the  fact  that  tlie 
results  of  even  a  successful  suit  belong  to  the  corporation,  and 
not  to  the  stockholders  who  sue,  all  combine  to  baffle  investiga- 
tion and  exposure,  to  discourage  the  stockholders,  and  to  encour- 
age and  protect  the  parties  guilty  of  the  wrong. 

§  041.  In  England,  ever  since  the  year  1720,  wiien  the 
"  South  Sea  Bubble"  exploded,  and  unsettled  the  finances  of  the 
Kingdom,  there  has  been  a  constant  recurrence  of  "  bubble  com- 
panies" and  dishonest  promoters.  The  English  reports  are 
filled  with  cases  of  frauds  of  corporate  directors,  corporate  agents, 

(;c7 


§§  642,  643.]  FRAUDS   OF   DIRECTORS.  [CH.  XXXIX. 

and  corporate  organizers.  A  system  of  jurisprudence  has  grown 
up  from  these  cases.  This  system,  however,  is  as  yet  in  a  forma- 
tive state,  and  there  is  no  branch  of  the  law  more  complicated, 
diflScult,  and  full  of  pitfalls  for  the  court,  practitioner,  and  client, 
than  that  growing  out  of  the  frauds  of  corporate  directors. 

§  642.  In  America,  the  cases  involving  a  breach  of  trust  by 
the  directors  arise  generally  out  of  the  management  of  corpora- 
tions, and   not  in  their  formation.     These  cases  frequently  in- 
volve colossal  transactions,  and  exhibit  a  scope,  grasp,  and  ability 
for  railway  management  and  manipulation  that  excite  the  stock- 
holder's admiration  fully  as  much   as  his  indignation.     It  is  a 
curious  fact  that  the  American  talent  for  organization,  executive 
management,  and  the  invention  and  adoption  of  means  to  ends, 
a  characteristic  talent  that  formerly  was  engrossed  in  the  political 
affairs  of  the  nation,  is  now  very  largely  engaged  in  the  develop- 
ment and  management  of  the  American  railroads.     With  com- 
mendable energy,  enterprise,  daring,  and  sagacity,  the  American 
railway  has  been  built,  improved,  consolidated,  and  perfected, 
frequently  far  in  advance  of  even  the  remarkable  growth  of  the 
country  itself.     For  the  most  part  this  work  has  been  done  honest- 
ly, efficiently,  and  creditably.     But  not  always  has  this  been  the 
case.     The  ingenuity  and  fruitful  cunning  of  adroit,  experienced, 
and  unscrupulous  talent  have  plundered  and  robbed  the  corpora- 
tions and   the  stockholders,  and  have   brought  reproach  on  the 
management  of  the  American  railway.     Great  fortunes  have  been 
accumulated    by    "wrecking"    great    corporations.      Railroads 
which  were  capable  of  earning  a  fair  return  upon  the  capital  in- 
vested, have  been  rendered  insolvent  by  the  fraudulent  manage- 
ment and  illegal  gains  of  the  corporate  officers.     The  plans,  de- 
vices, and   methods  of  accomplishing  this  result  have  been  sys- 
tematized and  elaborated  to  a  degree  equal  to  the  great  resources 
and  fertility  of  mind  employed  in  their  execution.     It  is  the  pur- 
pose of  this  part  of  this  work  to  explain,  so  far  as  is  possible,  the 
methods  of  those  frauds,  and  to  point  out  the  remedy  for  the 
wrong. 

§  043.  The  three  classes  of  stockholders'  ivrongs  herein.— 

Stockholders'  wrongs,  arising  from  a  breacli  of  trust  by  directors, 
a  majority  of  the  stockholders,  or  third  persons,  are  clearly  divis- 
ible into'^three  classes.      They  are,  first,  fraudulent  acts ;  second, 

668 


CH.  XXXIX.]  FRAUDS    OF   DIRECTORS.  [§§  644,  646. 

ultra  vires  acts;  third,  negligence  of  corporate  directors.  There 
is  another  class  of  grievances,  that  of  internal  dissensions  in  the 
corporation,  and  dissatisfaction  with  its  policy  and  acts.  All 
these,  however,  are  intra  vires  of  the  directors  or  majority  of 
the  stockholders.  The  law  gives  no  remedy  for  these  dissen- 
sions, since  the  stockholder  has  the  corporate  elections  as  a  reme- 
dy, and  since  the  majority  are  to  rule,  so  long  as  they  do  so  with- 
out fraud  and  within  the  powers  of  the  corporation. 

§  644.  The  corporation  is  ordinarily  the  party  to  remedy 
these  wrongs. — These  frauds,  ultima  vires  acts,  and  acts  of  negli- 
gence, are  injuries  to  the  corporation,  and  the  corporation  is  ordi- 
narily the  party  to  bring  suit  to  rectify  them.  The  frauds,  ultra 
vires  acts,  and  negligence  of  directors,  do  not  affect  the  stockhold- 
er directly,  but  they  affect  the  stockholders  indirectly  by  decreas- 
ing the  corporate  assets,  and  thereby  affecting  the  value  and  privi- 
leges of  the  stock.  Accordingly,  it  is  the  duty  and  right  of  the 
corporation  to  bring  suit  to  remedy  these  wrongs,  just  as  it  is  the 
duty  and  right  of  the  corporation  to  bring  suit  to  remedy  an  or- 
dinary trespass,  conversion,  or  fraud,  whereby  third  parties  injure 
the  corporate  property  and  interests.  That  a  corporation  may 
bring  suit  to  remedy  the  frauds,  ultra  vires  acts,  or  negligence  of 
its  trustees  or  directors,  was  the  decision  of  Lord  Chancellor 
Hardwicke,  in  1742,  in  the  case  of  The  Charitable  Corporation 
against  Sutton.^ 

§  645.  But  the  eorporation  failing  to  do  so,  a  stoclcholder 
may  hring  the  action.— During  the  next  hundred  years,  however, 
corporations  liaving  a  capital  stock  and  stockholders  came  into 
existence  and  rose  into  prominence.  The  large  capital  and  great 
profits  of  many  of  these  corporations  led  to  frequent  frauds, 
breaches  of  trust,  and  illegal  acts  on  the  part  of  the  directors.  It 
was  the  duty  of  the  corporation  to  bring  suit  to  remedy  these 
wrongs.  But  it  gradually  became  apparent  that  frequently  the 
corporation  was  helpless,  and  unable  to  institute  the  suit.  It  was 
found,  where  the  guilty  parties  themselves  controlled  the  directors 
and  also  a  majority  of  the  stock,  that  the  corporation  was  in  their 


'  2  Atk.  400,  Uie  court  saying:   "Nor  Sen  also,   to  the  same  cfFcct.   Attorney- 
will    I   ever  determine  that   a   court  of  General  v.  Foundling  Hospital  4  IJro  Ch 
equity  cannot  lay   hold  of  every  breach  Re)).    105    (17'j;i);    Attoincy-Generul   v 
of  trust,  let  the  person   bo  guilty  of  it  Wilson,  1  Cr.  &  Fh.  1  (1840). 
either  in  a  private  or  public  capacity." 


660 


§  645.]  FRAUDS   OF   DIRECTORS.  [cif.  XXXIX. 

power,  was  unable  to  institute  suit,  and  that  the  minority  of  the 
stockholders  were  being  defrauded  of  their  rights,  and  were  with- 
out remedy  ;  and  it  became  apparent  that  there  was  a  legal  wrong 
which  had  no  legal  remedy.  The  time  had  come  when  the  mi- 
nority of  the  stockholders  of  a  defrauded  corporation,  the  corpora- 
tion itself  being  controlled  by  the  guilty  parties,  must  be  given 
a  standing  in  court  for  the  purpose  of  taking  up  the  cause  of  the 
corporation,  and  in  its  name  and  stead  bringing  the  guilty  parties 
to  an  account.  Accordingly,  in  1843,  in  the  leading  case  of  Foss 
V.  Harbottle,^  a  stockhokler  brought  suit  in  the  name  of  himself 
and  other  defrauded  stockholders,  and  for  the  benefit  of  the  cor- 
poration, against  the  directors,  for  a  breach  of  their  duty  to  the 
corporation.  This  case  was  decided  against  the  complaining 
stockholders  on  the  ground  that  the  complainant  did  not  prove 
that  the  corporation  itself  was  under  the  control  of  the  guilty 
parties,  and  that  it  was  unable  to  institute  the  suit.  The  court, 
however,  broadly  intimated  that  a  case  might  arise  when  a  suit, 
instituted  by  the  defrauded  stockholders,  would  be  entertained  by 
the  court,  and  redress  given.  Acting  upon  this  suggestion,  and  im- 
pelled by  the  utter  inadequacy  of  suits  instituted  by  the  corpora- 
tion, defrauded  stockholders  continued  to  institute  these  suits  and 
to  urge  the  courts  of  equity  to  grant  relief.^  These  eiforts  were 
unsuccessful  in  clearly  establishing  the  rights  of  stockholders 
herein  until  the  great  cases  of  Atwool  against  Merryweather,  in 
England,  in  18G7,^  and  of  Dodge  v.  Woolsey,  in  this  country,  in 
1855.*     These  two  great  and  leading  cases  have  firmly  established 

'  2  Hare,  461.  tion  is  where  the  corporate  body  has  got 
^  Mozley  v.  Alstou,  1  Phil.  Ch.  790  into  the  hards  of  di;ectors  and  of  the  ma- 
(1847),  where  the  court  said  there  is  '"  no  jority,  which  directors  and  majority  are 
reason  assinnpd  why  the  corporation  does  using  their  power  for  tlie  purpose  of  do- 
not  put  itself  in  motion  to  seek  a  remedy."  ing  something  fraudulent  against,  tlie  mi- 
Lord  V.  Governor,  <fec.,  of  Copper  Mines,  nority,  who  are  overwhe'med  b}^  tliem." 
11  Phil.  CI).  745  (1848),  where  the  court  See  a'so  MacDoiigall  v.  Gardiner,  L.  R.  1 
refused  relief  "because  the  acts  were  Ch.  D.  13  (1875),  in  regard  to  the  prin- 
capable  of  confirmation  "  by  the  maj  rity.  ciple  of  law  decided  by  these  cases. 
In  the  case  (^ray  v.  Lewis,  L.  R.  8  Ch.  ^  L.  R.  5  Eq.  464. 
1035,  1060  (1873),  the  court  said  that  the  •*  18  How.  331.  The  case  of  Hawesv. 
preceding  cases -have  always  been  con-  Oaklind,  lii4U.  S.  450 ( 1881).  is,  perhaps, 
sidered  as  settling  the  law  of  this  court,  of  greater  importance  than  even  Dodge  v. 
tliat  where  there  is  a  corporate  body  ca-  Woolsey,  and  may  take  tlie  place  of  the 
pable  of  filing  a  bill  for  itself  to  recover  latter.  In  Hawes  v.  Oakland,  Mr.  Justice 
property  either  from  its  directors  or  <  ifi-  Miller  delivered  a  masterly  opinion,  in 
cers,  or  from  any  other  person,  that  cor-  the  course  of  which  he  said:  "  That  the 
porate  body  is  the  proper  plainliflf.  and  vast  Mud  increasing  proportion  of  the  ac- 
the  only  proper  plaintiff,  ...  to  tive  business  of  modern  life  which  is  done 
which,  as   I  understand,  the  only  excep-  by  corporations  should  call  into  exercise 

670 


OH,  XXXIX.] 


FRAUDS   OF   DIRECTORS. 


[§  645. 


tlie  law  for  botli  England  and  America,  that  where  corporate 
directors  have  committed  a  breach  of  trust,  either  bj  their  frauds, 
ultra  vires  acts,  or  negligence,  and  the  corporation  is  unable  or 
unwilling  to  institute  suit  to  remedy  the  wrong,  a  single  stock- 
holder may  institute  that  suit,  suing  on  behalf  of  himself  and 
other  stockholders,  and  for  the  benefit  of  the  corporation,  to 
bring  about  a  redress  of  the  wrong  done  directly  to  the  corpora- 
tion and  indirectly  to  all  the  stockholders.^     The  rule,  as  formu- 


the  beneficent  powers  and  flexible  meth- 
ods of  courts  of  equity,  is  neither  to  be 
wondered  at  nor  regretted;  and  this  is 
espetially  true  of  controversies  growing 
out  of  tlie  relations  between  the  stock- 
holder and  the  corporation  of  which  he 
is  a  member.     The  exercise  of  this  power 
in  protecting  the  stockholder  against  the 
fraud  of  tha  governing  body  of  directors 
or  trustees,  and  in  preventing  their  exer- 
cise, in  the  name  of  the  corporation,  of 
powers  which  are  outside  of  their  charters 
or  articles  of  association,  has  been  fre- 
quent, and  is  most  beneficial,  and  is  un- 
disputed."    In  regard  to  the  doctrine  laid 
down  in  Dodge  v.  Woolsej^  tie  learned 
justice  says  :  "  We  understand  that  doc- 
trine to  be  that  to  enable  a  stockholder 
in  a  corporation  to  sustain,  in  a  court  of 
equity  in  his  own   name,  a  suit  founded 
on  a  right  of  action  existing  in  the  cor- 
poration itself,  and  in  which  the  corpora- 
tion  itself    is   the  appropriate    plaintiff, 
there  must  exist  as  the  foundation  of  the 
suit  some  action  or  threatened  action  of 
the  managing  board  of  directors  or  trus- 
tees of  the  corporation  which  is  beyond 
the  authority  conferred  on  them  by  their 
charier  or  other  s(jurce  of  organization ; 
or  such  a  fraudulent  transaction  complet- 
ed or  contemplated  by  the  acting  mana- 
gers, in  connection  with  some  other  party, 
or  among  themselves,  or  with  other  share- 
hohlers,  as  will  result  in  serious  injury  to 
the  corporation,  or  to  the  interests  of  the 
other  sliareholders;  or  where  the  board  of 
directors,  or  a  majority  of  them,  are  act- 
ing  for  their  own    interest   in    a   manner 
destructive  of  the  corporation  itself  or  of 
the  rights  of  the  shareholders ;  or  where 
the  majority  of  shareliolders  themselves 
are  oppressively  and  illegally  pursuing  a 
course,  in  the   natne  of  the  corporation, 
wliicli  is  in  violation  of  the  rights  of  the 
other  shareliolders,  and  which   c^m   only 
be  restrained  by  the  aid  of  a  court  of 
equity.     Possibly  otlier  Ciises  may  arise 


in  which,  to  prevent  irremediable  injury 
or  a  total  failure  of  justice,  the  court 
would  be  justified  in  exercising  its  pow- 
ers ;  but  the  foregoing  may  be  regarded 
as  an  outline  of  the  principles  which  gov- 
ern this  class  of  cases." 

'  In  Dodge  v.  Woolsey,  supra,  the 
court  said :  "  It  is  now  no  longer  doubted, 
either  in  England  or  the  United  States, 
that  courts  of  equity,  in  both,  have  a  jur- 
isdiction over  corporations  at  the  instance 
of  one  or  more  of  their  members,  to  apply 
preventive  remedies  by  injunction,  to  re- 
strain those  who  administer  them  from 
doing  acts  which  would  amount  to  a  vio- 
lation of  charters,  or  to  prevent  any  mis- 
application of  their  capitals  or  profits, 
which  might  result  in  lessening  tlie  divi- 
dends of  stockholders,  or  the  value  of 
their  shares,  as  either  maj-  be  jirotected 
by  the  franchises  of  a  corporation  if  the 
acts  intended  to  be  done  create  what  is 
in  the  law  denominated  a  breach  of  trust. 
And  the  jurisdiction  extends  to  inquire 
into,  and  to  enjoin,  as  the  case  may  re- 
quire that  to  be  done,  an}'  proceedings  by 
individuals,  in  whatever  character  they 
may  profess  to  act,  if  the  subject  of  com- 
plaint is  an  imputed  violation  of  a  corpo- 
rate franchise,  or  the  denial  of  a  right 
irrowinor  out  of  it,  for  which  there  is  not 
an  adequate  remedy  at  law."  In  Atwool 
?;.  Merry  weather,  s«/>ra,  the  court  said: 
"  If  1  were  to  hold  that  no  bill  could  be 
filed  by  shareholders  to  get  rid  of  the 
transaction,  on  the  ground  of  the  doctrine 
of  Foss  V  Ilarbottle,  it  would  be  simply 
impossible  to  set  aside  a  fraud  comniitted 
by  a  director  under  such  circumstances, 
as  the  ilirector  obtaining  so  niany  siiares 
by  fraud  would  be  able  to  outvote  every- 
body else."  It  is  to  be  noticed  that  long 
prior  to  those  cases  it  had  been  held  by 
the  co\irts  in  various  cases  that  a  stoek- 
holdi'r's  action  herein  would  lii-,  hut  the 
principle  was  not  clearly  established  un- 
til  the  foregoing  decisions   were  made. 

671 


§  646.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


lated  and  enounced  therein,  has  been  repeated,  applied,  explained, 
and  extended,  by  subsequent  cases  and  by  text-books,  until  a  sys- 
tem of  jurisprudence  may  be  said  to  be  based  thereon.  That 
system  is  the  subject  of  the  present  fourth  part  of  this  work.^ 

§  646.  The  facts  and  conditions  tvliich  allow  and  sustain 
a  stocWiolder' s  suit  herein. — Before  a  stockholder  can  sustain  a 
suit  to  remedy  the  frauds,  ultra  vires  acts,  or  negligence  of  di- 
rectors, he  should  be  certain  that  three  distinct  facts  or  conditions 
exist  in  his  favor.  These  are,  first,  that  the  acts  complained  of 
are  such  as  amount  to  a  breach  of  trust,  and  such  as  neither  a 
majority  of  the  directors,  nor  of  the  stockholders,  can  ratify  or 
condone ;  ^  second,  that  the  complaining  stockholder  himself  is 
free  from  laches,  acquiescence,  or  ratification  of  the  acts  to  reme- 
dy which  the  suit  is  brought ;  ^  third,  that  the  corporation  has 


Thus,  ia  New  York,  as  early  as  1 832,  in 
the  case  of  Robinson  v.  Smith,  3  Paige, 
222,  the  remedy  was  declared  to  exist. 

^  Prof.  Pomeroy,  in  his  learned  work 
on  Equity  Jurisprudence,  §  1094,  clearly 
states  the  general  rule  herein  as  follows: 
"  In  general,  where  the  directors  or  offi- 
cers, or  some  of  them,  cause  a  loss  of 
corporate  property  by  negligence,  or 
culpable  lack  of  prudence,  or  failure  to 
exercise  their  functions,  or  fraudulently 
misappropriate  the  corporate  property 
in  any  manner,  whether  for  their  own 
benefit  or  for  the  benefit  of  third  persons, 
or  obtain  any  undue  advantage,  benefit, 
or  profit  for  themselves  by  contract,  pur- 
chase, sale,  or  other  dealings  under  color 
of  their  official  functions,  or  misuse  the 
franchises,  or  violate  the  rules  established 
by  the  charter  or  the  by-laws  for  their 
management  of  the  corporate  affairs ;  or 
in  any  other  similar  manner  commit  a 
breach  of  their  fiducinry  obligations 
towards  the  corporation,  so  that  it  sus- 
tains an  injury  or  loss,  and  a  liability 
devolves  upon  themselves,  then  the  cor- 
poration is  the  party  which  must,  as  the 
plaintiff,  institute  an  equitable  suit  for  re- 
lief against  the  wrong-doers;  the  trust 
relation  between  itself,  as  the  cestui  que 
trust,  and  the  defaulting  directors  or  offi- 
cers, as  trustees,  has  been  violated,  and 
as  in  all  like  cases  the  cestui  que  trust  is 
primarily  the  only  party  to  sue  for  re- 
dress. As  a  general  rule,  courts  of 
equity  will  not  interfere  with  the  internal 
management  of  corporations  by  means  of 
suits  brought  by  stockholders  against 
directors,  officers,  or  other  stockholders. 

672 


In  cases  belonging  to  this  class,  therefore, 
whatever  be  the  nature  of  tlie  particular 
wrong,  whether  intentional  and  fraudu- 
lent, or  resulting  from  negligence  or 
want  of  reasonable  prudence,  and  what- 
ever be  the  indirect  loss  occasioned  to 
individual  stockholders,  no  equitable  suit 
for  relief  against  the  wrong-doing  direc- 
tors or  officers  can  be  maintained  by  a 
stockholder  suing  representatively  on  be- 
half of  all  others  similarly  situated,  tmless 
the  special  condition  of  circumstances  ex- 
ists, to  be  described  in  the  next  following 
paragraph,  namely,  that  the  corporation 
either  actually  or  virtually  refuses  to 
prosecute.  Even  if  the  stockholder  al- 
leges that  the  value  of  his  own  stock  has 
been  depreciated  by  the  defendants'  acts, 
or  that  he  has  sustained  other  special 
damage,  he  is  not  thereby  entitled  to 
maintain  the  suit."  In  the  case  of  Mason  v. 
Harris,  L.  R.  11  Ch.  D.  97  (1819),  the 
court  said  :  "  As  a  general  rule,  the  com- 
pany must  sue  in  respect  of  a  claim  of 
this  nature;  but  general  rules  have  their 
exceptions,  and  one  exception  to  the  rule 
requiring  the  company  to  be  plaintiff  ia 
that  where  a  fraud  is  committed  by  per- 
sons who  can  command  a  majority  of 
votes,  the  minority  can  sue.  The  reason 
is  plain,  as.  unless  such  an  exception 
were  allowed,  it  would  be  in  the  power 
of  a  majority  to  defraud  the  minority 
with  impunity." 

-  This  subject  is  treated  in  the  re- 
mainder of  this  chapter,  and  in  Chapter 
XL. 

3  See  Chapter  XLI. 


CH.  XXXIX.]  FRAUDS   OF   DlRECTOPvS.  [§  647. 

been  requested  and  has  neglected  or  refused  to  institute  the  suit ; 
that  the  suit  is  instituted  by  honajide  stockholders  as  complain- 
ants, and  that  the  corporation  and  the  guilty  parties  and  other 
proper  parties  have  been  made  defendants.'' 

B. — Frauds  of  Corporate  Directors,  of  a  Majority  of 
THE  Stockholders,  or  of  Third  Persons,  to  Eemedy 
WHICH  A  Stockholder  may  Bring  Suit. 

§  647.  Different  methods  of  perpetrating  these  frauds. — 
The  various  ways  in  which  stockholders  are  generally  defrauded 
out  of  their  legal  rights  in  a  coi'poration  are  described  in  subse- 
quent sections  of  this  chapter.  These,  however,  are  the  older, 
and  more  easily  remedied  wrongs.  The  principles  of  law  govern- 
ing them  are  known  to  those  who  contemplate  such  frauds.  Con- 
sequently, new  plans  and  methods  of  circumventing  the  law  are 
being  constantly  devised.  There  is  a  continual  contest  between 
the  courts  in  branding  certain  acts  as  frauds,  and  the  unscrupu- 
lous corporate  officers  in  forming  new  and  unknown  methods  of 
defrauding  the  corporation  and  stockholders.  Some  of  these 
devices  vary  little  from  the  older  ones,  but  others  are  due  to  the 
misdirected  talent  of  modern  times  exclusively.  Thus,  a  fre- 
quent fraud  is  perpetrated  in  that  dividends  are  withheld,  or  un- 
duly increased,  in  order  that  the  corporate  managers  may  cause 
fluctuations  in  the  price  of  the  stock,  and  enrich  themselves 
thereby.  They  exist  also  when  the  corporate  statements  of  its 
condition  and  business  are  garbled  and  arranged  so  as  to  mislead 
the  investing  public.  A  favorite  modern  device  is  the  purchase, 
by  corporate  officers,  of  tlie  stock  and  bonds  of  another  corpora- 
tion, and  then  a  consolidation  of  the  two  corporations,  to  the  ruin 
of  the  former  and  the  enrichment  of  the  holders  of  the  stock 
and  bonds  of  the  latter.  Still  another  method  is  the  diversion  of 
traffic  from  a  corporation,  or  a  use  of  its  income  for  im])rove- 
ments,  whereby  its  dividends  are  cut  off,  until  the  managers  have 
purchased  the  stock  and  bonds  at  a  price  far  below  the  real  value. 
TIjcsc  various  frauds,  and  many  others  which  might  be  enumer- 
ated, are  discovered  and  exposed  only  by  great  difficulty,  and 
generally  only  at  great  expense  and  delay.  The  courts  of  equity 
are  ready  and  reliable  in  remedying  the  wrong,  in  case  the  fraud 

'  See  Chapter  XLH. 


.§  648,  649.]  FRAUDS   OF   DIRECTORS.  [CH.  XXXIX. 

can  be  proved.     But  in  the  fact  that  the  proof  is  concealed  or 
destroyed,  and  generally  beyond  the  reach  of  the  defrauded  stock- 
holder, lies  the  safety  of  the  guilty  parties.     The  law,  however,  is 
•clear  as  to  the  fraudulent  character  of  many  acts  specified  herein. 

§  648.  Directors  as  trustees. — It  is  frequently  said,  both  in 
the  cases  and  in  the  text-books,  that  the  directors  of  a  corporation 
are  practically  trustees  with  the  whole  body  of  the  stockholders 
as  oestuis  que  trustent.  Tiiis  principle  of  law  has  been  useful  as  a 
method  of  ascertaining  what  acts  of  directors  constitute  a  fraud, 
and  what  remedies  may  be  applied.  These  fraudulent  acts  and 
remedies  have,  however,  now  been  quite  accurately  defined  and 
ascertained,  and  it  is  doubtful  whether  the  law  governing  trusts 
is  broad  enough  to  circumvent  the  ingenious  plans  and  schemes 
of  corporate  directors  to  defraud  the  corporation  and  stockholders. 
It  is  believed  that  a  better  and  much  safer  reliance  can  be  placed 
in  the  principle  of  law  and  equity,  tliat  for  every  wrong  there  is 
a  remedy.  There  will  be  much  doubt,  confusion,  inconsistency, 
and  difficulty  in  working  out  the  questions  which  will  arise  here- 
in, but  there  can  be  no  doubt  of  the  result,  if  courts  of  equity  are 
rallowed  the  same  freedom,  fearlessness,  and  power  of  searching 
and  circumventing  all  frauds  as  characterized  the  origin  of  such 
courts.^ 

§  649.  Director  or  otlier  corporate  officer  interested  in 
construction  company. — The  law  is  well  settled  that  a  director 
cannot  become  a  contractor  wiih  the  corporation,  nor  can  he  have 
:  an  J  personal  and  pecuniary  interest  in  a  contract  between  the 
company,  of  which  he  is  a  director,  and  a  third  person.^  The  di- 
rector cannot  be  interested  in  the  construction  company  at  the 
time  the  contract  is  made,  nor  subsequent  1}^,  and  it  is  immaterial 
that  the  contract  was  fair,  or  even  to  the  advantage  of  the  corpo- 
ration.    The  corporation  upon  discovering  the  fact  that  the  direc- 

'  That  directors  occupy  the  prsition  money  to    a    construction    company    of 

of  trustees  towards  tlie  stockliolders,  see  which  a   director  of  the  former    was   a 

European.  <&c.  Rv.  Co.  v.    Poor,  59   Me.  niembcr.     The  couit  said  that  the  three 

2*77  (i871)  ;  H'-yle  v.  Platlsburgh,  <tc.  R.  leading  Atnevican  cases  on  the  subject  of 

R.  Co  ,  64  N.  Y.  314;  Koehler   v.  IJlack,  frnuds  by  d  rectors,  are  INIichaud  «>.  Girod, 

<fec.  Co.,  2  Black,  715.     See  also  Green's  4   How.   503  ;    Cumberland  Coal    Co.  v. 

Brice's  Ulira  Vires,  2d  ed.,  p.  478.  cit-  Sherman,  30  Barb.  553,  and  Id.  20  Md. 

ing  many  cases.     Cf.  Snjith  v.  Anderson,  1 17  ;  and  Hoffman  ^tcam  ("cal  Co.  v.  Cum- 

L.  R.  12,  Ch.  D.  247.  berland  Coal  Co.,  16  Md.  456,  and  in  En^- 

•^  Port  V.  Rnsseli,  36   Ind.   60  (1871),  land,  tiie  case  .Aberdeen  Ry.  Co.  v.  Blai- 

where  an  injunction  was  granted  against  kie,  1  Macq.  461. 
■  the  payment  by  a  plauk  road  company  of 

674 


CH.  XXXIX-] 


FRAUDS  OF  DIRECTORS. 


[§  649. 


tor  is  interested  in  the  construction  company,  may  compel  him  to 
pay  over  to  the  corporation  all  profits  that  he  lias  derived  from 
the  construction  contract.'^  If  the  company  contracting  with  the 
corporation  secretly  gives  to  the  contracting  agent  of  the  latter  a 
eub-contract  for  the  construction  work,  the  corporation  may  re- 


'  Oilman,  C.  <t  S.  R.  R.  Co.  v.  Kelly, 
^V  111.  426  (1S75),  where  the  court  said 
"  that  DO  director  could  rightfully  become 
&  member  of  the  improvement  company, 
with  whom  the  railroad  company  had  a 
conti'act  to  furnish  the  means  with  which 
to  build  the  road,  wiih  a  T'iew  to  share 
in  the  profits,  and  that  if  any  gains 
should  be  realized  in  the  enterprise,  they 
■would  belong  to  the  railroad  company, 
upon  the  equitable  princiiile  which  forbids 
the  trustee,  or  person  acting  in  a  fiduciary 
capacit}',  from  speculating  out  of  the  sub- 
ject of  the  trust The  inquiry 

ia  not  whellier  the  contract  the  trustee 
has  made  is  the  best  that  could  have  been 
made  for  the  cestui  qve  trust,  or  whether 
it  is  fraudulent  in  fact.  So  strictly  is 
this  principle  adhered  to,  that  no  ques- 
tion is  allowed  to  be  raised  as  to  fairness 
of  the  contract.  The  principle  has  a 
broader  scope.  The  law  has  absolutely 
inhibited  the  agent  or  trustee  from  plac 
ing  himself  in  a  position  where  his  own 
private  interests  would  naturally  tend  to 
make  him  neglectful  of  his  obligations  to 
his  princip:il,  or  where  his  posiiion  would 
afford  him  an  opportunity  to  speculate  in 
the  trust  property.  Accordingly,  it  ia 
not  indispensable  there  should  be  actual 
injury  before  the  act  of  the  trustee  will 
be  declared  void,  as  being  interdicted  by 
the  policy  of  the  law.  The  ce-tiii  que 
tri'M  his  his  election  to  ratify  the  act  of 
the  trustee,  and  insist  upon  all  the  advan- 
tages of  it,  or  disaffirm  it  in  toto,  as  shall 
be  most  to  his  interest." 

See  also  Bayliss  v.  Lafayette,  M.  <fe  B. 
R.  R.  Co  ,  8  Biss.  193  (1878);  Paine  v. 
Lake  Erie,  &c.  R.  R.  Co.,  31  Ind.  283 
(1859);  Flirt,  <fec.  Ry.  Co.  v.  Dewey,  14 
Mich.  477(1866).  where  a  director  had 
become  interested  in  the  construction 
work,  after  the  contract  had  been  given. 
The  court  said  :  'The  jirinciple  if  law 
applicable  to  such  a  contract  renders  it 
immaterial  under  the  circumstances  of 
this  ca'^e,  whether  there  has  been  any 
frau  I  in  fact,  or  any  injury  to  the  com- 
pany. Fidelity  in  the  agent  is  wiiat  is' 
aimed  at,  and  as  a  mean-*  of  securing  it, 
the  law  will  not  [)ertnit  the  agent  to  jilaco 
himself  in  a  situation  in   which  he  may 


be  tempted  by  his  own  private  interest  to 
disregard  that  of  his  principal."  To  same 
effect  see  Thomas  )'.  Brownville,  <fec.  R.  R. 
Co.  109  U.S.  522  ( 1883), where,  however,  it 
is  held  that  bonds  is-uud  to  a  construction 
cooipany  in  which  a  director  is  interested 
cannot  be  altogether  repudiated,  but  are 
valid  to  the  extent  of  the  actual  value  of 
work  done.  See  also  Ryan  w. Leavenworth, 
&c.  Ry.  Co.,  21  Kan.  365  (1879),  holding 
also  that  a  stockholder  in  a  corporation 
which  is  a  stockholder  in  the  defrauded 
corporation  ma\-  sue  to  remedy  the  wrong 
to  the  latter.  European,  Ac.  Rj\Co.  v.  Poor, 
59  Me.  277  (1871),  where  the  court  said  : 
"  if  a  director  be  a  party  to  a  contract 
entered  into  wiih  himself,  his  duty  as  an 
officer  is  in  conflict  with  his  interests  as 
an  individual.  This  equally  so,  whether 
he  enters  into  the  contract  in  its  inception 
or  subsequen*ly  acquires  an  interest  in 
it.  .  .  .  It  is  not  in  that  particular  in- 
stance that  the  sale  or  the  purchase  may 
not  be  reasonable,  but  to  avoid  tempta- 
tion, the  agent  to  sell  is  disqualified  from 
purchasing,  and  the  agent  to  purchase 
from  selling."  See  also  Ri  ley  v.  Indian- 
apolis, Ac.  R.  R.  Co.,  62  N.  Y.  240,  248 
(1875),  where  the  court  said  :  "  '1  he  re- 
lation which  Griggs  [president  and  di- 
rector] bore  to  the  compan}-,  no  doubt, 
)ilaced  it  in  the  power  of  the  company  to 
insist  that  whiitever  advantages  he  ob- 
tained under  t  e  contract  assigneil  to  hina 
should  be  held  for  the  benefit  of  the  com- 
pany, and  that  he  should  account  to  it 
for  any  profit  he  might  make.  But  at 
the  same  time  the  company  had  the 
right,  inasmuch  as  he  assumed  to  act  for 
himself,  to  hold  him  to  the  contract  and 
to  refuse  to  inde  unity  him  against  any 
loss  he  mi;^lit  sustain  by  its  pei  lormanco. 
It  was  in  their  |)o\ver  to  treat  him  us  con- 
tractor if  it  was  to  their  interest  to  do  so; 
the  disability  was  upon  him,  not  upon  the 
company  ;  thev  had  the  option  to  treat  liis 
dealini;  as  upon  their  account  an  I  at  his 

own  risk 'i'lic  ri.;ht  to  insi-t 

upon  the  fiduci  iry  relation  whieh  Griggs 
bore  to  the  company  was  one  existing  bo- 
twi  en  the  company  and  him.  was  ono 
which  the  company  could  enforce  or 
waive,  as  its  interests  might  dictate." 

675 


§649.] 


FRAUDS   OF   DIRECTORS. 


[CH. 


XXXIX. 


scind  the  whole  contract  and  recover  back  the  money  it  has  paid 
out  thereon.^  Nor  is  a  contract  valid  and  enforceable  against  the 
eoi-poration  where  the  parties  contracting  with  the  corporation 
have  given  to  the  directors  of  the  corporation  a  secret  interest  in 
the  profits  of  the  contract.^  The  circumstances  may  be  such, 
however,  as  will  vary  this  rule.  Thus,  where  the  director  was  a 
surety  for  the  contractor,  and  the  latter  failed,  the  former,  who 
finished  the  construction  work  under  compulsion  by  the  company, 
may  set  up  its  acquiescence  as  a  bar  to  its  suit  to  recover  from 
him  the  profits  of  the  transaction.^     So  also  where  a  director  pur- 


•  "  I  take  it,  according  to  my  view  of 
the  law  of  this  court,  to  be  clear  that  any 
surreptitious  dealing  between  one  princi- 
pal and  the  agent  of  the  other  principal, 
is  a  fraud  on  such  other  principal  cogni- 
zable in  this  court."  Panama,  <fec.  Tel. 
Co.  V.  India  Bubber,  <fec.  Tel.  Works  Co., 
32  L.  T.  N.  S.  517  (18*75).  In  this  case 
the  secret  sub-contractor  was  the  agent 
and  engineer  of  the  corporation.  He 
received  a  commission  for  his  work,  and 
the  work  was  to  be  accepted  subject  to 
his  approval. 

The  case  of  Currier  v.  N.  Y. ,  West 
Shore,  <fec.  R.  R.  Co.,  85  Hun,  355  (1885), 
goes  still  farther  and  holds  that  a  stock- 
holder may  compel  the  contractors  to  dis- 
gorge when  they  obtained  the  contract 
with  the  corporation  through  their  asso- 
ciates or  hirelings  being  made  directors. 
The  court  said :  "  If  it  was  the  fact  that 
those  defendants  did  control  the  actions 
of  the  railroad  company,  either  through 
their  own  acts  or  those  of  their  associates, 
as  directors  thereof,  it  is  plain  that  since 
they  also  controlled  the  construction  com- 
pany they  were  simply  contracting  with 
themselves,  and  that  the  railroad  com- 
pany was  helpless  in  their  hands.  It  re- 
quires no  argument  to  demonstrate  that  a 
contract  made  under  such  circumstances 
was  presumptively  fraudulent  (citing 
cases),  and  that  the  railroad  company 
might,  at  its  election,  treat  it  as  void  and 
repudiate  it."     (Citing  cases.) 

» Thus,  in  Warden  j;.  R.  R.  Co.,  103 
U.  S.  651  (1880),  under  such  circumstan- 
ces the  court  said:  "It  is  among  the 
rudiments  of  the  law  that  the  same  per- 
son cannot  act  for  himself  and  at  the 
same  time,  with  respect  to  the  same  mat- 
ter, as  the  assent  of  another  whose  inter- 
ests are  conflicting.  Thus,  a  person  cnn- 
not  be  a  purchaser  of  property  and  at  the 
same  time  the  agent  of  the  vendor.     The 

676 


two  positions  impose  different  obligations, 
and  their  union  would  at  once   raise  a 
conflict  between  interest  and  duty  ;  and, 
'  constituted   as   humanity  is,  in  the  ma- 
jority of  cases  duty  would  be  overborne 
in   the   struggle.'     Marsh   v.  Whitmore, 
21  Wall.  178,  183.     The  law,  therefore, 
will  always  condemn  the  transactions  of  a 
party  on  his  own  behalf  when,  in  respect 
to  the  matter  concerned,  he  is  the  agent 
of  others,  and  will  relieve  against  them, 
whenever  their  enforcement  is  seasonably 
resisted.     Directors  of  corporations,  and 
all  persons  who  stand  in  a  fiduciary  rela- 
tion to  other  parties,  and  are  clothed  with 
power  to  act  for  them,  are  subject  to  this 
rule  ;  they  are  not  permitted  to  occupy  a 
position  which  will  conflict  with  the  inter- 
est of  parties  they  represent  and  are  bound 
to  protect.     Tiity  cannot,   as  agents  or 
trustees,  enter  into  or  authorize  contracts 
on  behalf  of  those  for  whom  they  are  ap- 
pointed to  act,  and  then  personally   par- 
ticipate in  the  benefits.     Hence,  all  ar- 
rangements bv    directors   of  a  railroad 
company,  to  secure  an  undue  advantage 
to  themselves  at  its  expense,  by  the  for- 
mation of  a  new  company  as  an  auxiliary 
to  the  original  one,  with  an  understand- 
ing that  they  or  some  of  them,  shall  take 
stock  in  it,  and  then    that  valuable  con- 
tracts shall  be  given  to  it,  in  the   profits 
of  which  they,  as  stockholders  in  the  new 
company,  are  to  share,  are  so  many  un- 
lawful devices  to  enrich  themselves  to  the 
detriment  of  the  stockholders  and  credit- 
ors of  the  original  company,  ard  will  be 
condemned  whenever  brought  before  the 
courts  for  consideration." 

^  Kelley  i\  Newburyport  Horse  R.  R. 
Co.,  141  Mass.  496  (1886),  the  court  say- 
•ing:  "  As  a  general  rule,  a  contract  be- 
tween a  corporation  and  its  direct<irs  is 
not  absolutely  void,  but  voidable  at  the 
election  of  the  corporation.     Such  a  con- 


CH.  XXXIX.] 


FRAUDS  OF  DIRECTORS. 


[§650. 


chased  an  interest  in  the  construction  contract  after  it  had  been 
entered  into,  but  sold  that  interest  before  any  work  was  done 
thereunder,  the  illegality  of  his  connection  with  the  construction 
company  cannot  affect  the  legality  of  his  sale  of  that  interest.^ 

§  650.  Secret  gifts  to  directors  from  persons  contracting 
with  the  corporation. — It  is  a  well  established  principle  of  law 
that  a  director  commits  a  breach  of  trust  in  accepting  a  gift  or 
secret  -p&j  from  a  person  who  is  contracting  or  has  contracted 
with  the  corporation,  and  that  the  corporation  may  compel  the 
director  to  turn  over  to  it  all  the  money  or  property  so  received 
by  him.  In  England  these  cases  generally  arise  out  of  gifts  of 
qualification  shares  given  by  promoters  of  the  company  to  the  di- 
rectors who  accept  office  in  consequence  of  such  gifts.  The  cor- 
poration may,  in  snch  a  case,  compel  the  director  to  pay  to  it  the 
highest  price  reached  by  such  stock,  between  the  time  when  the 
gift  was  made  and  the  time  when  it  was  discovered.^  In  this 
country,  these  gifts  are  generally  of  a  different  character.  Thus, 
an  agreement  of  a  third  person  to  pay  a  certain  sum  to  a  director 


tract  does  not  necessarily  require  any  in- 
dependent and  substantive  act  of  ratifi- 
cation, but  it  may  become  finally  estab 
lished  as  a  valid  contract  by  acqui- 
escence." 

'  Barnes  v.  Brown,  80  N.  Y.  527 
< 18801 

•^  Pearson's  Case,  25  W.  R.  618(1877), 
affi'^  L.  U.  4  Ch.  D.  222;  s.  c,  L.  R. 
5  Ch.  D.  336  (1877),  the  court  saying: 
waa"  Whether  the  purchase  was  or 
not  an  advantai^eous  one  for  the  com- 
pany .  .  .  is  a  question  wholly  im- 
material for  Us  to  consider;  he  cannot,  in 
the  fiduciarj'  position  he  occupied,  retain 
for  himself  any  benefit  or  advantage  that 
lie  obtained  under  such  circumstances." 
Ormerod's  Cmsc,  25  W.  R.  765  (1875), 
where  the  director  was  elected  and  the 
gift  received  after  thi^  contract  was  made. 
The  court  said  :  "  If  it  is  lawful  that  a 
man  innv  be  bought  as  a  director,  it  must 
be  decided  by  some  one  else.  I  never  will 
decide  it."  Weston's  Cnse,  L.  R.  10  Ch. 
D.  579  (1879),  where  the  director  was 
held  liaVjIe  for  the  fnll  price  of  the  slock 
less  what  lie  paid  th<-  promoter  therefor. 
Clarke's  Case.  37  L.  T.  N.  _S.  222  (1877), 
where  tiie  articles  of  association  allowt-d 
the  gilt,  but  were  held  to  be  fraudidcnt. 
J  IcKay'8  Case,  L.  R.  2  Ch.   D.    1   (1875), 


where  the  secretary  of  the  corporation 
was  compelled  to  pay  over.  Hay's  Case, 
L.  R.  10  Ch.  593  (1875),  where  the  court 
said  :  "  No  agent  can  in  the  course  of  hia 
agency  derive  any  benefit  whatever  with- 
out the  sanction  or  knowledge  of  his  prin- 
cipal." Be  Englefield  Colliery  Co.,  L.  R. 
8  Ch.  D.  888(1877);  Emma  Silver  M.  Co. 
V.  Lewis,  L.  R.  4  C.  R.  D.  396  (1879), 
where  the  mining  experts  of  the  corpora- 
tion were  compelled  to  disgorge,  hi  re 
Carriage,  &c.  Assoc.,  L.  R.  27  Ch.  D.  322 
(1884);  7?ft  Drum  Slate,  <fec.  Co.,  63  L. 
T.  250  (1885),  where  the  promoters  gave 
money  to  the  directors.  See  also  55  L. 
.J.  Ch.  36  (1886):  Madrid  Bk.  v.  I'elly,  L. 
R.  7  Eq.  442  (1869),  where  the  directors 
were  held  to  be  liable  for  the  inonej'  re- 
ceived by  then),  but  for  no  more.  Nant- 
y-Glo,  Ac.  Co.  V.  Crave,  L.  II.  12  Ch.  D. 
738  (1878),  holding  that  the  cor])()ration 
may  sue  herein,  tlie  same  as  a  li(iuidiitor. 
See  also  York  v.  North  Midlaml  Ry.  Co., 
16  Beav.  -IS,-)  ;  Hunt's  Case,  37  L.  J.(Ch.) 
278  ;  Liquidators,  &c.  v.  Coleman,  L.  R. 
6  H,  L.  189;  Benson  v.  Hoathorn,  1 
Younge  &  Coll.  326  ;  I'elly's  Case,  L.  R. 
21  Ch.  I).  492  ;  Hichena  v.  Congrevo,  1 
R.  <t,  M.  150;  Bk.  of  London  d.  Tyrrell, 
10  H.  L.  26. 


677 


§650.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


if  a  certain  location  of  a  railroad  is  adopted,  or  an  agreement  to 
allow  him  to  participate  in  tlie  profits  derived  from  such  location^ 
is  not  an  enforceable  contract.^  So  also  where  a  director  receives 
a  commission  from  one  who  obtains  a  loan  from  the  corporation 
through  the  director's  influence,  the  latter  may  be  compelled  to  pay 
over  the  commission  to  the  corporation.^  A  similar  rule  was  ap- 
plied where  a  director  of  an  insolvent  insurance  company,  accepted 
a  secret  gift  for  reinsuring  the  company's  risks  in  a  certain  other 
insurance  company.^  And,  in  general,  whenever  an  agent  of  the 
corporation  accepts  a  gift  or  participates  in  the  profits  of  a  con- 
tract with  the  corporation,  the  corporation  is  entitled  to  the  gifts 
or  profits,  and  a  stockholder  may  bring  the  suit  to  compel  the 
agent  to  pay  over.*  Frequently  gifts  are  made  to  directors  of 
watered  stock  from  those  to  whom  it  has  been  issued  for  proper- 
ty. In  such  a  case  the  director  is  liable  to  the  corporation,  not 
for  the  par  value  of  the  stock  so  received,  but  its  actual  value.^ 


'  Bestor  v.  Wathen,  60  111.  138  (1871); 
Linder  «;.  Carpenter,  62  111.  309  (1872); 
Fuller  V.  Dame,  18  Pick.  473  (18S6),  hold- 
ins;  that  a  promissory  note  given  therelor 
is  void.  See  also  Union  Pac.  It.  R.  Co.  v. 
Durant,  1  Cent.  L.  J.  582 ;  Pac.  R.  R.  Co. 
V.  Seeley,  45  Mo.  212  ;  Berryman  v.  Trus- 
tees, Ac,  14  Bush  (Ky.),  755  (1879).  in 
the  case  Cook  v.  Sliernum,  20  Fed.  Rep. 
167  (1882),  the  court  refused  to  enforce 
epecifically  a  contract  whereby  corporate 
oflScers  agreed  to  purchase  lands,  the  pur- 
pose of  all  the  parties  beinz  to  influence 
thereby  the  local  ion  of  the  railroad.  The 
court  said:  "  Such  a  contract  by  officers 
of  a  railroad  corporation  is  contrary  to 
public  policy,  and  one  wldch  will  not  be 
enforced  or  made  the  ba.'sis  of  any  relief 
in  a  court  of  equity.  The  directors  of 
Buch  a  corporation  are  quasi  public 
officers.  They  occupy  a  position  of 
trust  and  act  in  a  fiduciary  capacity. 
They  represent,  not  tliemselves,  but  the 
Btoc'kholder.s.  They  are,  in  all  their 
official  actions,  to  consider,  not  their 
private  interest,  but  that  of  the  stock- 
holders whose  property  they  m.-ina^e  and 
control.  If,  as  in  this  case,  they  ;.re  di- 
rectors of  a  railway  company,  with 
power  to  locate  and  construct  a  public 
highway,  they  owe  a  duty  to  the  public 
as  well  as  to  the  stockholders,  and  are 
therefore  doubly  bound  to  abstain  from 
entering  into  any  scheme  to  per- 
vert their   trusts  to  their  private  gain. 

678 


The  law  does  not  permit  these  officials  ta 
subject  themselves  to  any  temptation  to 
serve  their  own  interests  in  preference ta 
the  interests  of  the  stockholders  and 
of  the  public." 

'^  Farmers  &  M.  Bk.  v.  Downey,  55 
Cal.  466  (1879);  Imperial,  (fee.  Assn.  v.. 
Coleman,  L.  R.  6  H.  L.  189  (1873). 

3  Bent  V.  Priest,  1  West.  Rep.  749 
(Mo.  1885).  See  also  Gaskell  v.  Cham- 
bers, 28  Beav.  360. 

■*  Bank  of  London  v.  Tyrrell,  5  Jur.. 
N.  S.  924  (1859),  where  a  solicitor  ot  the 
corporation  was  compelled  to  pay  over 
under  such  circumstances.  The  court 
said  :  "  It  is  not  a  question  about  setting 
aside  the  transaction,  neither  is  it  a  ques- 
tion of  what  is  or  was  the  true  value  of 
the  property  ;  but  the  question  is,  wheth- 
er the  agent  has  not  by  means  of  his 
agen.y  acquired  this  property  for  the 
purpose  of  tnakins;  a  profit  our,  of  it  by  a 
resale  to  his  principal,  and  whether,  if  he 
succeeds  in  his  object,  he  can  keep  that 
advantage  to  himself."  Phosphate  Sew- 
ag-e  Co.  V.  Hartmont,  L.  R.  5  Ch.  D.  399 
(1877);  General  Kx.  Bk.  v.  Horner,  39' 
L.  J.  (Ch.)  39:3  (1870),  where  the  mana- 
ger was  paid  a  large  sum  in  order  to  ob- 
tain his  aid  to  a    consolidation    scheme. 

*  Morrison  v.  Globe  Panorama  Co., 
28  Fed.  Rep.  817  (Nov.  1886).  See  also 
t<  48,  supra;  Piicific  Trust  Co.  v.  Dorsey,. 
12  Pac.  Rep.  49  (Cal.  1886). 


en.  XXXIX.] 


FRAUDS   OF  DIRECTORS. 


[§  65r. 


§  651.  Frauds  &?/  promoters  on  tlie  corporation. — A  promo- 
ter is  a  person  who  brins^s  about  the  incorporation  and  organiza- 
tion of  a  corporation.  He  brings  together  the  persons  who  are- 
interested  in  the  enterprise,  aids  in  procuring  subscriptions,  and 
generally  is  the  representative  of  parties  who  wish  to  sell  prop- 
erty to  the  corporation,  or  to  construct  its  woiks.^  A  promoter 
is  considered  in  law  as  occupying  a  fiduciary  relation  towards  the 
corporation.  He  is  an  agent  of  the  corporation  and  his  compen- 
sation is  derived  from  it,  or  from  the  persons  who  are  the  princi- 
pal stockholders  of  the  corporation.  The  promoter  is  not  allowed 
to  receive  and  retain  a  secret  profit  given  to  him  by  the  parties 
with  whom  the  corporation  contracts.'^  Frequently  the  promoter- 
himself  owns  or  has  an  interest  in  the  property  whicli  is  sold  to- 
the  corporation.  In  such  cases  if  he  openly  acknowledges  such 
interest  and  deals  with  the  company  at  arm's  length  the  transac- 
tion is  allowed  to  stand.  But  if  the  promoter  conceals  his  in^ 
terest  in  the  property  sold  to  the  corporation  the  sale  may  be  set 
aside,  the  property  returned,  and  the  money  recovered  back.' 
Generally,  however,  the  promoter  has  previously  purchased  the. 


'  Emma  Silver  M.  Co.  v.  Lewis,  L. 
R.  4  C.  P.  D.  396  (1879),  where  Lnndlcy, 
J.,  says  ihitt  the  word  ■' promoter "  has 
DO  very  definite  meaninji;.  The  court 
said  :  "  As  used  in  connection  with  com- 
panies  the  term  'promoter'  involves  tiie 
idea  of  exertion  fir  the  purpose  of  tret- 
ting  up  and  starting  a  company  (or  what 
is  ca'led  'floating'  it),  and  also  ihe  idea 
of  some  duty  to\v;irds  the  company  im- 
posed by  or  arising  from  the  position 
wliich  the  so-called  promoter  assumes 
towards  it.  It  is  now  clearly  settled  tliat 
persons  who  get  up  and  form  a  company 
have  duties  towards  it  before  it  comes 
into  existence."  And  again,  in  EmniJi, 
&c.  Co.  V.  Grant,  L.  R.  ]  1  Ch.  D.  918 
(1878),  a  promoter  is  defined  as  "  a  trus- 
tee, agent,  or  peison  in  a  fiduciary  posi- 
tion as  regards  the  company,  one  who 
has  undertaken  a  duty  towards  tiie  com- 
pany of  such  a  chi.racter  as  incapacitates 
him  from  muking  a  hccin  t  profit  at  tlie 
expense  of  the  company."  Lydney,  tfec. 
Co.  D.  Bird,  L.  R.  :n  Ch.  D.'3'28,  snys: 
"  No  doubt  a  very  liltle  will  m/ike  people 
promoters  oF  a  company,  if  it  can  be 
seen  that  th<y  were  really  doing  some- 
thinir  in  the  way  of  speculiilion  lor  tlieir 
own  interest  and  not  aclimr  merely  as 
agents  for  others." 


'  Emma  Silver,  <fec.  Co.  v.  Grant,  L  . 
R  11  Ch.  D.  918  (1878),  where  the  pro- 
moter was  (oinpellcd  to  disgorge  a  gift 
given  to  him  by  the  vendors  of  a  mine  to 
the  corporation,  but  he  wms  allowed  to  re- 
tain tijcrefrom  I. is  disbursements.  It  is 
imniateiial  that  the  sale  was  a  fair  one. 
The  court  said:  "  He  n.ust  let  his  com- 
pany know  whiit  profit  he  has  taken  and 
deal  with  them,  so  to  sny,  at  arm's 
length."  Whaley  Bridge,  &c.  Co.  «. 
Green,  L.  K.  6  Q,  P.  D.  109  (1879),  hold- 
ing also  that  if  the  vendor  has  not  yet 
paid  the  money  to  the  promoter  the  cor-- 
poration  may  recover  it  from  the  former. 
See  also  Kagnall  v.  Carlton,  L.  R.  6  Ch. 
D.  371  ;  St.  Louis,  Ac.  Co.  v.  Jackson,  5 
(Vnt.  L.  J.  317:  He  AJurvah.  <i!;c.  Co.,  24 
W.  R.  49  (1875). 

^  New  8ombrcro  P.  Co.  v.  Erl  'nder, 
L.  R.  5  Ch.  D.  73,  103(1877);  a«i'd,  3 
App.  Cas.  1'2I8,  where  the  promoters 
purchased  a  mine,  ortriinized  tlie  com- 
parjy,  controlled  tlie  directors,  and  solA 
tiie  property  to  the  corporation  at  a 
great  advance.  Lindsay  I'ltrok'um  Co. 
V.  lluid,  L.  R  (•)  C.  P.  '2-21;  Phosphate 
Scwaiic  Co.  V.  Hartmont,  L.  R.  6  Cli.  D. 
394(1877). 


679 


§  652.]  FRAUDS   OF   DIRECTORS.  [CS.  XXXIX. 

property  at  a  price  much  less  than  that  which  the  corporation 
pays  him.  In  such  cases  he  may  be  compelled  to  pay  over  to  the 
corporation  his  profits  in  the  transaction,^  The  agent  of  the  per- 
son who  sells  to  the  corporation  is  not  a  promoter  of  the  latter. 
He  bears  a  very  different  relation  towards  it  from  the  relation  of 
a  promoter — one  who  acts  for  the  corporation.  The  agent  of  the 
person  who  deals  with  the  corporation  may  recover  his  compen- 
sation from  that  person,  but  he  cannot  recover  compensation  for 
improperly  influencing  tiie  agents  of  the  corporation  to  make  the 
contract.^ 

§  652.  Sales  ofprojyertp  hy  corporate  officers  to  the  corpora- 
tion.— It  is  well  said,  in  the  case  of  Michaud  v.  Girod,^  that  a  per- 
son cannot  legally  purchase  on  his  own  account  that  which  his 
duty  or  trust  requires  him  to  sell  on  account  of  another,  nor  pur- 
chase on  account  of  another  that  which  he  sells  on  his  own  ac- 
count. He  is  not  allowed  to  unite  the  two  opposite  characters  of 
buyer  and  seller.  Especially  is  this  the  rule  with  corporate  direc- 
tors. If  they  make  sales  to  the  corporation  they  may  be  com- 
pelled to  pay  over  to  the  corporation  the  profit  realized  by  such 
sales  *  or  the  corporation  may  refuse  altogether  to  complete  the 
contract.^     Generally  the  director  has  purchased  the  property  for 

'  Simons  v.  Vulcan  Oil,   (fee.   Co.,  61  Ch.  D.  328;  Arkright  y.  Newbold,  L.  R. 

Penu.   St.    202  (1869),    where   the   pro-  17  Ch.  D.    301;    Davidson  w.  Seymour,  1 

moter  misrepresented  the  price  which  he  Bosw.  (N.  Y.)  88  (1857),  where  the  court 

gave  for  the  property.     Tliis  case  is  quite  sa3-s:   "There  was  secrecy,  applications 

properly,  considered  as  the   leading  case  to   individuals,  a    concealed   promise    of 

on   this   subject  and   is  so  presented  by  compensation,  and    utter  ignorance  and 

Judge  Thompson  in  his  learned  work  on  recklessness  as  to  the  competency  of  the 

The  Liability  of  Officers  and  Agents  of  party  whose  cause  he  was  promoting  and 

Corporations.     See  also  Hichens  v.  Con-  whose  i-eward  he  was  to  receive."     Dens- 

greve,  4  Russ.  663  (1828);  In  re  Here-  more  Oil  Co.  v.  Densmore,  64  Penn.  St. 

ford,  <fec.  Co.,  L.  R.  2  Ch.  Div.  621 ;    Bk.  43. 

of  London  v.  Tyrrell,  5  Jur.   N.  S.  924.  »  4  How.  .503  (1846). 

Cf.  Cover's  Case,   L.   R.   1   Ch.  D.   182.  *  Abbin  Street,  &c.  Co.  v.  Martin,  24 

Where  the  vendor  of  the  property  to  the  W.  R.  134(1875);    Benson  r;.  Heathorn, 

corporation  realized  one  price;  the  pro-  1  Y.  &  C.    (Ch.)   326  (1842);    Dunne  v. 

moter  received  from    the  corporation  a  English,   L.  R.   18   Eq.  524  (1874),  there 

much  greater  price  and  retained  the  differ-  having    been   no   full   disclosure  to   and 

ence,  McElhenny's  Appeal,  61  Penn.  St.  ratification  by  the  corporation. 

188  (1869),  the  court  said:  "  The  promot-  'Coleman  v.  Second  Ave.  R.  R.  Co., 

ers  of  such  companies,  when  they  buy  to  38  N.  Y.   201  (1868);    Metropolitan  Ry. 

form  a  company  and  their  purciiases  are  Co.    v.    Manhattan    Ry.    C".,    15    Am.  <fe 

taken  by  the  company     .     .     .     cannot  Eng.   R.  R.  Cas.   1,  74  (K  Y.  1884),  Van 

make  profits  on  these  sales."    The  vendor  Brunt,   J.,   saying:    "I  think,  therefore, 

of  the  property  to  the  promoter  was  also  that  the   undoubted  rule  of  law  in  this 

implicated  herein.     See  also  Phosphate,  State  is,  that  every  contract  entered  into 

(fee.  Co.  V.  Hartmout,  supra.  by  a  director  with  his  corporation  may 

'  Lydney,  (fee.    Co.  v.   Bird,  L.  R.  31  be  avoided  by  the  corporation  within  a 

680 


OH.  XXXIX.]  FRAUDS   OF   DIRECTORS.  [§  652. 

the  express  purpose  of  selling  it  to  the  corpi)ratiou.  When  such 
is  the  case  the  company  may  ratify  and  confirm  the  transaction, 
or  it  may  keep  the  property  and  recover  from  the  director  the 
profit  realized  by  him,  or  the  company  may  repudiate  the  whole 
transaction,  return  the  property,  and  recover  back  the  purchase 
money. ^  Where,  however,  the  directors  sell  to  the  corporation 
at  a  profit  to  themselves,  but  with  a  full  and  fair  disclosure 
thereof,  and  without  participating  in  the  acceptance  by  the  corpo- 
ration of  the  property,  the  transaction  cannot  be  impeached  after- 
wards.^ Moreover  it  is  within  the  power  of  the  majority  of  the 
stockholders  to  ratify  and  confirm  such  a  transaction  where  there 
is  no  actual  fraud  involved.  The  fraud  is  not  an  actual  one  if 
the  director  sold  at  a  fair  price  and  did  not  use  his  position  to  in- 
duce the  corporation  to  purchase.  Such  a  sale,  however,  is  al- 
ways a  constructive  fraud,  and  is  voidable  at  the  option  of  a  ma- 
jority of  the  directors  or  a  majority  of  the  stockholders.  There 
is  some  difficulty  in  determining  what  will  constitute  a  confirma- 
tion of  such  a  transaction.  If  a  majority  of  the  directors  and  of 
the  stockholders,  without  counting  the  votes  controlled  by  the 
director  who  is  interested,  favor  a  confirmation  of  the  transaction, 
a  dissenting  stockholder  cannot  bring  suit  to  set  it  aside  unless  he 
can  show  the  existence  of  some  fraud  other  than  the  mere  fact 
that  the  vendor  was  a  director  when  he  made  the  sale.^  If,  how- 
ever, a  tiiajority  of  the  stockholders,  excluding  the  votes  owned 
directly  or  indirectly  by  the  guilty  parties,  are  in  favor  of  bring- 
ing the  directors  to  an  accounting,  a  single  stockholder  may  file  a 
bill  in  equity  for  that  purpose.  It  was  on  such  a  state  of  facts 
that  the  great  case  of  Atwool  v.  Merryweather  was  decided.* 


reasonable     time,    irrespective     of     the  'Parker  v.  Nickerson,  1 12  Mass.  195 

merits  of  the  contract  itself."     In  the  case  (1873);    Redmond  v.   Dickerson,  9  N.  J. 

of  Great  LuxembouPi?  Ry.  Co.  j;.  Magnay,  Eq.    507  (1853).     See  also  Getty  v.  Dev- 

25  Beav.    586,   where  the  director   pur-  lin,    f>4  N.   Y.  403  (1873);    Brewster   v. 

cha-^ed    for     the    corporation,    propt-rty  Hatch,   10  Abb.  N.  C.  4(iO  ( 1881). 

secretly  owned  by  himself,  tlie   coui-t  ro-  '^  Chesterfiold  Colliery  Co.  v.  Black,  37 

fused  to  interfere   after  the  corporation  L.  T.  740 ;  British   Seamless,  Ac.  Co.,  L. 

had    resold    the   property  without   loss.  R.    17   Ch.   D.  467;  Imperial,   Ac.  Co.  v. 

Unrier  this  princii)le  of  law  the  court  re-  Coleman,  L.  R.  6  Ch.  568.     Cf.  Id.  6  IT. 

fused   to   enforce  a  contract  by  a  director  L.  189. 

to   furnish    railway  chairs   to  his  corpo-  ■'  Meatty  v.   North   West.  etc.  Co.,  6 

raiion.     Aberdeen    Ily.   Co.   v.   Blakie,    1  Canadian  Law  Times.  277  M  885);   Foss  r. 

Macq.  461  ;  and  in  the  case   Flanajjan  v.  llarbottle,  2    Have,  IHl   (lK4:i). 

Great   Western  Ry.  Co.  L.  li.  7   Eq.  116  ■•  L.  R.  5  Eq.  464  (1867).      See  also 

(1868),    the    court   refused    to  enforce   a  Ma«on   v.    Harris,     L.    R.   11    Ch.    D.  97 

corporate  agreement  to  lease  property  to  ( lf<7U).     Cf.  however,  East  I'.iut,  Ac.  Min- 

a  director.  ing  Co.  v.  Merryweather,  2  II.  A  M.  254, 

081 


§  653.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


§  653.  Purchases  by  directors  from  the  corporation. — One  of 

the  most  frequent  frauds  perpetrated  upon  a  corporation  and  its 
stockholders,  is  where  one  or  more  of  the  directors  purcliase 
property  from  the  corporation  directly  or  indirectly,  or  partici- 
pate in  the  profits  of  such  a  purchase.  The  law  is  well  settled 
that  a  director's  purchase  of  property  from  the  corporation  is 
voidable  at  the  option  of  the  corporation,  even  though  the  direc- 
tor paid  fully  as  much  as  or  more  than  the  property  is  worth. 
This  principle  of  law  was  fully  established  by  the  cases  of  Cum- 
berland Coal  Company  against  Sherman^  and  Hoffman  Steam 
Coal  Company  against  Cumberland   Coal  and  Iron  Company.'' 


261,  n.,  where  the  court  says:  "  As  to  the 
management  of  the  company  by  the  board 
no  director  is  entitled  to  vote  as  director 
in  respect  of  any  contract  in  which  he  is 
interested,  but  the  case  is  different  where 
he  acts  as  otie  of  a  whole  body  of  share- 
holders. The  shareholders  of  one  com- 
pany may  have  dealings  with  interests  in 
other  ci'mpanies.  and  therefore  it  would 
be  manifestly  unfair  to  prevent  an  indi- 
vidual shnreholder  from  voting  as  a 
shareholder  in  the  affairs  of  the  company. 
At  a  general  meeting  his  vote  must  be 
held  to  be  good  so  long  as  he  continues 
to  hold  his  shares."  Prohibition  against 
his  voting  as  director  does  not  prevent  his 
voting  as  stockholder.  On  the  general 
principle  that  a  director  is  not  allowed  to 
make  a  profit  out  of  his  position.  See 
also  North  Eastern  Ry.  Co.  ».  Jackson, 
19  W.  R.  198;  Smith  i.  Anderson,  L.  R. 
15  Ch.  D.  247  ;  Parker  v.  McKenna,  L. 
R.  10  Ch.  1 18 ;  McKay's  Ca^e,  L  R.  2  Ch. 
D.  1;  Albion  Steel  Co.  v.  Martin,  L.  R. 
1  Ch.  D.  585. 

'  SO  Barb.  533  (1859),  where  the  court 
said  that  they  who  assume  "  the  posi- 
tion of  directors  and  trustees,  assume 
also  the  obligations  which  the  law  im- 
poses on  such  a  relation.  The  stock- 
holders confide  to  their  integrity,  to  their 
faithfulness,  and  to  their  watchfulness, 
the  protection  of  their  interests.  This 
duty  they  have  assumed,  tliis  the  law 
imposes  on  them,  and  this  those  for 
whom  they  act  have  a  right  to  expect. 
The  princip:ils  are  not  present  to  watch 
over  their  own  interests;  they  cannot 
speak  in  their  own  behalf ;  they  must 
trust  to  the  fidelity  of  their  agents.  If 
they  discharge  these  important  duties 
and  trusts  faithfully,  the  law  interpose 
its  shield  for  their  protection  and  de- 
fense;   if  they  depart  from  the  line  of 

682 


their  duty  and  waste,  or  take  themselves, 
instead  of  protecting  the  property  and 
interests  confided  to  them,  the  law,  on 
the  application  of  those  thus  wronged  or 
despoiled,  promptly  steps  in  to  apply  the 
corrective,  and  restores  to  the  injured 
what  has  been  lost  by  the  unfaithfulnesa 
of  the  agent.  This  right  of  the  cestui  que 
trust  to  have  the  sale  vacated  and  set 
aside  where  his  trustee  is  the  purchaser, 
is  not  impaired  or  defeated  by  the  cir- 
cumstances that  the  trustee  purchases  for 
another."  The  court  also  said  that  the 
purchase  by  the  directors  could  be  rati- 
fied only  by  the  unanimous  vote  of  all 
the  stockholders;  and  that  a  ratification 
by  a  proxy  would  not  bind  the  stockholder 
himself. 

■^  16  Md.  456  (1860),  where  a  minority 
of  the  directors  purchased  part  of  the 
corporate  property  at  ao  undervaluation 
and  then  sold  it  to  the  Hoffman  Company, 
in  which  they  were  lai'ge  stockholders. 
The  court  held  that  the  latter  was  charge- 
able with  notice  of  the  voidable  act.  The 
court  said:  "Trustees  cannot  purchase 
at  their  own  sales,  either  directly  or  indi- 
rectly, and  if  they  do,  such  purchase  will 
be  set  a>ide  on  the  proper  and  reasonnble 
application  of  the  parties  interested."  This 
rule  applies  to  directors  who  act  "  in  a  fidu- 
ciary capacity,  which  imposes  upon  vhem 
the  obligation  of  obtaining:  the  best  terms 
for  the  vendor,  or  which  has  enabled 
them  to  acquire  a  knowledge  "f  the 
property."  This  case  and  the  preceding 
one  grew  out  of  the  same  transactions. 
See  also  Bucll  v.  Buckingham,  16  Iowa, 
284  (1864),  holding  that  the  purchase  is 
voidable,  but  not  void.  It  may  be 
avoided,  however,  without  proving  any 
actual  fraud  on  the  part  of  the  director  or 
injury  to  the  corporation.  It  is  fraudu- 
lent/^erse.     See  also  Jones  v.  Arkansas 


CH.  XXXIX.J 


FRAUDS   OF   DIRECTORS. 


[§  65o. 


Similar  rules  prevail  in  regard  to  a  director's  purchases  of  corpo- 
rate property  at  a  foreclosure  sale  thereof.  A  director  may  loan 
money  to  a  corporation,  take  a  mortgage  therefor  in  good  faith, 
and  may  foreclose  the  mortgage  if  the  principal  or  interest  is  not 
paid.^  But  at  this  point  the  privileges  of  the  director  cease.  He 
cannot  be  a  purchaser,  either  directly  or  indirectly,  at  the  fore- 
closure sale.  This  is  the  rule  whether  the  foreclosure  is  instituted 
by  those  interested  in  the  corporation  or  by  third  parties.  If  the 
director  purchases  at  such  a  foreclosure  sale  he  holds  the  property 
as  trustee  for  the  benefit  of  the  corporation  and  the  stockholders. 
Upon  being  repaid  the  price  he  gave  thei'efor,  he  must  make  over 
the  property  to  the  corporation.^     Thus   where  a  dii-ector  who 


M.  &  A.  Co.,  38  Ark.  17  (1881);  Hay- 
wood V.  Lincoln  Lumber  Co.,  26  North 
West.  Rep.  184  (Wis.  1885);  Dennis  v. 
Kennedy,  19  Barb.  517(1854).  The  passive 
connivance  ofa  director  renders  bim  liable 
the  same  as  though  he  participated. 
Weetjen  v.  Vibbard,  5  Hun,  .65  (1875). 

'  Harts  V.  Brown.  77  III.  226(1875), 
the  court  saying :  "  We  have  never  heard 
it  questioned  that  a  director  or  stock- 
holder may  trade  with,  borrow  from,  or 
loan  money  to  the  company  of  which  he 
is  a  member  on  the  same  terms  and  in 
like  manner  as  other  persons. 
But  in  doing  so  he  must  act  fairly  and  be 
free  from  all  fraud  and  oppression;  and 
he  in  so  doing  must  act  for  the  interest 
of  the  company  and  impose  no  unfair  or 
unreasonable  terms." 

But  where  the  corporation  is  insolvent, 
it  seems  that  the  directors  cannot  turn 
in  to  themselves  its  property  for  the  pur- 
pose of  paying  a  debt  due  fi'om  the  corpo- 
ration to  them.  Bradley  v.  Farwell,  1 
Holmes,  433  (1874).  See  also  Williams 
V.  Patrons  of  Husbandry,  5  West.  Rep. 
105  (Mo.  1886).  And  a  mortgage  given 
when  the  company  is  nearly  insolv- 
ent "requires  to  be  suj)portud  by  evi- 
dence so  strong  and  clear  as  to  remove 
every  reasonable  doubt  of  the  fairness 
and  honesty  of  the  tran8;iction."  Hope 
V.  Salt  Co.,  25  W.  Va.  789(1885).  CY. 
Bassett  v.  Monte  Christo,  <L'c.,  Co.,  15  Nt-v. 
293(188(1).  See  ^  660,  i7!/''«-  In  West 
Virginia  there  is  a  code  pi'ovision,  Ch.  53, 
§  52,  io  ibe  following  efi'ect:  "No  mem- 
ber of  the  board  shall  vole  on  a  question 
in  which  he  is  irterested  otherwise  than 
as  a  stfickholdi  r,  or  be  present  at  the 
board  while  the  same  is  under  considera- 
tion ;  but  if  his  retiring  from  the    board 


in  such  case  reduce  the  number  present 
below  a  quorum,  the  question  may  never- 
theless be  decided  bythdsewho  remain." 
In  England  also  th's  matter  is  regulated 
by  act  of  Parliament. 

'  Harts  V.  Brown,  supra,  the  court 
saying  the  directors  cannot  purchase 
"anymore  than  they  could  fix  a  price 
on  the  priipertj^  and  apprnpriate  it  to 
their  own  use,  which  the  law  has  never 
sanctioned  with  persons  occupving  tlie 
relation  they  did  to  the  stockholders." 
To  same  effect,  Hope  v.  Sa)t  Co.,  25  W. 
Va.  789  (1885),  where  the  director  resold 
the  propertj'  at  three  times  it<  cost  to 
himself.  See  al!^o  Jackson  v.  Ludeling,  21 
Wall.  616,  625(1874),  where  the  directors 
were  part  of  those  who  purchaseil  at  a 
foreclosure  sale  of  the  corporate  property. 
The  court  said  :  "  They  had  no  riiilit  to 
enter  into  or  participate  in  a  combina- 
tion, the  object  of  which  was  to  divest 
the  company  of  it.s  property  and  obtain 
it  for  themselves  at  a  sacrifice,  or  at  the 
lowest  price  possible.  They  had  no  right 
to  seek  their  own  profit  at  the  expense  of 
the  company,  its  stockholders,  or  evea 
its  bondholders.  Such  a  course  was  for- 
bidilen  by  their  relation  to  llie  company. 
It  was  their  duty,  to  the  extent  of  their 
power,  to  secure  for  all  those  whose  in- 
terests were  in  their  charge,  the  highest 
possible  price  for  the  property  which 
could  be  obtained  for  it  at  the  sheritF's 
sale.  They  could  hoc  rightfully  jjlaco 
themselves  in  a  position  in  which  their 
interests  became  adverse  to  tiiose  of 
either  the  st  ickholders  or  bondholders. 
And  this  rule  was  peculiarly  appliealile 
to  the-e  defendants."  .Mso  Muii'-oii  v. 
Syracuse,  <tc.  H.  R.  Co..  29  llun.  76 
(1883),  where  the  directors  purchased  for 

683 


i  653.] 


FRAUDS   OF   DIRECTORS. 


[oh.  XXXIX. 


practically  controlled  the  board  of  directors  caused  all  the  earn- 
ings of  the  railroad  to  be  used  in  improving  the  property,  thereby 
preventing  a  payment  of  interest  on  the  corporate  indebtedness 
and  bringing  about  a  foreclosure  of  the  mortgage,  the  director 
himself  having  purchased  the  bonds  secured  by  the  mortgage, 
and  having  purchased  the  railroad  at  the  foreclosure  sale,  the 
court  in  an  able  opinion  held  that  the  purchase  at  the  foreclosure 
sale  by  the  director  was  voidable.  Upon  repayment  to  him  of 
the  purchase  price,  he  may  be  compelled  to  retransfer  the  prop- 
erty to  the  corporation,  even  though  another  foreclosure  will  be 
the  result  :  Third  persons  who  have  purchased  the  road  from 
him  with  notice  stand  in  no  other  position  than  the  director  him- 
self.^    A  director  cannot  purchase  corporate  property  sold  under 


the  purpose  of  reorganizing  the  corpora- 
tion. But  in  Twin  Lick  Oil  Co.  v.  Mar- 
bury,  91  U.  S.  587  (1875),  where  a  direc- 
tor loaned  money  to  the  corj^oralion,  took 
bonds  therefor,  and  had  the  bonds  se- 
cured by  a  mortgage  running  to  a  third 
person  as  trustee,  and  upon  a  sale  by  the 
trustee  the  director  purchased  for  him- 
self, the  court  said:  "  If  it  be  conceded 
that  the  contract  by  which  the  defendant 
became  the  creditor  of  the  company  was 
valid,  we  see  no  principle  on  which  the 
subsequent  purchase  under  the  deed  of 
trust  is  not  equally  so.  The  defendant 
was  not  here  both  seller  and  buyer.  A 
trustee  was  interposed  who  made  the  sale, 
and  who  had  the  usual  powers  necessary 
to  see  that  the  sale  was  fairly  conducted, 
and  who  in  this  respect  was  the  trustee 
of  the  corporation  and  must  be  supposed 
to  have  been  selected  by  it  for  the  exer- 
cise of  this  power.  Defendant  was  at  lib- 
erty to  bid,  subject  to  those  rules  of  fair- 
ness which  we  have  already  conceded  to 
belong  to  his  peculiar  position  ;  for,  if  he 
could  not  bid,  he  would  have  been  de- 
prived of  the  only  means  which  his  con- 
tract gave  bim  of  making  his  debt  out  of 
the  security  on  which  he  had  loaned  his 
money.  We  think  the  sale  was  a  fair 
one.  The  company  was  hopelessly  in- 
volved beside  the  debt  to  defendant.  Tiie 
well  was  exhausted  to  all  ap[)earance. 
The  machinery  was  of  little  use  for  any 
other  purpose,  and  would  not  pay  trans- 
portation. Most  (if  the  stockholders  who 
now  promote  this  suit  refused  to  pay  as- 
sessments on  their  shares  to  aid  the  com- 
pany. Nothing  was  left  to  tlie  defendant 
but  to  buy  it  in,  as  no  one  would  bid  the 
amount  of  his  debt."     The    court    said, 

684 


moreover,  that  although  the  corporation 
might  have  avoided  the  director's  pur- 
chase, yet  a  long  delay  in  so  doing  would 
bar  its  right.  See  Chapter  XLI.  In  the 
recent  case  of  Munson  v.  Syracuse,  <fec. 
Ry.  Co.,  8  North-east.  Rep.  355  (N.  Y.  Ct. 
of  App.  Oct.  1886),  where  Munson  was  a 
director  in  an  insolvent  railroad  corpora- 
tion and  also  a  director  in  a  corporation 
that  wished  to  purchase  said  railroad,  and 
in  behalf  of  the  latter  company  contracted 
to  purchase  the  said  railroad  from  the 
bondholders  after  the  latter  should  pur- 
chase the  same  at  a  foreclosure  sale,  the 
court  refused  to  enforce  the  contract  and 
said  that  the  director  "  stood  in  the  atti- 
tude of  selling  as  owner  and  purchasing 
as  trustee.  The  law  permit  s  no  one  to  act 
in  such  inconsistent  relations.  It  docs 
not  stop  to  inquire  whetlier  the  contract 
or  transaction  was  fair  or  unfair.  It 
stops  the  inquiry  when  the  relation  is 
disclosed,  and  sets  aside  the  t'-ansaction, 
or  refuses  to  enforce  it  at  the  instance 
of  the  party  whom  the  fiduciary  under- 
took to  represent  without  undertaking 
to  deal  with  the  question  of  abstract 
justice  in  the  particular  case.  It  pre- 
vents frauds  by  making  them,  as  far  as 
may  be,  impossible,  knowing  that  real 
motives  often  elude  the  most  searching 
inquiry,  and  it  leaves  neither  to  judge 
nor  jury  the  right  to  determine  upon  a 
consideration  of  its  advantages  or  dis- 
advantages whether  a  contract  under 
such  circumstances  shall  stand  or  fall." 

'  Covington  &  Lex.  R.  R.  Co.  v.  Bow- 
ler's Ex'rs,  9  Bush  (Ky.),  570  (1872).  the 
court  saying:  "  There  is  no  docir.ne  bet- 
ter settled  nor  more  universally  recog- 
nized than  that  an  ajrent  or  trustee  can- 


CH.  XXXIX.l 


FRAUDS   OF   DIRECTORS. 


[§  653 


execution,^  nor  purchase,  either  in  their  own  name  or  the  name  of 
another,  corporate  property  sold  for  the  payment  of  taxes. ^  The 
corporation  may  reclaim  the  property  upon  payment  to  the  direc- 
tor of  the  amount  he  paid  therefor.  A  similar  rule  applies  where 
a  director  allows  or  brings  about  a  forfeiture  of  a  lease  which  the 
company  holds  as  lessee,  and  then  takes  a  new  lease  of  the  same 
property  in  his  own  name.^  The  disability  of  directors  to  pur- 
chase property  from  the  corporation  does  not  restrict  their  right 
to  subscribe  for  unissued  stock  of  the  corporation.^  There  is 
some  difficulty  in  determining  whether  this  disqualification  of  a 
corporate  officer  to  purchase  property  from  the  corporation  ex- 
tends to  officers  other  than  the  president  and  directors.  It  has 
been  held  to  affect  the  treasurer  of  the  corporation,^  and  also 
tlie  cashier  of  a  bank.®  It  has  also  been  intimated  that  a  super- 
intendent of  the  coi'poration  is  under  the  same  disability.^ 


not  rightfully  place  liimself  in  a  position 
exciting  in  his  own  bosom  a  conflict 
between  self-interest  and  the  duty  lie 
owes  to  those  for  whom  he  acts.  Gen- 
erally such  persons  will  not  be  allowed 
to  purchase  and  make  profit  out  of  the 
estate  of  those  toward  whom  they  occu- 
py a  confidential  relation."  In  the 
case  Kitchon  v.  St.  Louis,  &c.  Ry.  Co., 
69  Mo.  224  (1878),  the  court  says: 
"  Whatever  is  sufficient  to  put  a  person 
on  inquiry  is  notice;  that  is,  where  a 
man  has  sufficient  information  to  lead 
him  to  a  fact  he  shall  be  deemed  cog- 
nizant of  it." 

'  Tlie  director  "  could  not  become 
the  purcliaser  of  the  property  of  the 
corporation  except  suijject  to  its  right 
to  elect  to  disaffirm  the  sale  and  de- 
mand a  resale.  As  director  it  was  his 
duty  to  prevent  a  sale  if  po^^sible,  and  if 
not  then  to  endeavor  to  have  the  property 
produce  tlie  highest  price,  and  in  order 
to  the  attainment  of  these  objects  to  use 
the  knowledge  he  had  derived  fi'om  the 
confidence  reposed  in  him  as  director. 
As  purckaser,  on  the  other  hand,  it  was 
his  interest  to  pay  as  little  as  possible, 
and  to  use  his  special  know!ed:;c  for  his 
own  advantage.  Actual  fraud  or  actual 
advantage  do  not  need  in  such  cases  to 
be  shown."  Hoyle  v.  I'l.ittsburg,  <kc.  U. 
R.  Co..  54  N.  Y.  :514  (187:}). 

2  Smith  V.  Fagan,  17  Cai.  17K  (1860). 

■*  Betigiey  v.  Wheeler,  45  Mich.  493 
(1881);  Smi'th  v.  Bunk  of  Victorin,  41  L. 
J.   (1'.  C.)   U   (1872).     lathe  latter  cabo 


the  director  reorganized  and  allowed  part 
of  the  old  stockliolders  to  come  in.  A 
dissenting  stockholder  caused  the  whole 
transaction  to  be  set  aside. 

■»  Sims  V.  Street  R.  K.  Co.,  S7  O.  St. 
556  (1882).  See  also  §  61.  Cf.  Charles- 
ton ins.  &  Trust  Co.  v.  Sebring,  4  Rich. 
Eq.  (S.  C.)  342  (1853),  where  the  direc- 
tors purchased  from  the  corporation  stock 
which  the  corporation  had  previously  is- 
sued and  had  purchased  for  itself.  See 
also  Parker  v.  McKenna,  L.  R.  10  Ch.  96 
(1874),  and  York,  <fec.  lly.  Co.  v.  Hudson, 
16  Beav.  485  (1853),  holding  that  upon 
an  increase  of  the  capital  stock  the  di- 
rectors have  no  right  to  make  a  secret 
profit  in  its  disposal. 

=- McAllen  v.  Woodcock,  60  Mo.  174 
1^1875),  holding  that  the  treasurer's  j)ur- 
chase  of  the  cor[>orate  property  at  an  exe- 
cution sale  thereof  is  a  purchase  for  the 
benefit  of  the  corporation.  So  also  Par- 
ker ?;.  Nickerson,  112  Mass.  105. 

«  First  Nat,'l  Bk.  v.  Drake,  1  Am.  & 
Eng.  Corp.  Cas.  210  (Kan.  IHH.S). 

■"  Cookt'.  Berlin  Woolen  M.  Co.  43  Wis. 
433(1877).  In  this  case  tiiosu[)erinlendent'8 
purchase  was  illegal,  inasnuich  as  one  of 
the  directors  was  a  secret  partner  in  the 
purchase.  The  court  snid :  "  A  distinc- 
tion is  recoi:;iiized  in  the  hooks  between 
cor))orate  officers  whose  olfices  are  of  the 
essence  of  the  coi'| (oration  and  wiu)so 
offices  are  merely  niinisterial.  Courts  of 
equity  deal  with  the  former  as  trustees, 
with  the  latter  as  agents. 
Where  the  trustee's  sale    to  a  Btrnnger 

685 


^  654.]  FRAUDS   OF   DIRECTORS.  [CH.  XXXIX. 

§  054.  Reorganisation  and  purchases  of  corporate  property 
hy  a  majority  of  the  stocliholders. — The  term  reorganization,  as 
applied  to  corporations,  may  be  said  to  be  a  business  arrangement 
wliereby  a  new  corporation  is  formed  and  the  property  of  an  old 
corporation  is  transferred  to  the  new  corporation.     There  are  in 
general  three  methods  in  which  a  reorganization  may  be  effected. 
The  first  method  is  by  a  foreclosure  of  a  mortgage  on  the  corporate 
property.     Ordinarily  a  foreclosure  proceeding  proceeds  quietly 
to  a  sale  of  the  property.     But  the  large  interests  involved  in  a 
railway  foreclosure  leads  to  strenuous  opposition  thereto.     Ac- 
cordingly it  is  found  to  be  expedient,  during  or  previous  to  a  rail- 
way foreclosure  suit,  for  the  parties  interested  in  the  property, 
whether  they  be  the  stockholders  or  bondholders  or  mere  out- 
siders, to  formulate  and   propose  to  the  bondholders  and  stock- 
holders a  plan  of  reorganization  whereb}',  after  a  foreclosure  sale, 
the  purchaser  of  the  propei-ty  will  allow  the  said  bondholders,  and 
often  also  the  stockholders,  to  come  into  a  new  company  which 
shall  own  the  property  so  purchased.      It  has  been  found  neces- 
sary, in  most  cases,  to  reorganize  on  some  such  plan,  in  order 
to  quiet  the  defense  to  the  foreclosure,  or  to  raise  the  funds 
required  in  the  reorganization,  or  to  obtain  a  charter  from   the 
State  for  the  reorganized  enterprise,  or  to  preserve  intact  the  sys- 
tem of  railways,   branches,  leases,  and  connections,  whicli  give 
value  to  the  property  foreclosed.     This  method  of  effecting  a  re- 
organization is  legal  and  valid,  since  it  involves  an  ordinary  fore- 
closure of  a  mortgage  and  an  agreement  of  interested  parties  to 
purchase  at  the  foreclosure  sale.     The  foreclosure  cuts  off  all 
rights  of  the  old  corporation  and  stockholders  to  the  property 
foreclosed,  and  also  the  rights  of  the  bondholders  whose  mortgage 
is  foreclosed.^     The  only  rights  which  any  of  these  parties  have, 

is  colorable  only,  and  made  in  •whole  or  chases  can  ever  be  upheld."^  A  stock- 
in  pai  t  for  tlie  use  of  tlie  trustee,  or  upon  holder  may  bring  suit  to  set  aside  the 
any  undirstanding,  express  or  implied,  transaction.  "Courts  of  equity  have 
between  the  trustee  and  the  purchaser,  long  recognized  this  rijiht  of  selt-protec- 
for  any  future  interest  of  the  trustee  in  lion  in  stockholders,  and  the  administra- 
the  pi  rchiise  or  in  the  trust  property  tion  of  many  corporations  in  these  daya 
purcliastd,  a  court  of  equity  will  deal  with  tends  to  thow  the  wisdom  and  justice  of 
the   trustee  as   a   direct   purchaser  from  the  rule." 

himself,  and  will  iivoid  his  purchase  at  '  Thus  where,  in  order  to  quiet  oppo- 
the  suit  of  his  res^wj  qw  trial."  The  court  sition  to  a  foreclosure,  the  bondholders 
eaid  that  so  long  as  the  contrai  t  is  ex-  offer  to  the  stockholders  a  plan  of  reor- 
ecutoiy  the  director  cannot  become  in-  panization  whereby  the  foreclosure  is  to 
teresttd  in  the  property,  and  "  it  may  be  proceed,  a  sale  be  made,  a  new  corpora- 
regretted,  though  too  late,  that  such  pur-  tion  formed_to  take  the  property,  and  the 

686 


OH.  XXXIX.]  FRAUDS   OF  DIRECTORS.  [§  654:. 

after  the  foreclosure,  are  such  rights  as  the  plan  or  contract  of  re- 
organization gives  them.  By  this  plan  generally  the  old  stock- 
holders are  allowed  to  come  into  the  new  corporation  upon  the 
payment  of  a  fixed  sum  for  each  share  of  stock  held  by  them. 
Tlie  bondholders  are  generally  allowed  to  exchange  the  old  bonds 
for  new  ones  in  the  new  corporation,  on  different  terms  of  interest 
and  times  of  payment.  Plans  of  reorganization,  such  as  this,  are 
favored  by  the  courts.^  There  must,  however,  have  been  no  fraud 
or  collusion  exerted  whereby  the  property  at  the  sale  brings  less 
than  its  real  value.  The  courts  uphold  purchases  by  the  reorgani- 
zation company,  for  the  reason  that  thereby  a  better  price  is  ob- 
tained for  the  property  than  could  probably  be  obtained  other- 
wise. Thus  it  has  been  held  that  a  purchase  of  corporate  proper- 
ty by  a  majority  of  the  stockholders  at  a  foreclosure  sale,  if  made 
in  good  faith  and  without  oppression  or  undue  advantage  being 
taken  of  the  minority,  is  legal  and  void.  It  is  not  constructive 
fraud.  The  purchases  by  a  majority  of  the  stockholders  may  be 
objected  to  and  set  aside  only  when  they  are  actually  fraudulent.^ 
The  rule,  however,  is  different  where  the  purchaser  at  the  fore- 
closure sale  was  a  director  of  the  old  coi'poration.  Such  a  pur- 
chase is  fraudulent  as  a  matter  of  law,  even  though  made  in 
good  faith  and  a  full  price  paid  for  the  property.^  The  corpora- 
tion or  a  dissenting  stockholder  may  cause  the  sale  to  be  set  aside, 
or  may  claim  for  the  corporation  the  property  itself,  upon  repay- 
ment to  the  director  of  the  price  he  paid  therefor.  It  is  a  rule  of 
law,  also,  that  the  trustee  of  the  mortgage  itself  cannot  ])urchase 
at  the  foreclosure,  even  for  the  benefit  of  the  bondholders  and 
stockholders.*     It  is  important  to  mention,  in  this  connection,  that 


old   stockholders  to  be  allowed  to  come  by  a  stockholder  to  set  aside  a  foreclosure 

in   if  tliey  apply  within  a  certain  time,  sale,  which  he  alleges  was  coilusivo  and 

and  this  plan  is  carried  out,  a  stockholder  fraudulent,   in  that  the  bondhokh-rs  and 

who   had  no  knowledge  of  the  plan  until  part  of  the   ptockholilers  liad  arranged  to 

after   the  limited  time  had  expired,  can-  jiave    the  foreclosure    made   lor  the  i)ur- 

not  compel  the  new  corporation  to  iidmit  pose  of  reorganization,  is  demurrable  un- 

him.     His   remedy,  if  he   has  any,  is  to  less  the  consenting  stockholders  and  I  ho 

impeach    the    foreclosure.     Tiiornton    v.  tru.stees  in  the  mortpnges  are  imde  par- 

Wabash  Ry.  Co.,81  N.  Y.  462  (1880).  ties  defendant.     Ribon    )'.    R.    R.    Com- 

'  "  Witliout   such   previous  organize-  piinios,  16    Widl.    440    (1872).     See    also 

tions    and    arrangements   yreat    sacrifice  llarpending  v.   Munson,    id     N.   Y.    650, 

and  loss  must  attend  all  such  sales.  Thoy  with    reference    to  the  corporation  as  a 

are,   tht^refore,   to  be    promoted,  rather  party  to  tlie  suit. 

than  discouraged  by  unriccessjiry  and  im-  '^  See  Carter  v.  Ford  Plate  Glass  Co., 

proiier  exposure    of    their  memhorship."  85    ind.  180  (1882),  and  see  4^002. 

Robinson  v.  Pliiladelpiiia,  Ac.   R.  R.  Co.,  '  Kei'  i^  GriiJ,  supra. 

28  Fed.  Rep,  340   (1886).     In  an  action  <  Kitchen  v.  St.    Louis,  Ac.  Ry.  Co., 

687 


§  655.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


a  collusive  foreclosure,  whereby  the  corporate  directors  who  mio^ht 
make  a  valid  defense  do  not  do  so,  but  allow  judgment  to  be  taken 
by  default,  may  be  impeached  and  set  aside  by  a  stockholder  on 
the  ground  of  fraud.^  Sometimes  a  strict  foreclosure  of  the 
mort2:a2:e  has  been  made,  and  it  has  been  held  where  such  a  fore- 
closure  has  been  made  of  a  railroad  mortgage,  that  the  plan  of  re- 
organization as  adopted  by  the  majority  of  the  bondholders  and 
confirmed  by  a  charter  of  incorporation  from  the  legislature,  is 
binding  on  the  minority.' 

§  655.  The  second  method  of  reorganization  may  be  said  to  be 
a  reorganization  under  a  mortgage  foreclosure  sale,  as  in  the  pre- 
ceding method,  but  under  a  plan  prescribed  by  statute  for  letting 
in  the  old  bondholders  and  stockholders.  It  generally  is  neces- 
sary for  the  purchasers  at  the  foreclosure  sale  to  reorganize  under 
a  statute  where  such  a  statute  exists,  since  usually  under  that  stat- 
ute only  will  the  State  grant  a  charter  of  incorporation  to  the 
purchasers.^  Such  reorganization  statutes  exist  in  several  of  the 
States."*  Generally  the  statute  prescribes  the  procedure  to  be  fol- 
lowed in   allowing  the  stockholders  of  the  old  corporation  to  be- 


69  Mo.  224  (ISTS),  boldinof,  however, 
that  delay  will  bar  the  right  of  other 
parties  to  object. 

'  See  §  659,  infra. 

«  Gates  t'.  Boston,  ic.  R.  R.  Co.,  53 
Conn.  351 ;  see  also,  on  reorganizations, 
Shaw  V.  R.  R.  Co.,  100  U.  S.  605  (1879); 
Canada  Southern  Ry.  Co.  v.  Gebhard,  109 
U.  S.  527  (1883) ;  ChOd  v.  X.  Y.  tc.  R. 
E.  Co.,  129  Mass.  170;  Matthews  v.  ilur- 
chison,  15  Fed.  Rep.  691.  See  Knapp  v. 
E.  R.  Co.,  20  Wall.  117  (1873);  Bliss 
V.  Matteson,  45  X.  Y.  22  (1871),  holding 
that  a  special  agreement  with  an  influen- 
tial bondholder,  giving  him  an  advan- 
tage over  other  similar  bondholders,  is 
void.  Railroad  Co.  t'.  Howard,  7  Wall. 
392  (1868).  holding  that  an  agreement 
whereby  the  stockholders  receive  com- 
pensation and  allow  the  foreclosure,  is 
void,  since  the  corporate  creditors  are 
entitled  to  the  whole  value  of  the  proper- 
ty, which  necessarily  included  the  com- 
pensation paid  to  the  stockholders. 

^  It  is  clearly  established  that  the  pur- 
chasers at  the  foreclosure  sale  do  not 
succeed  to  the  corporate  capacity  and 
franchise  of  the  old  corporation.  Metz 
«.  Buffalo,  Ac.  R.  R.  Co.  58  N.  Y.  61 
(1874);  Wellsborough,  <fec.  P.  R.  Co.  v. 
GrifEn,  57  Penn.   St.  417.     See   also  an 

688 


able  article  on  Foreclosure  of  Railway 
Mortgages  by  R.  Mason  Lislp,  in  Ameri- 
can Law  Review,  Dec,  1886.  Cf.  Common- 
wealth V.  Central  Passenger  Ry.  Co.  52 
Penn.  St.  506 — under  a  statute.  This 
corporiite  franchise  is  to  be  distin- 
guished from  the  eminent  d<imain  fran- 
chise which  WMS  exercised  by  the  old 
corporation.  The  latter  franchises  gen- 
erally pass  under  the  moitgai:e  as  au- 
thorized by  statute.  A  reorganization 
under  the  usual  statute  has  the  efi^ect 
of  creating  a  new  corporation.  It  is 
not  a  mere  amendment  of  the  old  char- 
ter. Marshall  v.  Western  N.  C.  R.  R. 
Co.,  92  ]N'.  C.  322  (1885). 

■»  The  New  York  statute  of  1853  (ch. 
502,  §  2),  whereby  within  six  months 
after  a  foreclosure  sale  of  a  railroad  any 
or  all  of  the  old  stockholders  might  come 
into  the  new  corporation  by  paying  their 
proportion  of  the  execution  sale  price, 
was  repealed  by  Laws  of  1854,  ch.  282, 
and  Laws  of  1874.  ch.  430,  the  latter  be- 
ing the  act  "to  facilitate  the  reorganiza- 
tion of  railroads  sold  under  mortizages," 
(fee.  See  Pratt  v.  Munson,  84  N.  Y.  582 
(1881).  The  act  of  1874,  ch.  430.  now 
regulates  reorganization  incorporations 
in  New  York  State.  For  Ohio,  see  R.  S. 
1880,  §§  3393e<«e9. 


CH.  XXXIX.]  FRAUDS   OF   DIRECTORS.  [§  656. 

come  members  of  the  new  corporation.  Where  such  a  procedure 
is  prescribed  and  a  newspaper  advertisement  is  made  as  required 
bj  statute,  limiting  the  time  within  which  tlie  old  stockliolders 
must  apply  for  admission  into  the  new  corporation,  a  stockholder 
of  the  old  corporation,  who  fails  to  apply  within  the  prescribed 
time,  is  barred  of  all  right  to  come  into  the  new  corporation,  and 
a  court  of  equity  cannot  give  him  any  relief.* 

§  656.  That  which  may  be  called  a  third  method  of  reorganiz- 
ing a  corporation  is  where  the  directors  or  the  stockholders  turn 
over  the  assets  of  the  corporation  to  a  new  corporation.  This  is 
done  in  various  ways.  It  may  be  by  a  consolidation  with  another 
company,  or  by  a  sale  or  lease  of  the  whole  corporate  property  to 
that  other  corporation.  The  validity  of  such  acts  as  against 
the  dissent  of  a  stockholder  has  been  treated  elsewhere.^  The 
validity  of  such  sales  of  the  corporate  property  is  generally  de- 
termined by  ascertaining  whether  the  sale  is  ultra  vires  or  not. 
Sometimes,  however,  an  element  of  fraud  is  involved  and  will 
suffice  to  set  aside  the  transaction.  Thus  it  is  illeiral  and  fraud u- 
lent  for  the  majority  of  the  stockholders  to  purchase  the  property 
of  the  corporation  at  a  sale  authorized  by  themselves.^  Such  a 
purchase  by  the  majority  may  be  set  aside  in  the  same  way  and 
to  the  same  extent  that  a  purchase  of  corporate  property  by  a  di- 
rector may  be  set  aside.^  This  is  the  rule,  even  though  the 
majority  purchase  and  proceed  to  a  reorganization  of  the  corpo- 
ration, and  ofter  to  allow  all  the  stockholders  to  become  members 
of  the  new  corporation.^     That  a  purchase  by  a  corporation  direc- 


'  Vatable  v.   N".  Y.  <fec.   R.  R.  Co.,  96  such  property, either  directly  or  indirect- 

N.  Y.  49  (1884).  the  court  saying:     "It  )y  ;  and,  if  he  does,  the  sale  is  voidable, 

would  lead  to  intolerable  inconvenience,  and  will  be  set  aside  attiie  mere  pleasure 

confusion  and  difficulty  if  the  stockiiold-  of  the  beneficiaries,  although    such  fidu- 

ers  of  the   old    company  could  in  such  a  ciary   may  have    paid   a  full    price  and 

case  take  their  own  time  to  assent  to  the  ]LCained   no  advantajje.      ...     A  pnr- 

plan  of  reorijanizalion,  and  to  assert  their  ciiase  by  ()r  for  ihem  at  a  sale  ordered  by 

right  to  become  members  of  the  new  com-  them,  acting  in  the  capacity  of  directors 

pany  upon    such  fiicts  as  they  would  be  .     .     .     would    be   voidable    and  would 

able  to  estalilish  in  a  court  of   equity.''  be  set  aside  at  the  mere  pleasure  of  any 

Rev'g  11  Abb.  N.  C.  133.  stockholder." 

*  See  Chapter  XL.  *  Id. 

'  See  §  062,  infra.     See  also  Reilly  v.  '  Banks  v.  Judali,  8  Conn.  145  (1830), 

Oglesby,  25  \V.  Va.  36  (188}),  where  the  hoMing,   however,  that  long   delay  of  a 

court  said:   "  It  is  a  well-seitlcd  princi-  di'aeming   stockholder  in   bringing  suit 

pie  of  equity  jurisprudence,  that  a  party  will    bar    his  remedv.     This,  perhaps,  is 

holding    a   fiduciary    relation    to    trust  the  first  reori;aniz:ition  case  tiiat  is  to  be 

property  cannot  become  the  purchaser  of  found  in  the  books.     The  foruiatiou  of  a 

[44]  (589 


§  657.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


tor  at  such  a  sale  is  voidable  is  well  established.^  It  is  also  fraud- 
ulent and  illegal  for  the  majority  to  dissolve  the  old  corporation, 
forni  a  new  one,  and  sell  the  property  of  the  old  one  to  the  new 
corporation  at  a  valuation  placed  upon  the  property  by  the  ma- 
jority themselves.^ 

§  657.  Voting  salaries  or  compensation  to  corporate  offi- 
cers.— A  frequent  fraud  upon  corporations  and  stockholders  i& 
perpetrated  by  the  corporate  funds  being  used  to  pay  salaries 
and  compensation  to  corporate  officers  and  assistants.  It  is  well 
established  law  that  a  director  is  not  entitled  to  any  pay  for  hi& 
services  to  the  corporation  as  a  director.^  But  this  rule  of  law 
does  not  prevent  the  corporation  from  voting  pay  to  a  director, 
provided  the  agreement  is  made  before  the  services  are  rendered. 
If  the  resolution  is  passed  after  the  director  has  rendered  the 
services,  it  cannot  be  enforced.  There  can  be  no  back  pay.* 
In  New  York,  it  has  been  doubted  whether  the  directors 
may  in  any  case  vote  salaries  to  one  or  more  of  themselves, 
whether  the  latter  participate  in  the  vote  or  not.^     A  resolution 


new  corporation  and  a  transfer  to  it  of 
all  the  assets  of  the  old  one  may  also  be 
a  fraud  on  the  creditors  of  the  old  corpo- 
ration. San  F.,  &c.  R.  R.  Co.  v.  Bee, 
48  Cal.  398  (1874).  A  secession  of  the 
majoritj',  carrying  corporate  funds  to  a 
new  corporation,  is  a  fraud  on  the  old 
corporation.  Tomlinson  v.  Biicklayers, 
&c.,  87  Ind.  S08  (1882). 
^  See  §  &5■^,  supra. 

2  Mason  v.  Pewabic  Min.  Co.,  25  Fed. 
Rep.  882  (1885),  holding  also  that  the 
court  will  set  the  transaction  aside,  order 
a  public  sale  of  the  proptrty,  and  will 
confirm  the  first  and  illegal  sale  only  in 
case  the  price  then  paid  exceeds  the 
price  offered  at  the  public  auction. 

3  Holder  v.  Lafayette,  <tc.,  Ry.  Co., 
71  111.  106  (1875).  S"^ee  also  Wood's  Rail- 
way Law,  §  15-S. 

•*  Bennett  v.  St.  Louis,  &c.,  Co.,  19 
Mo.  App.  349;  s.  c,  1  West.  Rep.  736 
(1885);  Ogden  v.  Murray,  39  N.  Y.  202 
(18681 ;  I'.latchford  v.  Ross,  5  Abb.  Pr.  N. 
S  434  (1869).  Cf.  Northeastern  Rv. 
Co.  V.  Jackson,  19  W.  R.  198  (1870), 
holding  that  such  back  pay  can  be  voted 
only  by  the  stockholders,  and  that  long 
delay  in  paying  it  will  nullify  the  author- 
ity, and  will  require  a  re-submission  of 
the  question  to  the  stockholders.  First 
Natl.  Bk.  V.  Drake,  29  Kansas,  311  (1883). 

690 


See  also  Loan  Association  ?'.  Stonemetz^ 
29  Penn.  St.  534;  Citizens'  Natl.  Bk.  v. 
Elliot,  50  Iowa,  104  (1880);  Chandler  v. 
Bank,  13  N.  J.  L.  255;  Railroad  Co.  v. 
Miles,  52  111.  174;  Merrick  v.  Peru  Co., 
61  111.  472;  Railroad  Co.  v.  Sage,  65  111. 
328 ;  Cheney  v.  Lafayette  P.  R.  Co.,  68 
111.570;  87111.446;  Linen  Co. »'.  Hough, 
91  111.  63;  Henry  v.  Railroad  Co.,  27  Vt, 
435 ;  Hall  «.  Railroad  Co.,  28  Vt.  401 ; 
Hodges  V.  Railroad  Co.,  29  Vt.  220; 
Fraylor  v.  Sonora  Co.,  17  Cal.  594;  Ins. 
Co.  V.  Crane,  6  Met.  64;  Railroad  Co.  v. 
Ketchum,  27  Conn.  170;  Levisee  v.  Rail- 
road Co.,  27  La.  Ann.  641;  Rogers  v. 
Hastings  Co.,  22  Minn.  25 ;  Santa  Clara 
Mining,  Ac,  of  Baltimore  v.  Meredith, 
49  Md.  389  (1878);  Bailey  v.  Bufi'alo, 
14  Him,  483  ;  Jackson  v.  Railroad  I'o.,  2 
Thomp.  &  C.  653;  Gridley  <;.  L.  B.  &  M, 
R.  R.  Co.,  71  111.  200;  Kirkpatrick  v. 
Penrose  Ferry  Co.,  49  Penu.  St.  118 ;  Butt 
V.  Wood,  37 "N.  Y.  316;  Holland  v.  Bank, 
52  Me.  564;  Manx  Ferry  Gravel  R.  Co. 
V.  Branegan,  40  Ind.  361. 

^  See  Kelsey  v.  Sargent,  40  Hun,  150 
(1886),  reviewinof  the  cases.  The  court, 
however,  said : "  Without  stopping  to  deter- 
mine the  question  as  to  whether  or  not  the 
board  of  directors  have  the  power,  by  reso- 
lution, to  vote  salaries  to  one  or  more  of 
their  own  body,  we  are  clearly  of  the  opin- 


CH.  X_XXIX.] 


FRAUDS  OF   DIRECTORS. 


[§  658. 


to  pay  a  director  for  his  services  is  not  enforceable,  even  when 
made  before  the  services  are  rendered,  if  the  vote  of  the  director 
who  is  interested  is  necessary  to  carry  that  resolution.^  Where 
the  board  of  directors  vote  large  pay  to  themselves,  evidently  in 
bad  faith,  and  with  a  view  to  depriving  the  corporation  of  more 
than  a  reasonable  proportion  of  its  net  earnings,  a  dissenting 
stockholder  may  file  a  bill  in  equity  to  have  the  amount  recov- 
ered back,^  Or  the  corporation  may  defeat  the  ofiicers'  action  at 
law  to  recover  it.^  It  has  been  held  also,  where  the  majority  of 
the  stock  of  a  corporation  was  held  by  one  family  who  voted 
away  the  corporate  profits  fo-r  salaries,  tliat  the  minority  might 
call  upon  a  court  of  equity  to  remedy  the  fraud,^ 

§  G58.  Contracts  heticeen  corporations  having  one  or  more 
directors  in  common. — It  has  been  difficult  to  determine  whether 
a  stockholder  in  one  corporation  could  cause  to  be  set  aside  a 
contract  or  agreement  between  two  corporations  having  one  or 
more  directors  in  common.     The  late  and  important  case  of  The 


ion  that  such  salnries  so  voted  are  not 
binding  upon  the  company  when  the  direc- 
tor in  whose  favor  tlie  salary  is  voted  is 
present  participating  in  tiie  proceeding. 
In  the  case  under  consideration  the  five 
directors  were  present.  The  motion  was 
carried  unanimously.  The  inference  to 
he  drawn  from  the  proceeding  is  that 
they  all  participated.  We  are  conse- 
quently of  the  opinion  that,  under  the 
circumstances  of  this  case,  the  salaries 
voted  ought  not  to  be  upheld."  See  also 
Dunston  v.  Imperial  Gas  Co.,  3  B.  <fe  Ad. 
125.  But  see  MacNaughton  v.  Osgood, 
24  N.  Y.  Weekly  Dig.  190  (1886). 

•  Butts  V.  Wood,  :J7  N.  Y.  317 
(1867);  Ward  v.  Davidson,  4  West. 
Rep.  367  (Mo.,  1886),  where  increased 
pay  was  voted  to  the  president  of  the 
corporation.  Gardner  i'.  Butler,  30  N.  J. 
Eq,  702  (1879),  wliere,  however,  the  court 
says :  "  The  contract  will  not  Le  r^'gard- 
ed,  hut  the  services  having  been  reridend, 
and  the  com[iany  having  received  the 
benefit  of  tiiem,  it  would  be  manifestly 
in(  quitable  to  deny  to  the  trustee  a  fair 
equivalent  for  them.  If  the  contract 
price  is  reasitialih",  it  will  be  allowed." 

■^  Blatchford  v.  Ross,  r,4  Barb.  42 
(1869).  In  the  case  of  Hodges?'.  I'aqnett, 
8  Oreg.  77  (18<19).  the  court  refused  to 
interfere,  though  fraud  was  charged  in 
tiiat  the  directors  credited  large  hills  to 
themselves,  and  pai(l  themselves  large 
sums   for   services,    had    destroyed    the 


business,  and  had  wasted  the  funds  and 
property.  This  case,  however,  has  met 
with  universal  disapproval,  and  must  be 
considered  as  contrary  to  the  law. 

^  Davies  v.  Memphis  City  R.  R.  Co., 
22  Am.  &  Eng.  R.  R.  Cas.  1  (Tenn., 
1885).  In  the  late  case  of  Hubbard  v. 
New  York,  <fec.,  Co.,  14  Fed.  Rep.  676 
(1882),  wherein  a  person  contracted  in 
advance  to  become  a  director  and  super- 
intendent at  a  remuneration  of  one  third 
of  the  profits  of  the  business,  the  court 
refused  to  upiiold  the  agreement,  and 
said  the  contract  is  to  be  "construed  in 
the  same  manner  as  if  he  was  actually  a 
directoi-  at  the  time  of  its  inception,  and 
as  if  it  was  made  with  him  while  lie  was 
a  director.  A  director  of  a  corporation 
is  not  absolutely  prohibited  b}-  law  from 
entering  into  a  contract  with  the  corpo- 
ratifui  through  his  co-directors.  Whether 
such  ;;  contract  is  binding  upon  the  cor- 
poration must  depend  upon  it.s  terms  and 
the  circumstances  under  which  it  was 
made.  Owing  to  the  peculiar  relation 
which  the  directors  owe  to  the  corpora- 
tion, being  strictly  trustees,  and  their 
position  beii'g  in  i  viM-y  sense  fitlueiar}-, 
their  contracts  with  the  corpoiation 
should  be  scanned,  if  not  with  suspicion, 
at  least  with  the;  most  sciupulous  cai'c." 

*  S'llers  V.  I'luEiiix  Iron  Co.,  13  Fed. 
Hep.  20  (1881).  Sec  also  Pratt  v.  Je wett, 
9  Gray,  34. 

691 


§  G58.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


Metropolitan  Railway  Company  against   The  Manhattan  Railway 
Company  ^  clearly  establishes  the  rule  that  where  two  corporations 


'   15  Am.  &  Eng.  K.  R.  Gas.  1  (1884). 
The  history  of  this  well-known  litigation 
is  as  follows:    The  New  York  Elevated 
Railroad  Co.  and  the  Metropolitan  Ele- 
vated Railroad  Co.  leased  all  their  prop- 
erty to  the  Manhattan  Itailroad   Co.,  un- 
der a  lease  whereby  the  latter  was  to  pay 
to  all  the  stockholders  of  the  former  two 
companies  ten  per  cent,  per  annum  on 
their  stock.     It  amounted  to  a  guaranteed 
dividend.      Subsequently  a  minority  of 
the  directors  of  the  Metropolitan  Co.  were 
also  directors  in  the  Manhattan  Co.  These 
two  corporations  then  contracted,  through 
their  respective  boards  of  director?,  to 
reduce  the  guaranteed  dividend  from  ten 
to  six  per  cent.      The  Metropolitan  Com- 
pany tlien  brought  suit  to  set  aside  this 
reduction,   and    succeeded.     Under    the 
same  state  of  facts  the  Federal  court,  in 
Flagg  IK  Manhalt'^n  Ry.  Co.,  'M  Blatchf. 
142  (1881),  i>ad  decided  that  the  stock- 
holder could  not  have  the  transaction  set 
aside.     But  Mr.  Justice  Van  I  'runt  refused 
to  follow  the  Federal  decision,  and  in  a 
masterly  and  exhaustive  opinion  charly 
established   the   rule  given  in   the   text. 
The  court  said  :  ''  I  can  see  no  difference 
in  principle  between  the  case  of  a  director 
contracting  with  his  corporation  and  that 
of  directors  of  one  corporation  contract- 
ing with  themselves  as  directors   of  an- 
other corporation.     The  evils  to  be  avoid- 
ed  are   the   same,   the   temptations  to   a 
breach  of  trust  are  the  same,  the  want  of 
independent  action  exists,  and  the  divid- 
ed allegiance  is  just  as  apparent.     .     .     . 
It  may  be  urged  that  the  position  of  a  di- 
rector in  a  corporation  does  not  give  him 
tlie  same  degree  of  personal  interest  in 
its  success  as  would   be  the  fact,  were  he 
simply  entering  into  tlie  contract  to  be 
personally  benefited  thereby ;  that  he  is 
one  of  many.  Ids  interests  are  divided 
with  that  of  the  stockholders,  and  his  in- 
fluence may  be  countracted  by  his  co- 
direetois.     But  the   fact  that  he  has  an 
adverse  interest  to  the  one  or  the  other 
of  the  corporations  is  apparent,  and  that 
he  is  atteniptino,'  to  serve  two  masters  is 
also  equally  plain,     it  must  necessarily 
happen,    according    to    the    rules    which 
have  been   laid   down   by   the   courts   of 
equity  in  reference  to  the  action  of  agents, 
that   he  will,  in   nine  cases  out  of  ten, 
serve  the  interest  of  the  oneprincipal  and 
betray  those  of  the  other;  and,  in  order 
to  remove  persons  so  situated  from  all 

G92 


temptation,  in  order  that  there  may  be  no 
uncertainty  in  the  law  in  reference  to  such 
contracts  courts  of  equity  have  held  that 
where  there  is  such  a  conflict  of  interests 
between  an  individual  and  a  corporation, 
or  between  corporations  having  common 
directors,  that  the  contract  shall  be  void- 
able as  matter  of  equity,  without  any  evi- 
dence whatever  of  misconduct  upon  the 
part  of  the  agent  or  director.    If  tlie  rule  is 
to  be  so  far  relaxed  that  common  directors 
may  participate  in  the  contracts  between 
corporations,  or  if  common  directors  may 
allow  contracts  to  be  made  between  the 
two  corporations  that  they  represent,  it 
would  present  the  same  field  of  specula- 
tion and  the  same  uncertainty  of  result 
for  Courts  to  attempt  to  investigate  the 
motives  of  the  common  directors  to  de- 
termine the    influence    which    they   had 
upon  their  associates,  to  determine  the 
fairness  and  reasonableness  of  the  con- 
tract,   to   investio-ate    all    the    influences 
which  were  at  work  which  led  lo  the  en- 
tering into  the  contract,  which  has  been 
so  severely  condemned  by  the  cases  pass- 
ing upon  the  rights  of  ceshd  qtie  tntst  in 
reference  to  contracts  made  by  common 
trustees.     Contracts  of  this  kind  would 
be  lelt  involved  in  a  sea  of  doubt,  and  a 
prediction  as  to  the  result  of  an  investi- 
gation as  to  their  fairness  and  honesty 
would  be  the  merest  speculation.     It  was 
to  relieve  tl;e  courts  from  such  investiga- 
tions, and  to  let  parties  understand  pi  e- 
cisely  the  ground  upon  which  they  stood, 
that  the    stringent    rules   in   regard   to 
agents  and  principals  were  adopted,  and 
the  same  reasons  requie  that,  in  order 
that  there  may   be  reasonable  certainty 
in  reference  to' the  results  to  be  arrived 
at  in  investigating  the  contracts  between 
two  corporations  who  have  common  di- 
rectors, and  therefore  conflicting  interests 
and    conflicting    duties,    the   same    rule 
must    be    necessai-ily   adopted,    namely, 
tliat  at  the  option  of  the  cestui  qne  trust, 
or  of  the  corporation,  such  contract  may 
be  voided."     For  other  cases  connected 
with  this  litigation,  see  N.  Y.  El.  R.  R. 
Co.  V.  Manhatrtan  Ry.  Co.,  14   Abb.  N.  C. 
162,  note;  Manhattan  Rv.  Co.  v.   N.  Y. 
El.  Co..  29  Hun,  300,  rev'g  N.  Y.  Daily 
Res.  Dec.  2.  1882;  People  (r  rel.  Content 
V.  Metropolitan   Ry.   Co.,    26    Hun,    82; 
Harkness  v.   Manhattan  Ry.   Co.,  N.  Y. 
Daily  Keg.  Oct   8,  1886.     A   strong  ease 
in  support  of  the  same  principle  is  Pear- 


CH.  XXXIX.J 


FRAUDS   OF   DIRECTORS. 


[§659. 


enter  into  a  contract,  such  contract  may  be  set  aside  as  fraudulent 
if.  at  tiie  time  of  contracting,  the  two  corporations  had  one  or 
more  directors  in  common.^ 

§  659.  Foreclosure  of  mortgage  on  corporate  ^rroperty,  and 
collusion  ivith  directors,  tvhereby  no  defense  is  made  to  the 
foreclosure. — A  frequent  fraud  on  stockholders,  and  one  which 
it  is  difficult  to  detect  and  prove,  is  where  the  directors  collusively 
neglect  to  defend  against  a  suit  brought  to  foreclose  a  mortgage 
on  the  corporate  property,  in  consequence  of  which  a  default  is 
taken  and  the  corporation  speedily  deprived  of  all  its  assets.^     It 


son  I'.  Concord  R.  R.  Co.,  13  Am.  <fe  Eng. 
R.  R.  Cas.  102  (N.  H.,  1883),  where  the 
court,  in  setting  aside  a  contiact  mside 
by  corporations  having  common  direc- 
tors, siid:  "Stockholders  and  creditors 
are  entitled  not  only  to  the  vote  ot  a  di- 
rector in  the  board,  but  to  his  influence 
and  argument  in  discuss'on."  Distin- 
guishing Rolling  Stock  Co.  v.  R.  R.  Co., 
34  0.  St.  465;  Ashhursl's  Appeal,  60 
Penn.  St.  291 ;  Watt's  Appeal,  78  Penn. 
St.  370.  See  also  Wardens,  cfec.  v.  Rec- 
tor, (fee,  45  Barb.  356  (1865).  where  the 
court  said:  "  When  the  same  person  acts 
in  a  double  capacity  as  agent  or  trustee, 
he  must  see  to  it  that  the  transaction  is 
fair  and  une.xceptionable  as  regards  the 
riglits  of  either  of  the  parties  which  he  so 
represents.  If  any  motive  of  personal 
copvenience  or  interest  has  been  sub- 
served, it  will  constitute  a  budge  of  fi-aud." 
In  Bill  V.  Boston  Union  Telegraph  Co., 
16  Fed.  Rep.  14  (18H3),  wliere,  however, 
the  fraud  was  more  clear,  since  the  direc- 
tors common  to  both  forporations  consti- 
tuted a  majority  of  the  directors  of  one  of 
them,  the  court  said:  "  Undoubtedly  the 
isame  person  may  be  the  agent  of  two  dis- 
tinct principals,  and  bind  them  both  by 
his  acts  for  each  ;  but  this  is  where  he 
is  expressly  or  impliedly  authorized  to 
act  for  each  in  tiie  transaction  with  the 
other."  See  ;ilso  San  Dii'go  v.  San  Diego, 
die,  R.  R.  Co.,  41  Cal.  106  (  1872);  Wal- 
lace V.  Long  Island  11.  R  Co.,  12  Ilun, 
460  (1877).  C/.  Booth  v.  Robinson,  55 
Md.  419  (1880),  distitiiuished  in  .Manhat- 
tan, (fee,  Co.  V.  Metropoliian,  <fec.  Co., 
supra.  Also  Mayer,  tkc.  c.  Inman,  57 
Ga  370  (1876),  where  the  town  officers 
merely  executed  bonds  to  a  railroad  com- 
pany of  which  they  were  directors.  The 
bonds  were  held  to  be  valid. 

'  In  Godin  )•.  Cincinnati  &  W.  Canal 


Co.,  18  O.  St.  150(1868),  the  court  well 
said  :  "  A  director  whose  personal  inter- 
ests are  adverse  to  those  of  the  corpora- 
tion has  no  right  to  be  or  act  as  a  direc- 
tor. As  soon  as  he  finds  that  he  has  pt  r- 
sonal  interests  which  are  in  conflict  witl» 
those  of  the  company,  he  ought  to  resign. 
No  matter  if  a  majority  of  the  stockhold- 
ers, as  well  as  himself,  have  personal  in- 
terests in  conflict  with  tliose  of  the  com- 
]wny.  .  .  .  lie  is  trustee  for  the  com- 
p'ltii/,  and  whenever  he  acts  against  its 
interests — no  matter  how  much  he  there- 
by benefits  fore'ujn  interests  of  the  indi- 
vidual stockholders,  or  how  many  of  the 
individual  stockholders  act  with  him — he 
is  guilty  of  a  breach  of  trust,  and  a  court 
of  equity  will  set  his  acts  aside,  at  the  in- 
stance of  stockholders  or  creditors  who 
are  damnified  thereby." 

'•^  Thompson  on  Liability  of  Officers 
and  Agents  of  Corporations,  p.  383,  viv- 
idly describes  sucli  transactions  as  fol- 
lows :  "  Notwithstanding  the  ready  de- 
vices with  wliich  the  courts  have  met 
such  attempts,  this  species  of  roguery 
has  grown  into  a  science  with  a  distinct 
nomenclature.  The  interior  organiza- 
tion or  conspiracy,  composed  of  the 
holders  of  a  majority  of  the  shares,  bent 
on  destroyinu.-  the  rights  of  the  minority, 
is  called  a  '  ring,'  aiul  tiie  business  of 
the  conspiracy  is  called  '  wrecking  the 
cor])oraiioii.'  This  pro<'es8  of  'wreck- 
ing,' which  has  been  seen  in  many  cases 
of  railway  corporations,  is  sometimes 
carried  on  in  this  way.  Kither  tlio 
property  is  allowed  to  run  down,  or,  un- 
der some  pret  -xt  of  im|irov(!'iients,  ameli- 
oration, or  extension  of  the  business,  it  is 
'  bondeil,'  that  is  to  say,  lu'gotiable  de- 
bentures are  issued,  secured  by  a  mort- 
gage of  the  corporate  j)roperty.  Tiie 
scheme  is  so  managed  that  the   majority 

(;93 


§  659.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


is  a  fraud  difficult  to  detect,  since  ordinarily  there  is  no  defense  to 
foreclosure  suits,  and  the  defenses  whicli  should  have  been  set  up 
by  the  corporation  are  difficult  of  proof  then)selvcs.  At  an  early 
day  the  leading  case  of  Koehler  against  Black  River  Fire  Insu- 
rance Company,^  established  the  principle  that   a   stockholder  in 


of  tliese  debentures  find  their  way  into 
the  hands  of  the  '  rins.'  The  condition 
of  the  mortsage  is,  tliat  whenever  default 
is  mad>'  in  the  payment  < if  any  of  the  in- 
terest coupons,  the  morttra^e  may  be 
foreclosed.  Tliis  event  speedily  happens. 
One  of  the  bondholders  uow files  a  bill  in 
equity  to  foreclose  the  mortgage,  or  it  is 
done  by  the  trustee  in  the  mortgage,  him- 
self the  agent  of  the  '  ring.'  'I  he  corpo- 
ration and  the  directors  are  made  defend- 
ants. Now,  the  directors  all  being  in  the 
'ring,'  the  allegations  of  the  bill  are  ad- 
mitted in  the  answer  which  the  corpora- 
tion makes  to  the  bill,  and  also  those 
m;ide  by  the  directors.  A  decree  is  en- 
tered '  by  consent '  for  the  sale  of  the 
property.  This  ' consent  decree '  pro- 
vides that  payment  of  the  purchase 
money  bid  at  the  sale,  may  be  made  in 
the  mortgage  debentures.  The  property 
is  sold  at  auction,  is  bid  in  by  a  member 
of  the  'ring'  for  tlie  other  members, 
they  furnishing  him  with  the  bonds,  in 
which  he  makes  payment.  Another 
'consent  decree' is  made  confirming  the 
sale.  The  purchaser  organizes  a  new 
corporation  composed  of  himself  and 
other  members  of  the  '  ring,'  which 
takes  possession  of  the  property.  Now, 
what  has  been  the  result  of  this  proceed- 
ing ?  Simply  this :  to  make  further  use 
of  the  slang  in  which  those  who  engage 
in  such  transactions  express  themselves, 
all  the  stockholders  of  the  old  corpora- 
tion not  in  the  'ring'  are  '  squeezed 
out.'  The  property  has  been  sold  under 
a  mortgage.  The  common  stock  has  be- 
come valueless.  Those  of  the  stockhold- 
ers M'ho,  with  the  directors,  were  in  the 
conspiracy,  have  got  it  all,  and  those  who 
were  out  of  it,  have  lost  all.  Thus,  the 
cliancellor  not  only  has  not  circumvented 
the  rogue,  but  the  rogue  has  made  tlie 
chanceUor  his  tool  in  the  accomplishment 
of  his  nefarious  purpose.  I  sjieak  deliber- 
ately in  saying  that  this  is  no  imaoinMry 
picture.  More  than  one  astute  railroad 
lawyer,  when  he  reads  this,  will,  from  his 
own  experience,  be  compelled  to  admit 
that  I  have  held  the  mirror  up  to  nature." 
'  2  Black,  715  (18t>2),  wliere  the  di- 
rectors took  a  mortgage  to  themselves  to 

694 


secure  debts  due  to  them  from  the  corpo- 
ration, and  then  foreclosed.  The  fore- 
closure was  defeated.  So  also  in  Bayliss 
V.  Lafayette,  <fec.  R.  R.  Co.,  8  Biss.  193 
(1878),  where  the  directors  were  silent 
partners  with  the  construction  company 
inortgagees.  The  court,  on  the  applica- 
tion of  a  stockholder,  directed  that  the 
mortgagees  be  allowed  only  the  amount 
honestly  due  them  ;  and  see  Mussina  v. 
Goldthwaite,  S4  Texas,  1'25  ( 1 870),  where, 
there  having  been  a  fraudulent  fore- 
closure suit  instituted,  the  court  said  : 
'■  We  think  that  an  intervenor,  claiming 
an  interest  in  tlie  subject-matter  in  dis- 
j)Ute,  may  interpose  his  claim  as  a  de- 
fendant to  tlie  suit,  having  been  made 
such  by  leave  of  the  court,  the  better  to 
protect  his  interests;  and  if  there  be 
fraud  and  collusion  between  the  original 
parties,  whereby  his  interests  are  com- 
promised or  prejudiced,  he  maj'  set  it  up 
affirmatively  and  piove  it,  and  thereby 
defeat  any  fraudylent  design  intended  to 
to  be  carried  out  by  the  suit."  In  the 
case,  however,  of  Samuel  v.  Halladay,  1 
Woolw.  600  (1869),  where  a  sale  under 
foreclosm-e  had  been  made  after  an  ad- 
vertisement of  five  weeks,  the  court  re- 
fused to  set  it  aside  for  fraud  in  the  fore- 
closure proceedings,  although  on  the  sale 
only  one-fifth  of  the  value  of  the  property 
was  realized;  aod  in  Forbes  v.  Memphis, 
(fee.  Ry.  Co.,  2  Wood,  323  (1872),  the 
court  said  :  "  It  is  questionable  whether, 
in  any  ca^e  where  a  suit  is  properly  in- 
stituted against  a  corporation,  a  stock- 
holder of  that  corporation  can,  even  on  a 
suggestion  of  fraud  on  the  part  of  its 
officers,  come  in  by  way  of  intervention 
as  party  to  that  suit,  and  seek  to  defend 
or  control  the  proceedings.  An  original 
bill  would  rather  seem  to  be  the  proper 

mode  of  pioceeding It  is  in 

the  discretion  of  the  court  whether  or 
not  to  permit  a  stockholder  to  become  a 
party  defendant  in  any  case  where  he  is 
not  made  such  by  the  bill."  In  Drurv  v. 
Cross,  7  Wall.  299  (1868),  a  foreclosure 
and  sale  was  set  aside  where  it  was  ob- 
tained by  an  agreement  to  release  the  di- 
rectors from  liability  as  indor.'^ers.  See 
also  Bronson  i'.  La  Crosse  R.  R.  Co.,  2 


CH.  XXXIX.] 


FRAUDS   OF   DIRECTORS. 


[§  659. 


such  a  case  may  be  allowed  to  come  in  as  a  defendant,  and  set  up 
the  defenses  whicli  the  corporation  ought  to  have  set  up.  Anoth- 
er remedy  of  the  stockholder  is  to  redeem  the  property  before 
the  foreclosure  sale,  and  then  give  the  corporation  a  reasonable 
time  to  redeem  the  property  from  him,  or  be  forever  barred  from 
its  rights  therein.^  In  Pennsylvania,^  and  New  Jersey,^  however, 
it  has  been  doubted  whether  the  stockholder  would  be  allowed  to 
intervene  in  a  fraudulent  foreclosure  suit,  the  court  saying  that 
his  remedy  is  to  have  the  judgment  set  aside  for  fraud.  In  JSew 
York,  by  statute,  the  courts  have  power  to  allow  the  stockholder 
to  come  in  as  a  party  defendant.*  A  stockholder  cannot  cause  a 
foreclosure  sale  to  be  set  aside,  on  the  ground  of  coi-rnpt  motives 
of  the  directors  who  allowed  the  default  to  be  taken,  unless  he 
can  show  collusion  between  them  and  the  purchaser  at  the  fore- 
closure sale.^     Where  the  corporation  brings  a  suit  to  redeem  its 


Wall.  283,  302  (1863),  where  the  court 
said:  "  [Jodoubtedly,  in  the  case  sup- 
posed, it  would  be  a  reproach  to  the  law, 
and  especially  in  a  court  of  equity,  if  the 
stockholders  were  remediless.  But  in 
such  a  case,  the  court  in  its  discretion 
will  permit  a  stockholder  to  become  a 
party  defendant,  for  the  purpose  of  pro- 
tecting hi:i  own  interests  against  unfound- 
ed or  illegal  claims  against  the  companj-; 
and  he  will  also  be  permitted  to  appear 
on  behalf  of  other  stockholders  who  may 
desire  to  join  him  in  the  defense.  But 
this  defense  is  independent  of  the  com- 
pany and  of  its  directors,  and  the  stock- 
holder becomes  a  real  and  substantial 
party  to  the  extent  (>f  his  own  interests 
and  of  those  who  may  join  him,  and 
against  whom  any  proceeding,  order,  or 
decree  of  the  court  in  the  cause  is  bind- 
ing, and  may  be  enforced.  It  is  true,  the 
remedy  is  an  extreme  one,  and  should  be 
admitted  by  the  court  with  hesitation  and 
caution  ;  but  it  grows  out  of  the  necessi- 
ty of  the  case,  and  for  the  sake  of  justice, 
and  may  be  the  only  remedy  to  prevent 
a  flagrant  wrong."  In  lilackman  v.  Cen- 
tral R.  K.,  <fec.  Co.,  58  Ga.  189  (1877),  the 
court  said:  "That  the  action  is  groundless 
and  collusive,  and  that,  from  motivfs  of 
fraud  or  favor  on  the  part  of  the  oflicers, 
tlie  corporation  fails  or  refuses  to  defend, 
will  make  no  difference.  Tlie  Ktockhold- 
ers  may  protect  all  tlieir  rich's  by  iii>ti- 
tuting  a  proper  action  of  their  own."  In 
the  very  recent  ea-e  of  the.  Union  Trust 
Company  v.  Rochester  &  Pittsburgh   R. 


R.  Co.  (U.  S.  C.  C.  Pittsburgh,  Dec.  6th, 
1886),  1  Railway  <fe  Corporation  Law  Jour- 
nal, 1.5,  it  was  held  that  tlie  defense  of  a 
collusive  foreclosure  judgment  lierein,  in 
a  State  court,  cannot  be  set  up  to  defeat 
an  action  thereon  in  a  Federal  court.  See 
Pittsburgli,  <fec.  11.  R.  Co.  v.  Rothschild, 
4  Central  Rep.  (Penn.  1886). 

'  Wright  V.  Oroville  M.  Co.,  40  Cal. 
20  (1870),  where  the  court,  on  the  stock- 
holder's application,  fixed  the  time  with- 
in which  tlie  corporation  must  redeem ,  if 
at  all. 

'-'  Gavenstine's  Appeal,  49  Penn.  St. 
310  (1865),  where  the  court  said  :  "  When 
a  company  authorizes  a  debt,  and  it  is 
created  by  and  with  the  assent  of  all  the 
stockholders,  as  well  as  the  board  of  di- 
rectors, and  judijinent  has  been  confessed 
by  the  same  authority,  I  see  not  much 
room  for  equitable  interference  by  a 
stockholder  so  consenting.  But  suppose 
he  may  be  able  to  make  out  a  case  for  in- 
terference by  showing  fraud  or  mistake 
in  the  judgment,  why  can  he  not  have 
ample  remedy  by  applying  to  the  court 
in  which  the  judgment  is  entered,  to  open 
or  set  a?ide  the  judgment?"  To  same 
effect,  County  of  Tazewell  v.  Farmer.s,  <fec., 
Trust  Co.,  12  Fed.  Uep.  752  (1882). 

»  Brown  n.  Vandyke,  8  N.  J.  Kq.  795 
(1853). 

••  Code  of  Civil  Procedure,  §  152.  See 
Ithaca  Gas  Light  ("o.  v.  Treman,  93  N. 
Y.  660  ( 1 883), 

'  Iliirpendlng  v.  Mun8on,91  N.  Y.  650 
(1883). 

605 


§  660.J  FRAUDS   OF   DIRECTORS.  [CH.  XXXIX. 

property  from  a  foreclosure  sale,  a  stockholder  has  no  right   tO' 
come  in  as  a  party  complainant.^ 

§660.  Directors'  purchases  of  property  needed  lij  the  cor- 
poration.—Buying  up  the  debts  of  the  corporation,  and  loans 
to  the  corporation. — It  is  an  abuse  of  trust  for  a  corporate  di- 
rector to  purchase  property  which  he  knows  the  corporation  will 
need,  and  then  to  sell  the  same  to  the  corporation  at  an  advanced 
price.  This  generally  occurs,  where  the  director  purchases  in  his 
own  name  land  which  the  corporation  must  purchase  for  its  en- 
terprise, or  over  which  it  will  need  a  right  of  way.^  Where,  how- 
eyer,  the  director  offers  the  land  to  the  corporation  at  the  price 
which  he  paid  for  it,  and  the  corporation  refuses  it,  he  cannot 
long  subsequently  be  compelled  to  accept  that  price.^  It  is  a 
fraud  on  the  corporation  and  on  corporate  creditors  for  the 
directors  to  buy  up  at  a  discount  the  outstanding  debts  of  the 
corporation,  and  compel  it  to  pay  them  the  full  face  yalue 
thereof.  In  such  a  case,  the  directors  may  be  compelled  to  turn 
over  to  the  corporation  the  evidences  of  indebtedness  upon  being 
paid  the  money  which  they  gave  for  the  same."  There  is  nothing, 
however,  illegal  or  fraudulent  in  a  loan  by  the  directors  to  the 
corporation,  and  the  taking  of  a  mortgage  on  the  corporate  prop- 
erty as  security  therefor.^ 

1  Kennebec,  &c.  R.  R.  Co.  v.  Portland,  be  permitted  to  purchase  an  interest  ia 
Ac.  R.  R.  Co.,  54  Me.  173  (1S66).  If  a  property,  when  he  has  a  duty  to  perform 
collusive  judgment  for  an  ordinary  cause  in  relation  to  sucli  property  which  is  in- 
of  action  has  been  entered  agaiiast  the  consistent  -with  the  character  of  a  pur- 
corporation  it  mav  be  set  aside.  Whittle-  chaser."  See  Buffalo,  &c.  R.  R.  Co.  v. 
sevv  Delaney,  73N.  Y.  571  (ISYS).  Lampson,  47  Barb.  533  (1867);  Blair, 
■  2  Blake  v.  Buffalo  Creek  R.  R.  Co.,  56  &c.  Co.  v.  Walker,  50  lo^a,  376  (1879J; 
N.  T.  485  (1874),  where  the  court  said :  Taylor  v.  Solomon,  4  Mylne  &  C.  1S4 
"Occupying  this  relation  of  tiust  toward  (1838),  where  the  corporate  agent  took 
the  corporlition  and  its  stockholders,  in  his  own  name  a  lease  which  the  com- 
these  directors  were  bound,  in  all  matters  pany  desired,  and  had  instructed  him  to 
pertaining  to  the  construction  of  the  road  obtain  for  itself.  See  also  Mitchell  v^ 
and  the  acquisition  of  the  roadway,  to  Reed,  61  N.  Y.  123  (1874). 
act  as  the  representatives,  and  for  the  ^  Sandy  River  R.  R.  Co.  v.  Stubbs,  77 
benefit  of  the    company.     Well    settled  Me.  595  (1885). 

rules  forbade  their  acquiring,  for   them-  •»  Duncomb  v.  N.  Y.  Ac.  R.  R.  Co..  84 

selves  the  property,  which  it  was  their  N.  Y.  190,202  (1881);  Ex  par^e Larking, 

duty  'to  acquire  for  the  company,  and  46  L.  J.  (Ch.)  235  (1877).     See  also  Da- 

which   was  necessary  for    its    purposes,  vis  j;.  Rock,  <t-c.  Co.,  55  Cal.  359(1880); 

Such  a  dealing  would   be  equally  objec-  Cf.  Bradley  v.  Marion,  Ac.  Co.,  3  Hughes, 

tionable,  as  purchasing  from  the  company  26(1879). 

land  which  it  was  their  duty  to  sell  on  ^  Duncomb  v.  N.  Y.  <fec.  R.  R.  Co.,  88 

its   behalf.     In   respect    to  this  class  of  K  Y.  1  (1882);  84  Id.  190;  Hotel  Co.  v. 

dealings,  directors  of  corporations  stand  Wade,  97  U.  S.  13  (1877);  Hope  v.  Salt 

upon  the  same  footing  as  ordinary   trus-  Co.,  25  W.  Va.    789    (1885);     £x  parte 

tees.     .     .     .     It  is  a  rule  of  equity  of  Hill,  L.  J.  (Ch.)  154  (1863),  holding  also 

universal  application,  that  no  person  can  that  an  additional  rate  of  interest  is  not 

696 


CH.  XXXIX.]  FRAUDS   OF   DIRECTORS.  [§§661,G62. 

§  661.  EmhezzJement  and  misuse  of  corporate  funds  hy 
directors. — It  is  clearly  established,  and  would  hardly  seem  to 
need  argument  that  where  the  corporate  directors  have  embezzled 
or  used  the  corporate  funds  for  their  own  purposes,  and  still  re- 
tain control  of  the  corporation,  that  a  stockholder  may  institute 
a  suit  in  chancery  to  compel  them  to  refund  the  funds  so  used. 
This  is  perhaps  the  simplest  application  of  the  doctrine  that  a 
stockholder's  suit  will  be  sustained  where  the  corporation  is  pow- 
erless to  enforce  its  rights.  In  the  early  and  important  case  of 
Robinson  v.  Smith,^  Chancellor  Walworth  sustained  a  stockhold- 
er's action  to  hold  the  corporate  directors  liable  for  corporate 
funds  lost  by  speculation  in  the  stocks  of  other  corporations.^  So 
also  a  stockholder's  action  lies  where  the  directors  owe  large  sum& 
to  the  corporation,  and  refuse  to  pay  or  charge  themselves  with 
the  same,  and  are  about  to  sell  the  corporate  property  at  a  sacri- 
fice.^ 

§  662.  Frauds  J}y  a  majority  of  tlie  stockliolders  upon  the 
minority. — In  addition  to  frauds  arising  by  the  illegal  purchase 
of  the  corporate  property  by  a  majority  of  the  stockholders,  there 
may  arise  other  fraudulent  acts  by  the  majority.  The  law  re- 
quires of  them  the  utmost  good  faith  in  their  contract  and 
management  of  the  corporation,  as  regards  the  minority,  and  in 
this  respect  the  majority  stand  in  much  the  same  attitude  towards 

enforceable,  so  far  as  the  excess  of  inter-  general  principles  of  equity,  be  suffered 
est  is  concerned.  See  also  Twin  Lick  Oil  to  pass  without  a  remedy.  .  .  .  As 
Co.  V.  Marbury,  91  U.  S.  687;  Hallam  i'.  tliib  court  never  permits  a  wrong  to  go 
Indianola  Hotel  Co.,  56  Iowa,  17S;  Claf-  unredressed  njerely  tor  the  sake  of  form, 
lin  V.  South  Carolina  R.  R.  Co.,  4  Am.  <fe  if  it  appeared  that  the  directDrs  of  tiie 
Eng.  R.  R.  Cas.  2.31  ;  Harpendingt'.  Mun-  corporation  refused  to  prosecute  by  col- 
son.  91  N.  Y.  660  (1883).  Cj.  Wilbur  v.  lusiun  with  those  who  had  made  'them- 
Lynde,  49  Cal.  290  (1874).  A  sale  of  selves  answerable  by  tlieir  negligence  or 
corporate  bonds  to  a  syndicate  of  which  fraud,  or  if  the  corporation  was  still  un- 
tliree  of  the  directors  are  members  is  val-  der  the  control  of  those  who  must  be 
id,  tiie  price  buing  adequate.  Du  Pont  v.  made  tlie  defendants  in  the  suit,  tlie 
Northern  Pac.  R.  U.  Co.,  18  Fed.  Rep.  467  stockholders,  who  are  the  real  parties  in 
(1883),  per  Wallace,  J.  See  §  &hZ,  supra,  interest,  would  be  permitted  to  file  a  bill 
'  3  Paige  Ch.  222(1832).  in  their  own  names,  uiiiking  the  corpora- 
'  The  court  said:  "  Until  very  recent-  tion  a  party  defendant."  Sec  als'i  ('om- 
ly,  but  few  incorporated  companies,  in  bination  Trust  l  o.  d.  Weed,  2  Fed.  I{ep. 
which  individuals  had  any  direct  pecun-  24  (1880) ;  llardon  v.  Aewton.  14  Blateh. 
iar}'  interest,  existed  in  England,  except  376  (1878);  Smith  v.  Rathbun,  29  Hun, 
corporations    for    charitable     purposes.  150  (1880);    Land   Credit   Co.    v.   Lord 

.     The  directors  are  the  trustees  or  Fermoj',  17  W.  R.  662. 
managing;  pMrtncrs,  and  the  stockholders  *  Sears  v.   ilolchkiss,    25    Conn.    171 

are  the  ce^luh  quf  trust.     .     .     .     No  in-  (1856).     See  also  llardon  v.  Newton,   14 

jury  the  stockholders   may   sustain  by  a  l<latch.  376  (1878),  involving    somewhat 

fraudulent  breach  of  trust,  can,  upon  the  similar  fact?. 

697 


§  662.] 


FRAUDS   OF  DIRECTORS. 


[CH.  XXXIX. 


the  minority,  that  the  directors  sustain  towards  all  the  stockhold- 
ers. Thus,  where  the  majority  are  interested  in  another  cor- 
poration, and  the  two  corporations  have  contracts  between  them, 
it  is  fraudulent  for  that  majority  to  manage  the  affairs  of  the  first 
corporation  for  the  benefit  of  the  second.  A  court  of  equity  will 
intervene  and  protect  the  minority  upon  an  application  by  the 
latter.^  So  also  where  the  officers  of  another  corporation,  which 
lias  leased  the  property  of  the  first  corporation,  control  a  majority 
of  the  stock  of  the  latter,  and  conspire  to  compel  the  minority 
to  sell  their  stock  by  refusing  to  pay  the  rent  due  on  the  lease, 
a  court  of  equity,  on  the  application  of  the  minority,  will  compel 
a  payment  of  the  rent.^  A  late  and  most  satisfactory  case  in- 
volving frauds  by  a  majority  of  the  stockholders  upon  the 
minority,  is  Ervin  against  The  Oregon  Railway  and  Navigation 
Company,^  which  clearly  enounces  and  sustains  the  doctrine  that 


'  Menier  v.  Hooper's  Tel.  Works,  L. 
R.  9  Ch.  350  (1874).  See  also  Peabody 
».  Flint,  6  Allen ;  Gorham  v.  Gilson,  28 
Cal.  4*79  (1865);  Rice's  Appeal,  79  Penn. 
St.  168  (1875),  the  court  said:  "Where 
a  person  has  the  actual  control  of  a  cor- 
poration, whether  such  control  arises 
from  the  ownership  of  a  majority  of  the 
sliares,  or  from  his  position  or  influence, 
enters  into  a  contract  with  such  corpora- 
tion, he  is  to  be  held  to  the  most  rigid 
good  faith.  Tiie  onus  is  upon  him  to 
show  tha  fairness  of  the  transaction  if  it 
is  called  in  question.  It  is  a  principle 
too  well  settled  to  be  now  successfully 
controverted,  that  the  promoters,  direc- 
tors, or  agents  of  a  company,  shall  not 
make  a  profit  out  of  it  in  buying  lands  for 
it,  or  in  dealing  with  it." 

2  Barr  v.  N.Y.,  &c.,  R.  R.  Co.,  96  N. 
¥.414(1884).  Judge  Thompson,  in  his 
work  on  the  Liability  of  Officers  and 
Agents  of  Corpi 'rations  gives  a  true  des- 
cription of  such  transaction  when  he  says, 
p.  384 :  "  Another  species  of  fraud,  by  no 
means  infrequent,  presents  a  history  like 
the  following:  The  managersof  a  wealthy 
and  ]iowerful  railroad  corporation,  desir- 
ing to  oet  possession  of  a  rival,  or  a  con- 
necting line,  succeed  in  purchasing  a 
niaJDiity  of  the  shares  of  the  stock  of  the 
latter  company.  They  then  install  them- 
selves, or  their  agents,  as  its  directors 
These  directors,  in  violation  of  their  duty 
to  the  shareholders  of  the  company, 
manage  its  affairs  entirely  in  the  interest 
of  the  former  company,  and  to  the  pre- 

698 


judice  of  those  of  its  shareholders  who  are 
not  interested  in  the  former  company. 
Unless  a  court  of  equity-  could  interfere 
to  prevent  such  an  abuse,  the  rights  of 
the  shareholders  in  the  smaller  company 
would  be  placed  in  a  perilous  condition. 
'  For  it  would  enable  the  managers  of  one 
corporation  to  get  control  of  anotlier  by 
the  purchase  of  a  majority  of  its  stock 
for  the  purpose,  and  then  to  manage  its 
affairs  in  such  subservience  to  the  interest 
of  their  own  corporation  as  to  render  the 
stock  of  the  minority  worthless,  and  avail 
themselves  of  its  value  without  compensa- 
tion.' If  such  frauds  may  be  practiced 
with  impunity,  it  requires  no  sagacity  to 
see  how  '  a  system  of  railroad  connec- 
tions may  become  a  sj'stem  of  frauds.  If 
it  may  be  practiced  with  impunity  be 
tween  railroad  corporations,  it  may  be 
practiced  between  manufacturing  cor- 
porations, and  a  managing  majority  may, 
at  their  pleasure,  sacrifice  the  interests 
of  the  minority  for  the  benefit  of  another 
corporation  owned  by  them.' " 

3  •27  Fed.  Rep.  625  (U.  S.  C.  C.  New 
York,  1886),  per  Wallace,  J. ;  s.  c.  20 
Fed.  Rep.  577.  In  this  case  the  majority 
placed  a  valuation  upon  the  property  of 
the  corporation,  dissolved  the  corpora- 
tion, and  sold  the  property  to  themselves 
at  the  price  fixed.  The  learned  judge 
set  asidn  the  sale,  and  adjudged  that  the 
minority  had  an  equitable  lien  on  tlie 
property  to  the  extent  of  the  actual  value 
of  the  property  sold.  In  the  opinion  the 
court  said :  "  Plainly,  the  defendants  have 


OH.  XXXIX.] 


FRAUDS  OF  DIRECTORS. 


[§  663. 


"  when  a  number  of  stockholders  combine  to  constitute  them- 
selves a  majority  in  order  to  control  the  corporation  as  they  see 
fit,  they  became  for  all  practical  purposes  the  corporation  itself, 
and  assume  the  trust  relation  occupied  by  the  corporation  to- 
wards its  stockholders." 

§  663.  Stocliholders'  actions  against  tliiril  persons  for 
frauds  against  the  corporation. — Ordinarily  where  third  per- 
sons have  defrauded  a  corporation,  and  have  defrauded  it  by  col- 
lusion with  the   corporate   officers,  the   stockholder's   action    is 


assumed  to  exercise  a  power  belonging  to 
the  majority  in  order  to  secure  personal 
profit  for  themselves,  without  regard  to 
the  interests  of  the  minority.  They  re- 
pudiate the  suggestion  of  fraud,  and  plant 
themselves  upon  their  right  as  a  majority 
to  control  the  corporate  interests  accord- 
ing to  their  discretion.  They  err  if  they 
suppose  that  a  court  of  equity  will  toler- 
ate a  discretion  which  does  not  consult 
the  interests  of  the  minority.  It  cannot 
b3  denied  that  minority  stockholders  are 
bound  hand  and  foot  to  the  majority  in 
all  matters  of  legitimate  administration  of 
the  corporate  affairs  ;  and  tlie  courts  are 
powerless  to  redress  many  forms  of  op- 
pression practiced  upon  the  minority 
under  the  g-uise  of  legal  sanction,  which 
falls  short  of  actual  fraud.  This  is  a  con- 
sequence of  the  implied  contract  of  as- 
sociation, by  which  it  is  agreed,  in  ad- 
vance, that  a  majority  shiill  bind  tlie 
wliolebodyas  to  all  transactions  within 
the  scope  of  the  corporate  powers.  But 
it  is  also  of  the  essence  of  the  contract 
that  the  corporate  powers  shall  only  be 
exercised  to  accomplish  the  objects  for 
which  they  were  exiled  into  (existence, 
and  that  tlie  majority  shall  not  control 
those  powers  to  pervert  or  destroy  the 
original  purposes  of  the  corporators." 
So  also  where  tlu;  majority  of  the  stock- 
holders vote  to  make  a  lease  of  the  whole 
corporate  property  to  tiiemsclvcs,  a  dis- 
senting stockholder  luay  have  tlie  lease 
set  aside.  Meeker  v.  Winthrf)p  Iron  Co., 
17  Fed.  Rep.  48  (1883),  the  court  saying: 
"The  ownership  of  a  majority  of  the 
capital  stock  of  a  corporation  invests  the 
holders  thereof  witli  many  ancl  valualile 
iiicidintal  rights,  Tiiey  may  legally 
control  the  company's  business,  prescribe 
its  general  policy,  make  them'selves  its 
agents,  and  take  reasonable  cf<mi)eii8a- 
tion  for  their  service-^.     But  in  thus  as 


suming  the  control  they  also  take  upon 
themselves  the  correlative  duty  of  dili- 
gence and  good  faith.  They  cannot  law- 
fully manipulate  the  company's  business 
in  their  own  interests  to  the  injury  of 
other  corporators.  Any  contract  made 
by  them  in  behalf  of  their  principal  with 
themselves  or  with  another  for  their 
personal  gain  would  be  voidable  at  the 
option  of  the  company.  ...  If  they 
can  make  such  a  lease,  they  can,  as  sel- 
fishness or  caprice  shall  dictate,  modify 
its  terms,  expend  the  company's  entire 
income  in  improvements  to  fiicilitate  their 
individual  interests,  or  do  anything  else 
their  selfishness  or  cupidity  may  suggest. 
The  law  does  not  thus  vest  majority 
stockholders  with  any  such  dangerous 
power,  invite  such  jieculations  or  open 
the  door  to  such  abuses."  And  in  Rice's 
Aj)peal,  79  Penn..St.  168,  204  (1875),  the 
court  said :  "  While  the  right  of  a  stock- 
holder to  contract  with  his  corporation 
and  become  its  creditor,  is  conceded  as  a 
general  proposition,  the  right  of  a  person 
controlling  the  corporation  to  contract 
with  it,  rests  upon  entirely  different 
l)rinciples,  if  it  exists  at  ail.  Where  a 
person  has  the  actual  control  of  a  cor- 
))orati()n,  whether  such  control  arises 
from  the  ownership  of  a  majority  of  the 
shares,  or  from  his  position  or  influence, 
and  enters  into  a  contract  with  such  cor- 
poration, ho  is  to  1)0  held  to  the  most 
rigid  good  faith.  Thu  onus  is  upon  him 
to  show  the  fairness  of  the  transaction,  if 
it  is  called  in  question."  Where,  how- 
ever, cor|)orato  property  has  been  sold, 
and  tlie  prof-eods  retained  by  one  stock- 
holder, another  stockholder  cannot  sue 
him  tor  inoiiey  had  and  ie('cive<i.  The 
action  must  be  in  equity  and  tor  the  bene- 
fit of  the  corporation,  liodsdon  y.  C<  pe- 
land,  10  Me.  .'ill  (1839). 

699 


§  663.] 


FRAUDS   OF   DIRECTORS. 


[CH.  XXXIX. 


against  botli  the  officers  and  the  third  persons,  all  being  joined  as 
parties  defendant.  When  such  is  the  case  the  cause  of  action 
comes  under  some  one  of  the  preceding  sections  of  this  chapter.^ 
Another  class  of  cases  arise  when  third  persons  commit  frauds 
against  the  corporation  without  the  collusion  of  the  corporate 
officers,  but  the  latter  neglect  or  refuse  to  institute  a  suit  to 
rectify  the  wrong.  The  right  of  the  stockholder  then  is  not  so 
clear.  It  is  ordinarily  within  the  discretion  of  the  corporate 
officers  to  enforce,  compromise,  or  abandon  claims  which  the  cor- 
poration may  have  against  third  persons.  Generally  this  exercise 
of  discretion  cannot  be  questioned  or  remedied  by  the  stockhold- 
ers, except  by  electing,  at  a  subsequent  election,  directors  more 
in  accord  with  the  stockholders'  views.  It  is  possible,  however, 
that  cases  may  occur,  where  the  judgment  of  the  directors  is  so 
palpably  and  injuriously  wrong,  the  courts  will  sustain  a  stock- 
holder's action  herein.  This  subject,  however,  is  treated  else- 
where.^ 


'  Thus  where  a  railroad  has  been 
leased  to  another  railroad  company,  under 
a  certain  agreement  of  the  latter  guaran- 
teeing a  fixed  sum  to  the  former,  and  the 
lessee  railroad  company  refuses  to  fulfill 
its  contract  and  has  control  of  the  lessor 
railroad,  a  stockholder  of  the  latter  may 
bring  suit  against  the  former  to  remedy 
the  wrong.  March  v.  Eastern  R.  R.  Co., 
40  N.  H.  548  (1860).  And  the  case  of 
Lewis  V.  St.  Albans,  «fec  ,  Works,  50  Vt. 


477  (1878),  very  properly  says,  "  that 
whenever  the  trustee  has  been  guilty  of  a 
breach  of  trust,  and  has  transferred  the 
trnst  property  by  sale  or  otherwise,  to 
any  third  party,  the  cestui  que  trust  has  a 
full  right  to  follow  such  property  into  the 
hands  of  such  third  party,  unless  he 
stands  in  the  situation  of  a  bona  fide  pur- 
chaser for  value,  without  notice." 
2  See  Chapter  XL,  §  678. 


700 


CHAPTER  XL. 

STOCKHOLDERS'  ACTION  TO  REMEDY  ULTRA  VIRES  ACTS, 
INTRA  VIRES  ACTS,  AND  NEGLIGENCE  OF  CORPORATE 
DIRECTORS   AND   OTHERS. 


A. — Ultra  Vires  Acts. 

§  664.  Meaning  of  the  term  ultra  vires. 

665.  The  three  contracts  arising  from 

a  charter. 

666.  The  third  contract,  that  between 

the  stockholders  and  the  corpo- 
ration prevents  the  commission 
of  ultra  vires  acts. 

667.  Neither  the  directors  nor  a  major- 

ity of  the  stockholders  have 
power  to  sell  all  the  corporate 
property  as  against  the  dissent 
of  a  single  stockholder. 

668.  Consolidations,  absorptions,  merg- 

ers, amalgamations,  leases,  and 
sales  of  railroads  without  au- 
thority of  charter,  statute,  or 
amendment  of  charter. 

669.  Consolidation,  lease,  or  sale  under 

express  provision  in  the  charter 
itself, 

670.  Consolidation,  sale,  or  lease  under 

authority  of  a  general  statute 
existing  at  the  time  of  incorpo- 
ration. 

671.  Consolidation,  lease,  or  sale  under 

an  amendment  to  the  charter  or 
under  a  general  statute  passed 
subsequent  to  the  charter. 

672.  Stockholder's    right   to    prevent 

tlie  corporation  from  undertak- 
ing a  new  business. 

673.  Traffic    arrangements     and    con- 

tracts. 


§  674.  Giving  away  or  misapplying  cor- 
porate funds. 
675.  Miscellaneous  ultra  vires  acts. 

B. — A     Stockholder     cannot     Remedy 

THROUGH  THE  CoURTS,  ANY  ACTS 
INTRA  VIRES  OF  THE  DIRECTORS, 
OR  A  MAJORITY  OF  THE  STOCK- 
HOLDERS, SINCE  THEY  ARE  MATTERS 
OF    INTERNAL   MANAGEMENT. 


§  676. 
677. 


678. 


Intra  vires  acts  as  distinguished 
from  ultra  vires  acts. 

The  discretion  of  the  directors  or 
the  majority  of  the  stockholders 
as  to  acts  ultra,  viy'es  cannot  be 
questioned  by  the  courts,  unless 
fraud  is  involved. 

The  discretion  of  the  directors  in 
refusing  to  institute  or  to  defend 
an  action  involving  corporate 
interests  is  not  generally  inter- 
fered with. 


C. — Stockholders'  actions  to  hold  the 
Directors  liable  for  negligence 
in  the  discharge  of  their  duties. 

§  679.  Remedy  of  the  stockholder  herein. 

680,  Instances  of  negligence  of  direc- 

tors in  the  performance  of  tlieir 
duties. 

681.  Directors  must  u«e  ordinary  care 

and  diligence  in  the  manage- 
ment of  the  corporation  and  the 
transaction  of  its  business. 


A. — Ultra  Vires  Acts. 

§  664,  Meaning  of  the  term  ultra  vires. — The  tenn  ultra 
vires,  as  used  in  this  treatise,  means  any  act  of  a  f'or|K)ration 
which  the  corporation  is  not  authorized  to  d.»,  either  by  its  ex- 
press or  implied  powers,  Tliis  deKnition  includes  acts  bcvirnd 
the  powers  of  the  corporation,  whether  these  acts  are  prohibited 

701 


§  065.] 


ULTRA   VIRES    ACTS,   <fec. 


[CH.  XL. 


by  statute,  or  are  contrary  to  public  policy  and  good  morals,  or 
are  merely  not  among  the  powers  given  to  the  corporation  by 
its  charter.  This  term  has  been  objected  to  as  having  no  fixed 
and  clear  meaning,  and  to  some  extent  the  objection  is  reason- 
able.-' There  is  no  other  term,  however,  that  has  acquired  the 
significance,  general  use,  and  peculiar  meaning  that  are  attached 
to  the  words  nltra  vires,  and  consequently  the  term  probably 
has  acquired  a  permanent  place  in  the  vocabulary  of  corporation 
law. 

§  665.   The  three  contracts  arising  from  a  charter. — It  has 

already  been  explained  ^  that  the  charter  of  a  corporation  is  the 
basis  of  three  distinct  contracts  ;  first,  between  the  corporation 
and  the  State ;  second,  between  the  stockholders  and  the  State ; 
and  third,  between  the  stockholders  and  the  corporation.  The 
first  named  contract,  that  between  the  corporation  and  the  State, 
does  not  come  within  the  scope  of  this  work.  The  great  and 
leading  case  on  that  contract  in   this  country  is  the  Dartmouth 


*  In  the  case  Taylor  v.  Chichester,  <fec., 
Ey.  Co.,  L.  R.,  2  Ex.  356,  878  (1867),  the 
court  said:  "1  think  it  very  unfortunate 
that  the  same  phrase  of  'ultra  vires'  has 
been  used  to  express  both  an  excess  of 
authority,  as  against  the  shareholders  and 
the  doing  of  an  act  illegal,  as  being  malum 
proliibitmn,  for  the  two  things  are  sub- 
stantially different."  The  terra  ultra  vires 
has  at  times  been  used  in  two  senses  by 
one  and  the  same  court.  Thus  it  is  said 
in  Bissell  v.  Railroad  Companies,  22  N. 
Y.  258,  293  (1860):  "The  phrase  ultra 
vires  is  applied,  in  the  English  cases,  both 
to  acts  which  simply  exceed  the  powers 
conferred  by  the  deed  of  settlement  upon 
the  officers,  as  the  agents  of  the  share- 
holders, and  acts  ■which  transcend  the 
powers  conferred  by  law  upon  the  entire 
corporation.  This  indiscriminate  use  of 
the  phrase  is  calculated  to  mislead,  un- 
less the  distinction  referred  to  is  ob- 
served." In  the  case  National  Pemberton 
Bk.  V.  Porter,  125  Mass.  333,  the  court 
say:  "  There  is  nothing  of  mystery  or  of 
sanctity  in  the  use  of  the  words  of  a  dead 
language,  ultra  vires;  and  although  it  is 
a  concise  and  convenient  form  by  wliich 
to  indicate  the  unauthorized  action  of 
artificial  persons  with  limited  powers, 
still  it  is  as  applicable  to  individual  as  to 
corporate  action.     An  illegal  act  of  an 

702 


individual  is  as  really  ultra  vires  as  the 
unauthorized  act  of  a  corporation." 

In  the  case  Whitnej'  Arms  Co.  v. 
Barlow,  63  N.  Y.  62  ( 1 875),  the  court  said: 
"  Where  acts  of  corpoi-ations  are  spoken 
of  as  ultra  vires,  it  is  not  intended  that 
they  are  unlawful  or  even  such  as  the  cor- 
poration cannot  perform,  but  merely  those 
which  are  not  within  the  powers  conferred 
upon  the  corporation  by  the  act  of  its  cre- 
ation, and  are  in  violation  of  the  trust 
reposed  in  the  managing  board  by  the 
shareholders,  that  the  affairs  shall  be 
managed  and  the  funds  applied  solely  for 
carrying  out  the  objects  for  which  the 
corporation  was  created."  See  also  Earl 
of  Shrewsbury  v.  North  Straff ordshi  re  R. 
Co.,  35  L.  J.  (Ch.)  166;  Nassau  Bk.v.  Jones, 
95N.Y.  115(1884).  In  Green's  Brice's  Ul- 
tra Vires,  2d  ed.  p.  35,  the  learned  author 
says  :  "  Sometimes  the  term  ultra  vires  is 
used  even  in  a  fourth  sense,  as  denoting 
what  is  outside  the  powers,  not  of  a  par- 
ticular corporation,  but  of  every  corpora- 
tion. By-laws  in  restraint  of  trade  are 
ultra  vires  in  this  sense.  Facts  will  thus 
be  ultra  vires  which  are  contrary  to  the 
common  law  or  to  the  provisions  express 
or  implied  of  some  statute,  e.g.,  the  issu- 
ing prior  to  the  companies  act  of  1867  of 
shares  to  bearer." 

2  See  Chapter  XXVIII. 


CH.  XL.]  ULTRA   VIRES   ACTS,   <fec.  [§  QQQ- 

College  ease.^  In  England,  no  such  contract  exists,  since  Parlia- 
ment is  not  restricted  by  any  -written  constitution,  and  the  power 
of  Parliament  to  alter,  amend,  or  repeal  charters  is  absolute.^  As 
regards  the  second  contract,  in  this  country,  the  better,  later,  and 
prevailing  opinion  is  that  an  amendment  of  a  charter  by  the  legisla- 
ture, whether  under  a  reserved  power  or  not,  cannot  be  forced  upon 
the  corporation  or  stockholdei's,  and  cannot  even  be  accepted  by  the 
directors  dr  by  a  majority  of  the  stockholders  in  opposition  to  the 
dissent  of  a  single  stockholder.  This  is  upon  the  principle  that  the 
amendment  merely  waives  the  right  of  the  State  to  object  to  .acts 
which  without  the  amendment  would  be  unauthorized  by  the  char- 
ter ;  that  the  waiver  of  the  State  of  its  right  to  insist  on  its  contract 
or  charter  with  the  corporation  and  stockholders  does  not  waive, 
change,  or  affect  the  contract  between  the  corporation  and  the 
stockholders ;  and  that,  consequently,  the  amendment  does  not 
take  away  the  right  of  a  stockholder  to  object  to  the  change,  but 
that  he  may  object  thereto,  the  same  as  he  may  object  to  any 
idtra  vires  act,  except  that  his  objection  must  be  based  on  the 
violation  of  his  contract  with  the  corporation,  and  not  upon  the 
danger  of  the  State's  forfeiting  the  corporate  charter.  Hence  it 
is,  that  from  a  stockholder's  point  of  view  an  amendment  to  the 
charter  may  be  objected  to  by  him,  very  largely  upon  the  same 
grounds  and  to  the  same  extent  that  he  may  object  to  ultra  vir'es 
acts.  In  both  cases,  his  objection  rests  upon  the  basis  that  the 
change  violates  his  contract  with  the  corporation.^' 

§  6GG.  The  tliird  contract,  that  hetiveen  the  stoclihohhrs  and 
the  corporation  prevents  the  commission  of  ultra  vires  acts. — 
That  a  charter  constitutes  a  contract  between  the  corporation  and 
its  stockholders  is  a  principle  of  law  that  has  become  firmly  im- 
bedded in  the  jurisprudence  of  modern  times.  Upon  this  prin- 
ciple of  law  rests  the  stability,  permanence  and  honesty  of  man- 
agement of  many  corporations,  particularly  those  of  railroads,  and 
from  it  arises  much  of  the  confidence,  safety,  and  protection  of 
the  stockholder  himself.     It  was  first  promulgated  in  America,  in 


'  4  Wheat.  .".18  (1810).  to  <]r-al  with  it  as  in  its  wisdom  it  shall 

*  "Parliament  created  tliis  company,  tliiiik    fit."     Groat   Westeiii    Ry.    Co.   v. 

and    I   think   the  jiowcr  must  rest  with  Rusliout,  B  De  G.  cJc  Sm.  '21(0(1862). 

Parliament  to  vary  the  conslitution  of  the  ^  See  Chapter  XX  VllJ. 

company,  to  control  it,  to  annihilate,  or 

7  OH 


§  667.]  ULTRA   VIRES    ACTS,    Ac.  [CH.  XL. 

1820,  in  Livingston  v.  Ljnch,^  and  was  applied  to  corporations  in 
The  Hartford  &  New  Haven  Eailroad  Company  against  Croswell,^ 
and  in  England,  in  1824,  in  Natusch  v.  Irving.^  These  cases 
have  been  followed  by  a  long  list  of  supporting  decisions.  They 
were  the  first  to  establish  clearly  the  doctrine  that  any  act  or 
proposed  act  of  the  corporation,  or  of  the  directors,  or  of  a 
majority  of  the  stockholders  which  is  not  within  the  express  or 
implied  powers  of  the  charter  of  incorporation  or  of  association, 
in  other  words,  any  tdtra  vires  act  is  a  breach  of  the  contract 
between  the  corporation  and  each  one  of  its  stockholders,  and 
that  consequently  any  one  or  more  of  the  stockholders  may  ob- 
ject thereto  and  compel  the  corporation  to  observe  the  terms  of 
that  contract  as  set  forth  in  the  charter.* 

§  667.  Neither  the  directors  nor  a  majority  of  the  stockhold- 
ers have  power  to  sell  all  the  corporate  property  as  against  the 
dissent  of  a  single  stocMolder.— The  case  of  Abbot  v.  American 
Hard  Kubber  Company^  clearly  established  the  rnle  in  this  coun- 
try that  a  dissenting  stockholder  may  prevent  the  sale  by  the  di- 
rectors, or  by  a  majority  of  the  stockholders,  of  corporate  prop- 
erty which  is  essential  to  the  continuance  of  the  business  of  the 
corporation,  unless  such  sale  is  made  with  a  view  to  the  dissolu- 
tion of  the  corporation,  or  the  payment  of  the  corporate  debts.^ 

1  4  Johns.  Ch.  373.  *  The  jurisdiction  of  a  court  of  chan- 
■•'  5  Hill,  383  (1843).  eery  to  protect  a  stockholder  a^^ainst 
3  2  Cooper's  Gh.  358,  by  Lord  Eldon;  ul/ra  vires ac\s\a  now  established  beyond 
also  reported  in  Gow  on  Partnership,  398.  question,  and  this  jurisdiction  exists  irre- 
Thus  Lord  Chancellor  Camjibell  said,  in  spective  of  statutes.  In  New  York,  how- 
Simpson  «.  Westminster  Palace  Hotel  Co.,  ever,  at  an  early  day  in  the  case,  Attor- 
8  H.  of  L.  Cases,  712  (1860):  "I  bow  to  ney-General  v.  Utica  Ins.  Co.,  2  Johns 
the  authority  of  Natusch  v.  lrvinj>-.  .  .  Ch.  389,  it  -was  held  that  a  court  of 
The  funds  of  a  joint-stock  company  estab-  chancery  had  no  such  visitorial  power 
lished  for  one  undertiiking  cannot  be  ap-  over  corporations  as  to  restrain  them  from 
plied  to  another.  If  an  attempt  to  do  so  exceeding  their  corporate  powers.  The 
is  made,  this  act  is  ultra  vires,  and  al-  Revised  Statnces  of  New  York,  in  1828, 
thou"-h 'sanctioned  by  all  the  directors  gave  to  the  courts  this  jurisdiction.^  See 
and  %j  a  large  majority  of  the  share-  Brinckerhoof  v.  Bostwii-k,  88  N.  Y.  52, 
holders,    any    single   shareholder   has   a  59  (1882). 

right  to   icsist  it,  and  a  court  of  equity  -"■  33  Barb.  578  (1861).     See  also  Id. 

wUl   interfere   on   his   behalf   by   injunc-  4  Blatch.  489. 

tion  "     In    Pickering  v.   Stephenson,  L.  "  See  also  Smith  v.  New  York,    &c. 

R.,  14  Eq.  322(1872)".  the  court  said:  "It  Co.    18  Abb.    Pr.  419    and   435    (1865); 

is  difScult  to  conceive  any  system  of  juris-  Robbins  v.  Clay,  33  Me.    132;    l|at^B. 

prudence   in    which    Natusch    v.    Irving  Co  v.  Eickmeyer,  &c.  56    How.    Pr.  78 ; 

would    have   been    diffeve  tly   decided."  Barclay  v.  Quicksilver  M.    Co.,  9   Abb. 

This  case  also  held  that  when  the  major-  Pr.  N.  S.  284;  Copeland  v.  C.  Gas  Co.,  61 

ity  enter  into  litigation  against  the  mi-  Barb.  60;  Conro  v.  Port  Henry  I.  Co.,  12 

noiitv,  costs  are  not  to  be  paid  by  major-  Barb.  127  ;  Adriance  v.  Roome,  52  Barb, 

ity  out  of  the  corporate  funds.  399;  Brady  v.    Mayor,  &c.  16    How.  Pr. 

704 


CH.  XL.] 


ULTRA   VIRES   ACTS,   &c. 


[§  m. 


And  even  where  a  dissolution  is  the  purpose  in  view,  yet 
if  the  corporation  is  a  prosperous  one,  it  is  extremely  doubt- 
ful whether  such  a  sale  can  be  made.  The  old  common  law 
doctrine  that  a  majority  of  the  stockholders  may  at  any  time- 
effect  a  voluntary  dissohition  of  the  corporation  is  still  sus- 
tained. But  if  the  purpose  of  such  dissolution  is  not  the  hona^ 
fide  discontinuance  of  the  business,  but  is  the  continuance  of  that 
business  by  another  new  corporation,  then  the  better  and  later 
rule  is  that  a  dissenting  stockholder  may  prevent  the  sale,  even 
though  it  is  made  with  a  view  to  dissolution  of  the  corporation 
This  is  the  law  as  laid  down  by  the  well-considered  case  of  Kean 
V.  Johnson.^  Such  a  dissolution  is  j^ractically  a  fraud  on  the  law 
and  on  dissenting  stockholders.  It  seeks  to  do  indirectly  what 
cannot  legally  be  done  directly.^  If,  however,  the  corporation  is 
an  unprofitable  and  failing  enterprise,  then  a  sale  of  all  the  cor- 
porate property  with  a  view  to  dissolution  may  be  made  by  a 
majority  of  the  stockholders.^  But  although  the  sale  may  be 
made  even  to  another  corporation  yet  the  stock  of  the  latter  cor- 


432 ;  Middlesex  R.  R.  Co.  v.  Boston,  eke., 
R.  R.  Co.,  116  Mass.  347.  Cf.  Dana  v. 
Bk.  of  U.  S.,  5  Watts  <fe  S.  (Pa.)  247  ; 
Union  Bank,  <fec.  v.  Ellicott,  6  Gill  <fe 
J.  (Md.)  303.  See  also  Sheldon,  <fec.  Co. 
V.  Eickemeyer,  &c.  Co.,  90  N.  Y.  607 
(1882);  Balliet  t;.  Brown,  103  Penn.  St. 
546  (1883),  where  the  court  says  :  "  The 
directors  of  a  corporation  have  no  ri^ht 
to  sell  or  dispose  of  its  movable  property 
where  this  prevents  the  continuance  of 
their  business."  To  same  effect  Gray  v. 
N.  Y.,  A'c.  Steamship  Co.,  5  T.  &  C.  (N. 
Y.)  224  (1875).  But  see  Hutchinson  v. 
Green  (Mo.  1886),  1  Ry.  <fe  Corp.  Law 
Journnl,  22. 

'  9  N.  J.  Eq.  401  (185:^.),  the  court  say- 
ing it  is  not  true  tliat  "  a  majority  of 
stockholders  in  any  corporation,  liowever 
prosperous  its  business  affairs  may  be, 
can,  at  their  own  mere  caprice,  sell  out  the 
whole  source  of  tiieir  emoluments,  invest 
their  capital  in  other  enterprises,  and 
that  however  the  minority  may  desire 
the  prosecution  of  the  business  in  which 
they  had  engaged,  they  liave  no  injury 
to  cotnpl.'uii  of  at  law  or  in  equity  so  long 
as  they  obtain  their  portion  of  the  ])ro- 
ceeds  of  the  Half.  .  .  .  If  such  were 
the  law,  corporations  would  soon  be  few, 
for  seldom  would  capitalists,  whatever 
their  comparative  wealth,  invest  in  (mi- 
terprises  so  readily  rendered  profitless  at 

[4 


the  caprice  or  in  obedience  to  the  inter- 
est of  any  man  or  set  of  men  rich  enough 
to  control  the  majoritj'  of  stock.  .  . 
Sometimes  no  time  is  fixed  by  the  charter 
at  which  the  proposed  use  of  the  capital 
shall  cease,  and  then  the  contract  between 
the  parties  is  that  so  long  as  the  affairS' 
of  tlie  company  are  prosperous  it  shall  go 
on,  unless  all  consent  to  the  contrary." 
Even  where  the  majority  have  a  statutory 
power  to  dissolve  the  corporation  at  their 
pleasure,  yet  they  cannot  use  that  power 
to  ilefraud  the  minority  out  of  the  lair 
value  of  the  corporate  property.  Ervini 
V.  Oregon  Ry.  h  Nav.  Co.,  27  Fed.  Rep.. 
635,(1886),  per  Wallace,  J.,  the  court  say- 
ing: "A  dissolution  under  such  circum- 
stances is  an  abuse  of  the  powers  dele- 
gated to  the  majority.  It  is  no  less  a 
wrong  because  accomplished  by  the 
agen'-y  of  legal  forms." 

'^  Boston,  Ac.  li.  R.  Co.  V.  N.  Y.  A  N. 
E.  R.  R.  Co.,  13  R.  I.  260(1881). 

"  Lauinan  v.  Li'banon  Valley  R.  R. 
Co.,  30  Penn.  St.  42  (1858),  the  court 
saying:  "(Jan  one  member  of  a  corpora- 
tion hold  all  his  felldW-iuemlicrs,  with 
their  inveslMients,  to  an  unprofitable  ami 
impracticable  ciiteriiriMo  and  prevent 
them  from  cmbarkiTig  in  another  that  is? 
more  hopeful  V  No  ;  their  power  of  dis- 
solution  will  relieve  them  from  such  ai* 
ol)jection." 

5J  705 


i§  668.] 


ULTRA   VIRES   ACTS,   <fec. 


[CH.  XL. 


poration  received  in  payment  for  the  property  cannot  be  forced 
wpon  dissenting  stockholders.  They  are  entitled  to  money.' 
'These  principles  of  law  are  particularly  itnportant  when  a  con- 
solidation of  corporations  is  attempted  by  a  dissolution  of  one  of 
■them.  Frequently  such  a  sale  of  the  corporate  property  is  at- 
tempted without  a  dissolution,  the  vendee  of  the  property  agree- 
ing to  pay  the  stockholders  of  the  vendor  corporation.  Such 
a  sale,  however,  is  voidable  at  the  instance  of  a  single  stockholder.^ 
•Corporations  are  formed  for  the  transaction  of  business  and  not 
for  the  purpose  of  having  their  business  transacted  by  other  cor- 
porations. 

§  668.  Consolidations,  absorptions,  mergers,  amalgamations, 
leases,  and  sales  of  railroads  ivitlwut  autliority  of  charter,  stat- 
ute, or  amendment  of  charter ? — By  far  the  greater  number  of 


'  Lauman  v.  Lebanon,  (fee.  Co.,  siipra  ; 
'Taylor  V.  Earle,  8  Hun.l  {IS1&);  Frothing- 
liam  V.  Barney,  6  Hun,  366.  Cf.  Treadwell 
'.V.  Salisbury,  .fee,  Co.,  73  Mass.  393  (1856); 
Hodges?'.NewEngland,«fec.  Co.,  1R.I.312 
.(I860);  3  Id.  392  (1853).     See  also  §  646. 

'  See  §  668. 

3  There  has  been  considerable  discus- 
ision  as  to  the   meaning  of  these   various 
terms.     The  only  practical  object  of  such 
sdiscussioDS   seems  to   be   in  ascertaining 
whether  the  old  corporation  is  dissolved 
•or  is  continued,  and  in  ascertaining  simi- 
lar questions.     These  questions,  however, 
turn  upon  the  wording  of  the  statute  or 
<;harter  whereby  the   change  is  made.  In 
general  it  may  be  said  that  by  a  consoli- 
dation,  merger,  or  amalgamation,  either 
;two  corporations  are  dissolved  and  a  new 
one  formed  therefrom,  or  one  is  dissolved 
and  its  property  and  franchises  are  taken 
up  by  another.     In  Indiana  it  was  held 
that  the  effect  of  a  consolidation  "was  a 
■dissolution  of  the  three  corporations  and 
.at  the  same  instant  the  creation  of  a  new 
■corporation,  with     property,    liabilities, 
and    stockholders,    derived    from    those 
passing   out  of  existence."     McMahan  v. 
Morrison.  16  Ind.    1'72.     See  also  Clear- 
water V.  Meredith,  1  Wall.  25,  40  (1863). 
Cf.   Meyer    v.   Johnston,    64   Ala.    603; 
'Central  R.  R.   Co.  v.   Georgia,   92  U.  S. 
•665;   Racine,   &c.    R.  R.   Co.  v.  Farmers, 
.<fec.  Trust  Co.,  49  111.  331 .     In  Boardman 
V.  Lake  Shore,  Ac.  Ry.  Co.,  84  N.  Y.  157, 
181    (1881).   the   court  said:  "It  is  held 
that  where  two  railroads  ai-e  consolidated, 
;as  far  as  one  of  the  creditors  of  one  of  the 

706 


original  companies  is  concerned,  the  con- 
solidated company  is  the  successor  of 
the  old  company;  but  in  respect  to  the 
properties  of  the  other  companies  it  is  a 
new  and  independent  company,  and  such 
creditor  has  no  claim  against  it  upon 
their  original  contract,  but  only  by  virtue 
of  its  assumption  of  the  obligations  of  the 
old  companies."  Citing  Prouty  v.  L.  S., 
&c.  R,  R.  Co.,  52  N.  y.  363;  Chase  v. 
Vanderbilt,  62  Id.  307 ;  In  re  Sage,  70 
Id.  220.  In  Green's  Brice's  Ultra  Vires, 
2d  ed.,  p.  631,  it  is  said:  "The  term 
'  amalgamation '  is  seldom  applied  to 
corporations  in  this  country.  That  which 
takes  its  place  as  much  as  any.is  '  consoli- 
dation.' But,  though  it  is  difhcult  accur- 
ately to  define  amalgamation  as  common- 
ly used  in  English  law,  it  certainly  has 
a  wider  meaning  than  consolidation  has 
with  us.  Consolidation  would,  c  ff.,  be 
inapplicable  to  a  union  of  two  or  more 
companies  in  such  a  way  that  one  of  the 
original  corporations  only  was  continued 
in  existence,  while  the  others  were  merged 
or  absorbed  in  it.  An  absorption  of  one 
corporation  by  another  would,  according 
to  some  of  the  decisions,  be  an  amalgama- 
tion in  England;  but  it  would  not  be  a 
consolidation  here.  ...  In  the 
American  view,  therefore,  it  would  seem 
that  the  dissolution  of  all  the  old  corpo- 
rations and  the  creation  of  one  new  one 
are  as  a  rule  involved  in  consolidation. 
And  this  idea  must  not  be  overlooked  in 
determining  the  rights  of  creditors.  For 
if  all  the  corporations,  cease  the  consoli- 
dated company  is  liable  to  the  creditors 


CH.  XL.]  ULTRA  VIRES  ACTS,   <fec.  [§  668. 

cases  involving  ultra  vires  acts  which  affect  the  rights  of  a  stock- 
holder are  cases  growing  out  of  the  attempted  consolidation,  ab- 
sorption, lease  or  sale  of  the  property  of  one  railroad  corporation 
by  or  with  another  railroad  corporation.  The  rapid  tendency  of 
the  railway  system  towards  the  creation  and  unification  of  trunk 
lines,  and  the  annihilation  of  smaller  companies,  has  led  to  many 
of  these  cases.  The  interests  in  such  movements  frequently  in- 
volve vast  amounts  of  property.  In  Europe  this  stage  of  railway 
development  has  been  passed  through,  and  it  is  there  gener- 
ally found  that  in  each  country  a  few  great  systems  control  all 
the  railways  of  the  country.  In  America  the  past  twenty  years 
have  brought  about  the  creation  of  semi-transcontinental  lines, 
and  the  consolidation,  absorption,  and  disappearance  of  large  num- 
bers of  local  or  branch  lines.  But  the  American  movement 
towards  systems  of  railways  which  will  traverse  the  entire  conti- 
nent is  already  clearly  outlined  and  at  hand.  The  changes  which 
are  impending  will  lead  to  the  disappearance  of  existing  short 
lines  and  even  systems  of  railways.  .  Large  interests  will  require 
and  in  some  way  will  obtain  a  removal  of  the  legal  right  of  stock- 
holders to  object  to  the  changes  toward  which  the  times  are  rap- 
idly approaching.  The  principles  of  law  protecting  the  rights  of 
stockholders  in  these  attempted  consolidations  or  leases  are  to  be 
of  vital  importance,  both  to  the  railroads  and  to  the  stockholders 
themselves. 

These  consolidations,  absorptions,  leases,  or  sales  of  railroads 
have  occurred  or  have  been  attempted  under  four  different  claims 
of  legal  right  or  authority.  These  are,  first,  under  the  claim  that 
there  is  an  implied  power  of  the  corporation  to  make  the  change; 
second,  that  the  charter  expressly  confers  this  right ;  third,  that 

of  each,  in  the  absence  of  special  agree-  it  suspends  the  life,  can  become  a  share- 

ment,  only  so  far  as  it  is  assignee  of  its  hoKler  in  the  otlier  company  without  his 

property,  while  if  one  is  continued  in  ex-  personal  assent."     In  the  case  Fee  v.  Gas 

istencc  the  debts  of  that  one  which  con-  Company,   35  La.   Ann.   413  (1883),  tlio 

tinuc   would    seem    to  burden  the  whole  court  said:     "  Tlie  articles  of  consilida- 

property  liowever  acquired."     In  the  case  tion,  and  the  le<;islativo  act  by  authority 

Dongan's  Case,  28  L.  T.  N.  S.  60  (1873),  of  wliicli  they  were  executed,  evidently 

the  court  said :   "  Two  companies  may  be  present   a   case  of  complete  and  perfect 

united,  either  by  fusion  into  a  third  or  by  amalgamation,  the  effuct  of  wliich   was, 

one  absorbing  the  other.       The    former  under  American  authorities,  to  terminate 

process  seems  to  correspond  most  nearly  the  existence  ofthe  original  corporations, 

with  the  pojmlar  sense  of  the  word  amal-  to  create  anew  corporation,  to  transmute 

gamation,  and    I    believe    nobody  really  the  members  of  (he  former  into  miwnl)cr3 

knows  wiiat  amalgamation  in(!ans.    What-  of  the  latter,  and  lo  operalo  a  Iransl'or  of 

ever  be  the  process  no  shareholder  in  the  the  property,  riglits,  and  liabilities  of  each 

company  which  it  destroys,  or  of  which  old  company  to  the  new  one." 

707 


§  668.]  ULTRA   VIRES  ACTS,   &c.  [CH.  XL. 

a  general  statute,  existing  at  the  time  of  incorporation,  expressly 
authorized  the  act ;  fourth,  that  an  amendment  to  the  charter,  or 
a  general  statute  passed  subsequently  to  the  incorporation,  ex- 
pressly authorized  the  consolidation,  absorption,  sale,  or  lease. 

It  is  a  principle  of  law,  clearly  established  and  now  unques- 
tioned, that  neither  the  directors  of  a  corporation  nor  a  majority 
of  the  stockholders  can,  as  against  one  or  more  dissenting  stock- 
holders, authorize  a  sale  of  the  corporate  property  to  another  cor- 
poration, unless  express  authority  for  the  sale  is  conferred  by  the 
charter,  or  a  constitutional  amendment  thereto,  or  a  statute  con- 
stitutionally applicable  to  that  charter.  There  is  no  implied 
power  to  make  such  a  sale.-^  Moreover,  a  sale  or  lease  of  one 
railroad  to  another,  without  the  express  authority  of  the  legisla- 
ture, is  an  ultra  vires  act  as  regards  the  State  also ;  ^  and  for  snch 
an  act,  without  doubt,  the. State  may  intervene,  forfeit  the  fran- 
chises of  the  first  corporation  for  non-user,  and  assume  the  emi- 
nent domain  franchises  that  have  been  transferred.^ 

So  also  a  lease  of  one  railroad  to  another,  without  express 
authority  from  the  legislature,  is  beyond  the  power  of  the  direc- 
tors or  a  majority  of  the  stockholders,  as  against  a  dissenting 
stockholder.  It  is  a  violation  of  the  implied  contract  between 
the  corporation  and  each  stockholder  that  the  business  prescribed 
in  the  charter  will  he  pursued  until  the  dissolution  of  the  corpo- 

'    Clinch    V.    Financial    Corporation  (N.  S.),  151   (1878),  holding  that  where 

(1868),  L.  R.  5  Eq.  450  ;  Kean  v.  Johnson,  the  consolidating  sale  is  unauthorized,  a 

9  N.  J.  Eq.  401  (1853).     In  this  case  a  stat-  stockholder  of  the  old  corporation  is  not 

ute  authorized  the  consolidating  sale,  if  it  atfected  by  a  foreclosure  sale  of  all  the 

could  be  made  legally.     The  court  held  property  ofthe  new  corporation.  This  case 

that  it  could  not  be.     See  also  Charlton  is  valuable  as  containing  approved  formB 

V.  Newcastle,  <fec.,  Ry.  Co..  5  Jur.  N.  S.  for  pleadings  and  decrees  in  the  proced- 

1096  (1859);  Tuttle  v.  Michigan,  ifec,  R.  ure,  appointment  of  receiver,  and  sale  and 

R.  Co.,  35  Mich.  247  (1877) ;  Internation-  distribution  of  assets  upon  the  foreclosure 

al,  &c.,  R.  R.  Co.  V.  Bremond,  63  Texas,  of  a  railroad  mortgage.     In  the  case  of 

96  (1880),  holding,  however,  that  the  di-  Bryson  v.  Warwick,  &c..  Co.,  1  Sm.  tk  G. 

rectors  are  not  personally  liable  therefor.  447  (1853),  it  was  held  that  a  stockholder 

Blatchford  v.  Ross,  54  Barb.  42  (1869);  in  a  coiporation  might  sue  in  equity  to 

Dongan's  Case,  28  L.  T.  N.  S.  60  (1873);  recover  back  for  the  corporation  forfeit 

Boston,  <fec.,  R.  R.  Co.  v.  New  Eng.  R.  R.  money  paid  by  it  to  another  corporation 

Co.,  13  R.  I.  260  (1881),  where  the  sale  on  an  ultra  vires  contract  to  purchase  the 

was  declared  to  be  illegal,  though  the  latter. 

stockholder's  road  was  in  the  hands  of  "  Abbott  v.  Johnstown,  <fec.,  R.  R.  Co., 

mortgagees  for  default  in  the  payment  of  SO  N.  Y.  27  (1880);  Troy,  &c.,  R.  R.  Co. 

interest,  the  old  stockholders  being  of-  v.  Boston,  <fec.,   Ry.  Co.,   86  N.  Y.    107 

fered  stock  in  a  new  corporation,   or  a  (1881);  Thomas  v.  Railroad  Co.,  101  U. 

fixed    sum    for    their   shares    of    stock.  8.71(1879);  Penn.  R.  R.  Co.  ii.  St.  Louis, 

Laches,    however,   in    complaining,  was  <fec.,  N.  R.,  118  U.  S.  290  (1886). 
held  to  be  fatal.     Atlantic,   &c.,  R.    R.  ^  See  §  496;  People  v.  Albany,  <fec., 

Co.  Case,  3  Hughes,  320  ;  Id.,  4  Hughes  R.  R.  Co.,  77  N.  Y.  232  (1879). 

708 


CH.  XL.]  ULTRA  VIRES   ACTS,   <feo.  [§§  669,  670. 

ration.  Generally  the  lease  of  a  railroad  is  made  under  an  agree- 
ment, whereby  the  stockholders  of  the  old  corporation  are  guar- 
anteed a  certain  income.  The  effect,  however,  is  not  a  continua- 
tion of  the  business  of  the  old  corporation,  but  an  abandonment 
of  it.  It  is  an  act  ultra  vires  qi  the  corporation,  and  in  violation 
of  the  contract  between  the  corporation  and  its  stockholders.  A 
single  stockholder  may  obtain  an  injunction  against  the  lease,  or 
if  it  is  already  made,  may  go  into  a  court  of  equity  to  have  it  set 
aside.^ 

§  669.  Consolidation,  lease,  or  sale  under  express  power  in 
the  cliarter  itself. — If  the  charter  of  a  corporation  expressly  au- 
thorizes a  lease  or  sale  of  the  corporate  property,  such  a  lease  or 
sale  may  be  made  by  a  majority  of  the  stockholders  in  meeting 
assembled,  and  the  minority  are  bound  thereby.  It  is  immaterial 
what  the  terms  of  the  sale  or  lease  may  be,  or  whether  they  be 
advantageous  or  disadvantageous  to  the  stockholders.  The  dis- 
senting minority  have  no  remedy  unless  actual  fraud  can  be 
shown.  Thus  a  lease,  made  under  such  a  charter  provision,  has 
been  upheld,  although  the  rental  from  the  lease  will  pay  divi- 
dends only  on  the  preferred  stock,  leaving  nothing  whatsoever 
for  the  common  stockholders.^ 

§  670.  Consolidation,  sale,  or  lease  under  authority  of  a 
general  statute  existing  at  the  time  of  incorporation. — There 
seems  to  be  little  doubt  that  if,  at  the  time  of  an  incorporation  of 
a  company,  there  is  a  general  statute  on  the  statute  book  author- 
izing the  consolidation,  sale,  or  lease  of  one  railroad  to  another. 


'  Winch  V.  Birkenhead,  <fec.,  Ry.  Co.,  5  tion  the  franchises  could  not  be  trans- 
De  G.  tfe  Sin.  562  (1852),  where  the  lease  ferred,  but  would  revert  to  tlio  sovereign- 
was  for  99  years.  Cass  v.  Manchester,  &c.,  ty  from  which  they  were  derived,  and  the 
Co.,  9  Fed.  Rep.  640  (1881),  where  the  lease  shareholders  would  become  partners  or 
was  for  5  years.  Stevens  v.  Davison,  18  joint-owners  in  the  assets,  and  for  their 
Oratt.  (Va.)  819  (1868);  McDonnell  v.  share  in  such  assets  they  could  not  be 
Grand  Canal  Co.,  3  Ir.  Chan.  N.  S.  578  compelled  to  accept  an  annual  rent  for 
(1853);  South  Georgia,  tfec.,  R.  R.  Co.  v.  nine  hundred  and  ninety-nine  years." 
Ayres,  56  Ga.  230  (1876);  Tippecanoe  '  Middletown  v.  Boston,  Ac,  R.  R. 
County  f.  Lafayette,  <fec.,  R.  R.Cr).,  50  Ind.  Co.,  2  New  Eng.  Rc]).  553  (Conn.,  1886). 
85  (1875) ;  Black  v.  Delaware,  Ac,  Canal  See  also  Gates  w.  Id.,  ?  Id.  464  (Conn., 
Co.,  24  N.  J.  Eq.  455  (1873);  rev'g  22  N.  1886),  where  the  charter  allowed  leases 
J.  Eq.  130.  In  this  last  important,  lead-  on  a  tliree-fourths  vote  of  the  stockhold- 
ing, and  clearly-reasoned  case,  the  court  ers.  It  may  be  remarked  that  when 
says:  "  Nor  is  the  difficulty  avoided  by  such  acts  can  be  done  under  tiio  sanction 
the  pro])OHition  that  a  corporate  body,  Ijy  of  tlie  law,  tliere  is  occasion  for  i)rotec- 
and  witli  tiie  assent  of  a  majority  of  the  tion  of  tlie  minority's  rights  by  legisla- 
corporators,  may  abandon  their  business,  tive  enactment. 
Even  if  this  was  true,  upon  such  dissolu- 

709 


§  671.]  ULTRA   VIRES   ACTS,   die.  [CH.  XL. 

then  such  consolidation,  sale,  or  lease  may  be  made  even  against 
the  dissent  of  a  minority  of  the  stockholders.  The  law  has  been 
held  to  be  such  in  England,^  Indiana,^  and  New  Tork.^  Gener- 
ally the  statute  which  authorizes  the  sale,  lease,  or  consolidation 
of  railways  provides  for  the  payment  of  money  to  a  dissenting 
stockholder  who  prefers  to  close  out  his  interest  in  the  matter 
rather  than  take  part  in  the  new  enterprise.*  A  lease  or  sale, 
however,  under  the  authority  of  such  a  statute,  is  a  corporate  act 
so  fundamental  in  its  nature  that  it  is  to  be  exercised,  not  by  the 
directors,  but  only  by  the  stockholders  in  meeting  assembled. 
So  also  a  subsequent  change  in  the  terms  of  the  contract  of  sale 
or  lease  can  be  made,  not  by  the  directors,  but  by  the  stockholders 
themselves.^ 

§  671.  Consolidation,  lease,  or  sale  under  an  amendment  to 
the  charter  or  under  a  general  statute  passed  subsequent  to 
the  charter. — It  has  already  been  shown  in  a  preceding  chapter  • 
that  an  amendment  to  a  charter,  whereby  a  consolidation  of  the 
corporation  with  another  corporation  is  authorized,  can  be  ac- 
cepted and  acted  upon  by  the  corporation  only  by  the  unanimous 
consent  of  the  stockholders.''     A  single  dissenting  stockholder 

'   Simpson   v.  Denison,   10  Hare,   51  ■*  Such  is  the  statutory  law  in  Penn- 

(1852),  wliere  the  court  says  that  when  a  sylvania.      Brightley's  Purdon's  Digest, 

statute  exists  authorizing  such  corporate  1223.     In  New  York,  chapter  917,  Laws 

changes,  "every  person  who  becomes  a  1869,    authorizing    consolidations,   does 

shareholder  in  such  a  company  must  be  not  contain  such  a  provision.     In  Eng- 

considered  as  holding,  and  contracting  to  land,  a  provision  to  that  effect  is  found, 

hold  these  shares,  subject  to  the  provi-  See  Ex  parte  Fox,  L.  R.  6  Ch.  176  (1871). 
sions  of  this  statute."  *  Metropolitan  El.  Ry.  Co.  v.  Manhat- 

'^  Bish  V.  Johnson,  21  Ind.  299  (1863);  tan  EJ.   Ry.  Co.,   15  Am.  &  Eug.  P.  R, 

Sparrow  v.  Evansville,  .fee,  R.  R.  Co.,  7  Cas.   1  (N.  Y.,  1884),  where  Van  Brunt. 

Ind.  369  (1856).  J.,  says  that  the  lease  could  be  made  only 

'  Metropolitan,  <fec.,  Ry.  Co.  v.  Man-  by  the  stockholders,  and   that    "if  the 

hattan,  <fec.,  Ry.  Co.,   15  Am.  &  Eng.  R.  board  of  directors  could  not  make  a  new 

R.  Cas.    1,   26  (1884).     In  New  York  a  lease  upon  definite  terms  and  conditions, 

general  statute  was  passed  in  1839  (Laws  tlien,  clearly,   they  could   not   radically 

1839,  ch.  218),  which,  after  much  doubt,  modify  the  old  lease."     See  also  Hark- 

lias  been  held  to  authorize  a  lease  of  one  ness  v.  Manhattan  Ry,  Co.,  N.  Y.  Daily 

railroad  to  another.     See  Troy  <fc  Boston  Reg.,  Oct.  8,  1886.     Vf.  People  v.  Metro- 

R.  R.  Co.  V.  Boston,  Hoosac  Tunnel,  <fec.,  politan  Ry.  Co.,  26  Hun,  84  (1881). 
R.  R.  Co.,  86  N.  Y.  107  (1881);  Abbott  «  Chapter  XXVIII. 

V.  Johnstown,  <fec.,  R.  R.  Co.,  80  N.  Y.  27  '  See  §  500,  note  1.     See  also  Clear- 

(1880) ;  Woodruff  v.  Erie  Ry.  Co.,  93  N.  water  v.  Meredith,  1  Wall.  25,  39  (1863), 

Y.  609  (1883).     A  statutory  authority  to  where  the  court  says:  "In  conferring  the 

sell  a  business  to  a  company  has,  how-  authority,  the  legislature  never  intended 

ever,  been  held  not  to  authorize  a  sale  to  to   compel   a   dissenting   stockholder   to 

an  individual.     Bird  v.  Birds,  tfec,  Sew-  transfer  his  interest  because  a  majority 

age  Co.,  L.  R.  9  Ch.  358  (1874).     As  to  of  the  stockholders  consented  to  the  con- 

the  law  in  Illinois,  see  Ottawa,  Ac,  R.  R,  solidation.     Even  if  the  legislature  had 

Co.  V.  Black,  79  111.  262  (1S76).  manifested  an  obvious  purpose  to  do  so, 

710 


OH.  XL.] 


ULTRA  VIRES   ACTS,   <fec. 


[§  en. 


may  enjoin  a  consolidation  made  under  such  circumstances.  The? 
better  opinion  also  is  that  this  rule  prevails  even  though  the  leg- 
islature has  reserved  the  right  to  alter  or  amend  the  charter. 
The  reserved  right  is  to  make  amendments  for  the  benefit  of  the- 
public,  and  not  for  the  benefit  of  the  majority  as  opposed  to  the 
minority  of  the  stockholders.^  The  legislature,  corporation,  and 
majority,  however,  are  not  entirely  subject  to  the  will  of  dis- 
senting stockholders.  Under  the  power  of  eminent  domain  the- 
legislature  may,  in  a  statute  authorizing  consolidations,  leases,  or 
sales  of  railroads,  provide  therein  that  a  dissenting  stockholder's 
stock  shall  be  appraised  and  condemned,  thereby  removing  alS 
obstacles  to  the  proposed  act.  Such  a  condemnation  proceeding: 
is  legal  and  constitutional.^  But  a  statute  giving  autliority  to 
condemn  stock,  for  the  purpose  of  effecting  a  consolidation  af 
corporations,  is  no  authority  for  the  condemnation  where  O'uly  a 
lease  is  being  efiected ;  nor  have  the  courts  any  power  to  awardl 
damages  to  the  dissenting  stockholder,  and  then  take  from  hiuu 
his  stock.^ 

In  England  there  is  no  restriction  on  the  power  of  Parliament, 
to  amend  a  charter,  and  the  courts  will  not  enjoin  an  applicatiort 
to  Parliament  for  an  amendment,^  but  will  enjoin  any  use  of  cor- 
porate funds  to  aid  and  further  that  application.® 


tbe  act  would  have  been  illegal,  for  it 
would  have  impaired  the  obligation  of  a 
contract."  Mayor,  &c.,  of  Knoxville  v. 
Knoxville,  &c.,  R.  R.  Co.,  22  Fed.  Rep. 
758.  Where  also  the  stockholders  have 
unanimously  consented  to  a  lease  under 
such  a  statute,  the  terms  of  the  lease  can- 
not be  materially  changed  without  the 
unanimous  consent  of  the  stockholders. 
March  v.  Eastern  R.  R.  Co.,  43  N.  II.  515 
(1862);  8.  c,  40  N.  H.  548. 

'  See  J?  501.  Also  Buffalo,  <t'c.,  R.  R. 
Co.  V.  Dudley,  14  N.  Y.  3a6,  354  (1856). 

*  Black  V.  Delaware,  <fec..  Canal  Co., 
24  N.  J.  Kq.  465  (1673);  revg  22  N.  J. 
Eq.  130,  under  the  Act  of  17th  March, 
1870. 

a  Mills  V.  Central  R.  R.  Co.,  41  N.  J. 
Eq.  1  (1886). 

■•  Ileathcote  v.  North  Staffordshire 
Ry.  Co.,  2  McN.  <fe  G.  100.  See  also  Mc- 
Donnell V.  Grand  Canal  Co.,  3  Ir.  Ch. 
Rep.  N.  S.  578(1853). 

'  Simpson  v.  Denison,  10  Hare,  51 
(1852) ;  Maunsell  v.  Midland,  &c.,  Ry.  Co., 
6  Ilcm.  &  M.  130(1863);  Great  Western 
Ry.  Co.  V.  Rushout,  5  De  G.  &  Sni.  290 


(1852).  In  England  the  doctrine  has 
been  enounced  that  the  principle  that- 
the  majority  cannot  bind  the  minor- 
ity as  to  an  act  not  within  the  common 
contract  does  not  apply  "  to  corporate 
companies  for  a  public  undertaking,  in- 
volving public  interests  and  public  duties,, 
under  the  sanction  of  I'arliamcnt.  la 
such  cases  the  court  of  chancerj^  has  per- 
mitted the  use  of  the  corporate  seal  and 
the  moneys  of  the  company  to  obtain  the 
sanction  of  Parliament  to  purposes  ma- 
terially altering  the  interests  of  the  share- 
holders according  to  the  contract  inter  se. 
Stevens  v.  South  Devon.  Railway  Com- 
pany (13  Beav.  48).  .  .  .  There  caa 
be  no  doubt,  of  the  soundness  of  the  prin- 
ciple that  tlie  directors  and  the  majority 
of  a  company  may  be  restrained  from 
employing  monc}'  subscribed  for  one  pur- 
pose in  prosecution  of  another,  however 
advantageous.  Tiiat  is  a  general  prin- 
ciple founded  on  the  law  of  contract ;  birt, 
like  othergeneral  |irinciples,  it  is  subject- 
ed in  its  np[)lication  to  many  qualifica- 
tions." Ffooks  V.  Southwestern  Ry.  Co., 
1  Sm.  &  G.  142  (1853). 

711 


§§  672,  673.]  ULTRA  VIRES   ACTS,   «fec.  [CH.  XL. 

§  672.  Stocklwlder's  right  to  prevent  the  corporation  from 
undertaUng  a  new  business. — It  is  ultra  vires  of  a  corporation 
to  undertake  to  carry  on  a  business  whicli  is  not  fairly  within  the 
iscope  of  the  business  described  in  its  charter.  "When  such  an 
attempt  is  made  on  the  part  of  the  directors  or  a  majority  of  the 
stockholders,  a  dissenting  stockholder  may  insist  upon  the  cor- 
porate business  being  confined  to  the  limits  of  the  corporate 
charter,  and  he  may  enjoin  or  set  aside  any  acts  which  do  not 
conform  to  those  limits.  Thus,  a  corporation  formed  to  manu- 
facture iron  cannot  go  into  the  flour  and  mill  business,^  and  a 
railroad  company  cannot  improve  a  river,  although  it  has  power 
to  build  wharves.2  A  stockholder  in  a  plank  road  company  may 
•enjoin  his  company  from  running  a  stage  line  and  carrying  the 
mails,^  and  a  stockholder  in  a  railroad  company  may  enjoin  it 
from  subscribing  for  stock  in  another,  company.^  A  railroad 
•cannot  go  into  the  water  transportation  business  without  releas- 
ing all  dissenting  stockholders  from  their  subscription,^  nor  can  a 
life  insurance  company  extend  its  business  to  fire  and  marine  in- 
surance.® So  also  where  a  railroad  company  is  about  to  extend 
its  line  beyond  the  limits  fixed  by  the  charter,  a  dissenting  stock- 
holder may  enjoin  it  from  so  doing.'  But  a  reasonable  use  of  the 
profits  to  provide  additional  facilities  for  the  business  cannot  be 
(Objected  to  or  enjoined  by  a  minority  of  the  stockholders.^ 

§  673.  Traffic  arrangements  and  contracts.— At  an  early 
dav  it  was  decided  that  an  agreement  and  contract  of  two  com- 
panics  to  carry  on  business  in   common,  and  divide  the  profits  m 


«  Cherokee  Iron  Co.  v.  Jones,   52  Ga..  v.  Croswell,  5  Hill,  383  (1843),  per  Nelson, 

276  (1874).  C.  J. 

'^  Munt  V.  Shrewsbury,  &c.,  Ry.  Co.,  "^  Ashton  v.  Burbank,  2  Dill.  435. 

13  Beav.  1  (1850).  ■"  Bagshaw  v.  Eastern  Union  Ry.  Co., 

3"Wiswall    V.   Greenville,   <fec.,  R.    R.  7   Hare,  114  (1849).     Even   though  the 

Co.,  3  Jones' Eq.  (N.  C.)  183  (1857).  extension  be  authorized  by   an    amend- 

'^  Mannuell  v.  Midland,  &c.,  Ry.  Co.,  ment.     See  Stevens   v.   Rutland,  &c.,  R. 

1    Hem.    &   M.    130   (1863);    or  buying  R.  Co.,  29  Vt.  545  (1851). 

stocks,  Central  R.    R.  Co.  v.  Collins.   40  »  Pratt  v.  Pratt,   S3  Conn.  446  (1866), 

Oa.  532  (1869);  Salomons   y.  Laing,   12  the  court  saying :   "  On  a  question  of  this 

Beav.    339    (1849).     See    Chapters    IV,  sort  much  must  necessarily  be  left  to  the 

XIX,    <fec.,   and    there  are   many  other  discretion  of  the  managing  directors,  and 

(Bimil'ar  acts  which   are  tiltra  vires  acts,  so  long  as  they  keep  within  the  objects 

.and  which  the  stockholders  may  enjoin,  contemplated   by  the  articles  of  associa- 

They  have   been  treated  and  explained  tion,  and  the  expenditure  is  not  nnreason- 

in   the   various  chapters    of  this   work,  able  in   reference  to  the  amount  of  their 

tmder  appropriate  headings,  q.  v.  capital,   a   court   of  equity   ought    very 

^  Hartford  &  New  Haven  R.   R.   Co.  seldom  to  interfere  with  them." 

712 


CH.  XL.] 


ULTRA   VIRES   ACTS,   Ac, 


674. 


a  certain  proportion  was  ultra  vires  and  illegal,  and  could  be  en- 
joined by  a  single  stockholder  of  either  corporation.^  But  this 
rule  has  been  doubted  and  weakened  in  England  by  subsequent 
decisions.^  It  has  been  held  that  a  stockholder  may  enjoin  action 
under  a  contract  whereby  his  corporation  allows  another  to  lay 
rails  and  do  business  over  the  former  company's  right  of  way.^ 
In  this  country  the  question  does  not  seem  to  have  yet  been  fairly 
raised  by  a  dissenting  stockholder.*  In  Minnesota  it  has  been 
held  that  traffic  arrangements  between  two  railroads  are  not 
ultra  vires  and  illegal  as  a  matter  of  law,  but  that  the  question  is 
a  mixed  one  of  law  and  fact.  A  stockholder  who  objects  must 
brine:  suit  within  a  reasonable  time  or  he  will  be  denied  relief.^ 

§  G74.  Giving  away  or  misapplying  corporate  funds. — It 

is  ultra  vires  and  illegal  for  the  board  of  directors  to  donate  the 
funds  of  the  corporation  to  charitable  or  public  purposes,  or  to 
aid  corporations  of  a  similar  character,  however  praiseworthy  the 
purpose  of  the  donation  may  be.®  Nor  can  the  directors  legally 
use  the  funds  of  the  corporation  to  induce  promoters  to  abandon 
a  proposed  rival  company.''     A  stockholder  may  enjoin  the  direc- 


'  Charlton  v,  Newcastle,  <fec.,  Ry.  Co., 
5  Jur.  N.  S.  1096  (1859). 

^  See  Hare  v.  London,  (fee.,  Ry.  Co.,  2 
J.  &  H.  80;  1  Id.  252  (I860);  Hodgson 
V.  Earl  Powis,  1  De  G.,  M.  &  G.  6  ;  Lan- 
caster, &c.,  Ry.  Co.  V.  North  Western 
Ry.  Co.,  2  K.  &  J.  293  ;  Shrewsbury,  Ac., 
Ry.  Co.  V.  North  Western  Ry.  Co.,  4  De 
,G.,  M.  &  G.  115.  In  1846,  the  court  in 
Colman  v.  Eastern  Countries  Railway 
CoTnpany  (10  Beav.  I),  well  said,  "  Com- 
panies of  this  kind,  possessing  most  ex- 
tensive powers,  have  so  recently  been  in- 
troduced into  this  country,  that  neither 
the  legislature  nor  courts  of  justice  have 
been  yet  able  to  understand  all  the  dif- 
ferent lights  in  which  their  transactions 
ought  [)roperly  to  be  viewed.  We 
must,  however,  adhere  to  ancient  general 
and  setth  d  principles,  so  far  as  they  can 
be  applid']  to  great  combinations  and 
companies  of  this  kind.  .  .  .  It  has  been 
very  prop!  rly  admitted  that  railway  com- 
panies ha^3  no  right  to  enter  into  new 
trades  or  businesses  not  pointed  out  by 
their  acts;  but  it  has  been  contended 
that  they  have  a  right  to  pledge  without 
limit  tlie  funds  of  the  comjiany  for  the 
encouragement  of  otlier  transactions,  how- 
ever various  and  extensive,  provided  the 


object  of  that  liability  is  to  increase  the 
traffic  upon  the  railway,  and  thereby  to 
increase  the  profit  to  the  shareholders. 
There  is,  however,  no  authority  for  any 
thing  of  that  kind."  And  the  court  lield 
that  a  stockholder  might  enjoin  his  cor- 
poration from  guaranteeing  certain  pro- 
fits to  another  company. 

^  Beman  v.  Rufford,  6  Eng.  L.  &  Eq. 
106  (1851),  the  court  saying,  "  I  will  not 
allow  any  speculation  that  it  would  be 
more  advantageous  to  do  something 
which  the  Act  of  Parliament  does  not 
authorize  to  be  done." 

••  Morrill  v.  Boston,  <fec.,  R.  R.  Co.,  55 
N.  II.  531,  seems  to  have  been  under  a 
statute.  In  New  Jersey,  pooling  arrange- 
ments seem  to  bo  considered  lawful.  Sus- 
sex R.  R.  Co.  V.  Morris,  Ac,  R.  R.  Co., 
19  N.  J.  Eq.  13.  Cf.  Hartford,  &c.,  R. 
R.  Co.  V.  N.  Y.,  &c!,  R.  R.  Co.,  3  Robl. 
(N.  Y.)411. 

''  Stewart  v.  Erie,  &c.,  Trans.  Co.,  17 
Minn.  372  (1871). 

'■  Polar  Star  Lodge  v.  Polar  Star 
Lodge,  13  La.  Ann.  53  (1861);  Ward  v 
Davidson,  1  .Southwest.  Rep.  846  (Mo. 
1886). 

^  Russell  V.  Walicfield  WuUn-works 
Co.  L.  R.,  20  Eq.  471  (1875),  holding  also 

713 


§  675.]  ULTRA   VIRES   ACTS,    &c.  [CH.  XL. 

tors  from  making  free  of  tolls,  a  bridge  from  which  the  corpora- 
tion derives  its  income.^  The  directors  may  be  held  liable  for 
allowing  the  president  to  use  the  corporate  funds  for  lobbying 
purposes.^  An  unreasonable  use  of  the  corporate  profits  of  a 
leased  railroad  to  build  up  and  improve  the  lessor  railroad,  with- 
out reference  to  the  rights  of  the  former,  has  been  held  to  be 
good  cause  of  complaint  on  the  part  of  a  stockholder  in  the  leased 
railroad  company.^  And,  in  general,  any  misapplication  or  waste 
of  the  property  of  a  corporation  may  be  remedied  by  a  member 
thereof.* 

§  675.  Miscellaneous  ultra  vires  acts. — It  has  been  a  difficult 
question  whether  a  change  of  the  location  or  route  of  a  railroad 
company  by  the  directors  or  the  majority  of  the  stockholders  is  an 
ultra  vires  act  which  a  stockholder  may  complain  of.  The  pre- 
vailing opinion  seems  to  be  that  it  is  ultra  vires  if  the  change  is  a 
material  one.^  And  there  are  many  other  acts,  which  the  stockhold- 
ers may  remedy,  as  being  ultra  vires.  Any  act  of  the  corporation 
that  will  render  the  charter  liable  to  forfeiture,  or  leavy  fines  and 
penalties,  may  be  enjoined  by  a  stockholder.^  But  a  stockholder 
cannot  prevent  the  corporation  from  applying  to  one  purpose 
moneys  raised  for  another  purpose.'  Nor  can  he  compel  a  cessa- 
tion of  work  by  the  corporation,  merely  because  it  has  not  com- 
pleted its  hue  within  the  time  prescribed  by  the  charter.^  Nor 
can  he  prevent  a  reasonable  application  of  the  profits  of  the  com- 
pany to  an  extension  of  the  business.^  But  he  may  enjoin  the 
organization  of  tlie  company,  when  it  is  about  to  be  made  by  a, 
fraud  on  the  law  and  on  the  State.^"     And  it  has  been  held  that 

that  the  promoters  may  be  made  parties  ^  March  v.  Eastern   R.  R.  Co.,  43  N. 

defendant,  and  be  compelled  to  refund  the  H.  515  ( 1 862  j ;  s.  c.  40  N.  H.  548. 
QjQnev  *  Armstrong    v.    Church   Society,    13 

1  fekst  Rome,  &c.,  Co.  v.   Nagle,   58  Grant  Ch.  (U.  C.)  552  (1867). 

Ga.  474  (1877).  ""  See  §§  187,  429,  500  ;  Board,  &c.,  of 

2  Shea  V.  Mabry,  1  Lea  (Tenn.),  319     Tippecanoe  Co.  v.  Lafayette,  &c.,  R.   R. 
(1878),  and  the  case  York,  Ac,  Ry.  Co.  v.     Co.,  50  Ind.  85  (1875). 

Hudson,   16   Beav.    485   (1853),    held   a  «    Bliss    v.    Anderson,   31    Ala.    612 

director   liable    to    the    corporation     for  (1858). 

money  used  for  "  secret  service  "  purposes.  ''  Yetts  v.  Norfolk  Ry.  Co.,  3  De  G.  A 

The  court  said,    "If  the  defendant   has  Sm.  293  (1849). 

applied  the  property  of  the  company  in  a  ^  Ffooks  v.  South.  Ac,  Ry.  Co.,  1  Sm. 

manner  which  will  not  bear  the  light,  and  <fe  G.  (1853). 

for  purposes  which  cannot,  with  propriety,  »  See  §  541. 

be  stated  even  to  the  shareholders  of  the  '"  Cass   v.    Ottawa,  &c.,  Ins.   Co.,   22 

company,  and  which  purposes  have  not  Grant   (U.  C),   512   (1875),   the   capital 

been  distinctly  sanctioned  by  them,  the  stock  not  having  been  paid  in  as  certified 

defendant  must  bear  the  consequences."  in  the  certificate. 

714 


CH.  XL.]  ULTRA  VIRES   ACTS,  <fec.  [§  676. 

he  may  enjoin  the  company  from  proceeding  to  build  a  part  only 
of  the  hne  of  railroad  prescribed  by  the  charter.^  It  has  been  held 
that  a  stockholder  in  a  hotel  company  cannot  enjoin  the  mana- 
gers from  leasing  a  part  of  the  property  for  other  purposes,  there 
being  sufficient  accommodation  left  for  the  hotel.^  But  a  single 
stockholder  in  a  railroad  corporation  may  enjoin  it  from  building 
another  line  which  it  has  no  charter  power  to  build .^  The  stock- 
holder may  enjoin  any  act  on  the  part  of  the  State  which  is  in 
violation  of  the  charter  which  it  granted  to  the  corporation.  It 
was  to  enjoin  a  tax  by  the  State  under  such  circumstances  that 
the  case  of  Dodge  v.  Woolsey*  arose.  An  injunction  will  also  be 
granted  at  the  instance  of  a  stockholder  to  prevent  the  corpora- 
tion from  giving  a  mortgage  which  would  be  ultra  vires.^  And 
it  has  been  held  that  a  stockholder  may  enjoin  his  corporation 
from  paying  money  to  a  rival  company  to  induce  the  latter  to  dis- 
continue business.^ 

B.— A  Stockholder  cannot  remedy  through  the 
Courts,  any  acts  intra  vires  of  the  Directors, 
or  a  majority  of  the  Stockholders,  since  they 
are  matters  of  internal  management. 

§  676.  Intra  vires  acts  as  distinguished  from  ultra  vires: 
acts. — An  ultra  vires  act,  as  already  explained,  is  an  act  beyond 
the  express  and  implied  powers  of  the  corporation.  An  intra  vires 
act,  on  the  contrary,  is  one  which  is  within  the  express  or  implied 
powers,  either  of  the  board  of  directors  or  of  the  majority  of  the 
stockholders  in  meeting  assembled.  The  intra  vires  acts  are  fre- 
quently spoken  of  as  matters  concerning  the  "  internal  manage- 
ment" of  the  corporation.  Much  confusion  has  arisen  concerning 
these  acts,  owing  to  a  failure  to  recognize  clearly  the  fact  that  an 
act  is  intra  vires  of  a  corporation,  if  it  can  legally  be  carried  out 
either  by  the  directors  or  by  the  majority  of  the  stockholders. 
Thus,  a  stockholder  frequently  brings  suit  to  enjoin  or  set  aside 
an  act  which  the  majority  have  power  to  do,  but  which  the  direc- 
tors have  done  without  power.     It  is  clear  that  a  dissenting  stock- 

>  Cohen  v.  Wilkinson,  1  Mac.  &  G.  481  MR  IIow.  3.31  (185.')). 

(1849).  '  McCaliiioiit  v.  Pliil.  <fec.,  R.  R.  Co,,  3 

•^  Simpson  v.  WcstminBtcr,  &c.,  H.  Co.,  Am.  <fe  Eng.  R.  R.  Cas.   163  (U.  S.  C.  C. 

8  H.  L.  C.  712(1860).  1881). 

3  Ba^rsliaw   v.  Eastern  Union  Ry.  Co.,  *  Leslie   v.    Lorillartl,    40    lluii,   392 

7  Hare,  114(1849).  (1880). 

715 


§676.]- 


ULTRA   VIRES  ACTS,   &c. 


[CH, 


XL. 


holder  has  no  right  to  carry  such  a  matter  into  the  courts,  unless 
the  majority  are  with  him,  since  if  the  majority  approve  of  the 
directors'  acts,  this  amounts  to  a  ratification  of  the  same. 

In  short  there  are  three  classes  of  corporate  acts  herein.  First, 
the  stockholder  may  bring  suit  to  remedy  an  act  which  is  ultra 
vires  or  beyond  the  powers  of  both  the  majority  of  the  stockholders 
and  of  the  directors.  Second,  as  to  acts  within  the  power  of  the 
majority,  but  beyond  the  power  of  the  directors,  a  stockholder 
may  sue  to  enjoin  or  set  them  aside,  when  the  directors  have 
performed  them  and  the  majority  refuse  to  confirm  their  action.^ 
As  to  such  acts,  the  stockholder  cannot  sue,  if  the  majority  con- 
:firm  the  directors  in  their  performance.  Third,  as  to  acts  within 
the  powers  of  the  directors  and  performed  by  them  or  within  the 
powers  of  the  majority,  and  performed  by  the  majority,  the  stock- 
holders cannot  complain  that  they  are  ultra  vires.  The  second 
and  third  classes  of  acts  are  intra  vires  of  the  corporation.  They 
are  matters  of  internal  arrangement  or  management,  and  cannot 
be  controlled  or  objected  to  by  a  single  stockholder.^   The  question 


•  Exeter  &  C.  Ry.  Co.  v.  Buller,  11 
Jur.,  Part  I,  527,  532  (1847),  holding 
also  that  where  such  an  action  has  been 
instituted,  it  will  not  be  defeated  by  the 
fact  that  subsequently  the  directors  ob- 
tain control  of  a  majority  of  the  votes. 
But  there  must  be  clear  proof  that  the 
majority  refuse  to  confirm.  Thus  in  Bag- 
shaw  V.  Eastern  Union  Ry.  Co.,  7  Hare, 
114  (1849),  the  court  says  that  Foss  v. 
Harbottle,  2  Hare,  495,  decides  "that 
if  the  act,  though  it  be  the  act  of  the 
directors  only,  be  one  which  a  general 
meeting  of  the  company  could  sanc- 
tion, a  bill  by  some  of  the  shareholders 
on  behalf  of  themselves  and  others,  to 
impeach  that  act,  cannot  be  sustained,  be- 
cause a  general  meeting  of  the  company 
might  immediately  confirm  and  give  va- 
lidity to  the  act  of  which  the  bill  com- 
plains." See  also  McDougall  v.  Gardiner, 
L.  R.,  1  Ch.  D.  13  (1875). 

^  Thus  in  Bloxam  71.  Metropolitan  Ry. 
Co.,  L.  R.,  3  Ch.  337  (1868),  the  court 
says:  "  The  matters  of  internal  nrrange- 
ment  which  are  beyond  the  province  of 
the  court  were  properly  admitted  to  be 
such  as  are  within  the  scope  of  the  com- 
pany's powers."  And  in  Camblos  v.  Phil. 
&  R.  R.  R.  Co.,  4  Brews.  663  (U.  S.  C. 
Ct.,  1873),  the  court  said:  "So  long  as 
those  who  manage  the  corporation  keep 

716 


within  the  limits  of  their  charter,  and 
commit,  or  propose  to  commit,  no  breach 
of  their  trust,  he  has  no  right  to  com- 
plain." In  the  case  Becher  v.  Wells,  (fee, 
Co.,  1  Fed.  Rep.  276  (1880),  it  was  said: 
"  A  court  of  equity  will  not  interfere  with 
the  internal  policy  of  a  corporation  unless 
it  is  manifest  that  the  proposed  act  is 
ultra  vires."  In  Bach  v.  Pacific,  &c.,  Co., 
12  Abb.  Pr.  (N.  S.)  373  (1872),  the  court 
said:  "No  case  can  be  found  where  the 
general  management  of  corporate  prop- 
erty has  been  subject  to  the  restrictions 
of  judicial  power,  unless,  indeed,  in  the 
case  of  a  clear  violation  of  express  law; 
or  a  wide  departure  from  chartered  pow- 
ers." In  this  case  the  stockholder  ob- 
jected to  tlie  securities  in  which  the  cor- 
porate funds  were  being  invested.  In 
Walker  v.  Mad  River,  &c.,  Ry.  Co.,  8  0. 
38  (1837),  it  was  said  by  the  court: 
"When  acts  requiring  judgment,  science, 
and  professional  skill  are  confided  to  the 
discretion  of  the  officers  of  a  corporation 
the  exercise  of  that  discretion  will  not  be 
lightly  disturbed."  In  Tuscaloosa  Mfg. 
Co.  V.  Cox,  68  Ala.  71  (1880),  the  court 
said :  "  To  allow  a  dissatisfied  minority 
to  arraign  the  directors  before  the  courts 
of  the  country,  whenever  in  the  opinion 
of  such  minority  a  wiser  or  better  policy 
could  have  been  pursued,  would  practi- 


CH.  XL.]  ULTRA   VIRES   ACTS,   <fec.  [§  677. 

of  what  intra  vires  acts  are  to  be  performed  "by  the  directors, 
and  what  ones  can  be  exercised  only  by  the  majority  of  the  stock- 
holders in  meeting  assembled,  has  been  considered  elsewhere.^ 

§  677.  Tlie  discretion  of  the  directors  or  the  majority  of  the 
stockholders  as  to  acts  intra  vires,  cannot  he  questioned  hy  the 
courts,  unless  fraud  is  involved. — This  proposition  of  law  is 
clearly,  firmly,  and  very  properly  established  beyond  any  ques- 
tion. Were  the  rule  otherwise,  there  would  be  no  safety  or 
possibility  of  carrying  on  business  through  corporations.  There 
would  be  suits  instituted  by  dissatisfied  stockholders  on  slight 
provocation  and  sometimes  for  the  very  purpose  of  embarrassing 
the  transaction  of  business.  A  partner  in  a  copartnership  may 
prevent  action  which  he  disapproves,  but  corporations  are  formed 
very  largely  to  avoid  that  very  danger  and  disadvantage.  The 
corporate  directors,  so  long  as  they  act  within  their  powers  may 
use  their  own  discretion  as  to  what  ought  to  be  done.  Such  also 
is  the  rule  with  the  majority  of  the  stockholders  in  meeting  as- 
sembled. An  act  intra  vires  and  without  fraud  is  an  act  of 
internal  management,  and  a  minority  of  the  stockholders  are 
powerless  to  prevent,  control,  change,  or  question  that  act.  Thus 
a  stockholder  has  no  remedy  for  the  mere  inefiiciency  of  a  direc- 
tor, except  at  the  elections  of  the  corporation.  Having  once  been 
elected,  a  director  is  entitled  to  retain  his  position  even  though 
he  be  grossly  inefficient,  provided  he  is  not  guilty  of  fraud  or 
ultra  vires  acts.^  But  where  there  are  violent  internal  dissen- 
sions in  a  corporation,  and  two  sets  of  officers  are  attempting  to 


cally  put  an  end  to  the  benefits  claimed  merely  misjudge  in  the  performance  of 
to  result  from  associated  capital.  .  .  .  their  duties,  the  remedy  of  stockholders 
If  it  be  supposed  an  unwise  course  is  is  to  elect  other  persons  directors  in  their 
being  pursued,  or  that  the  interests  of  places."  In  Bailey  v.  Birkeniicad,  tfec, 
the  corporation  are  suffering  or  likely  to  Ky.  Co.,  12  Beav.  433  (1849),  where  a 
suffer  through  the  inefficiency  or  faith-  stockholder  sought  to  restrain  a  call  as 
lessness  of  an  official,  an  appeal  should  being  unnecessary,  the  court  refused  to 
first  be  made  to  the  directory  or  govern-  entertain  the  suit  and  said  that  it  was  not 
ing  body,  to  redress  the  grievance.  Fail-  for  the  court  "to  take  upon  ilself  to  de- 
ing  there,  in  ordinary  cases  the  next  re-  terrnine  a  (juestion,  wliich  initiht  well 
dress  will  be  found  in  the  power  of  the  and  ought  to  be  determined  by  tiie  share- 
ballot,  which  usually  comes  into  exercise  holders  themselves  at  general  meetings." 
at  short  intervals,"  and  in  Ramsey  v.  See  also  Edwards  v.  Shrewsbury,  <fec., 
Erie  Ry.  Co.,  7  Abb.  Pr.  (N.  S. )  156  Ry.  Co.,  2  Do  0.  A  Sm.  537  (1848). 
(18G9),  itis  said:  "When  directors  arc  '  See  ^§621-027. 
only  unwise  or  merely  extravagant  or  '  See  (iormnn  v.  Guardian  Sav.  Bk., 
improvident,    or    slightly   negligent,   or  4  Mo.  App.  180  (1877). 

717 


§  6Y8.]  ULTRA  VIRES   ACTS,  &c.  [CH.  XL. 

act,  and  the  corporate  property  is  endangered,  a  court  of  equity 
will  interfere  to  the  extent  of  preserving  the  corporate  property 
by  a  temporary  receiver.^  A  court  of  equity  cannot,  however, 
restrain  the  corporation  from  proceeding  with  business  and  using 
its  funds  for  that  purpose,  even  though  a  minority  of  the  stock- 
holders can  show  that  sound  business  discretion  and  judgment 
would  dictate  a  different  policy.^ 

§  678.  The  discretion  of  the  directors  in  refusing  to  in- 
stitute or  to  defend  an  action  involving  corporate  interests  is 
not  generally  interfered  ivith.—lt  frequently  happens,  that  the 
corporation  has  a  cause  of  action  against  a  third  party  which  the 
directors  think  best  not  to  press,  or  that  the  corporation  is  sued 
and  the  directors  think  best  not  to  defend,  or  where  an  action 
is  pending,  the  directors  decide  to  compromise  the  matter. 
The  judgment  of  the  directors  may,  in  the  opinion  of  a  stock- 
holder, be  erroneous,  and  yet  it  cannot  be  controlled  or  changed 
by  the  stockholders  except  by  refusing  to  re-elect  the  directors 
to  office.  The  stockholder  cannot  go  into  court  and  attempt  to 
change  the  policy  of  the  directors  as  regards  the  management  of 
the  suit.-''  In  general,  a  corporation  represents  and  binds  the 
shareowners  in  bringing  and  defending  suits  which  involve  the 
rights  and  obligations  of  the  corporation,  and  binds  them  as  fully 
as  in  the  making  of  contracts.* 

■  Trade  Auxiliary  Co.  v.  Vickens,  L.  rectors;  there  may  be  claims  against  of- 

R.,   16  Eq.    303   (1873);  Featherston  v.  ficers;  there  may  be  claims  against  debt- 

Cooke,  Id.  298,  the  court  saying :  "  The  ors;  there  may  be  a  variety  of  things 

court  will  not  interfere  with  the  internal  which  a  company  may  well  be  entitled 

aflfairs  of   joint-stock   companies   unless  to  complain  of,  but  which,  as  a  matter  of 

they  are  in  a  condition  in  which  there  is  good  sense,  they  do  not  think  it  right  to 

no  properly  constituted  governing  body,  make  the  subject  of  litigation,  and  it  is 

or  there  are  such  dissensions  in  the  gov-  the  company,  as  a  company,  which  has 

erning  body  that  it  is  impossible  to  carry  to  determine  whetlier  it  will  make  any- 

on  the  business  with  advantage  to  the  thing  that  is  wrong  to  the  company,  a 

parties  interested.     In  such  a  case  the  subject-matter  of  litigation,  or  whether  it 

court  will  interfere,  but  only  for  a  lim-  will  take  steps  itself  to  prevent  the  wrong 

ited  time,  and  to  as  small  an  extent  as  from  being  done.     MacDougall  v.  Gardi- 

possible."     See  also  Lawrence  v.  Green-  ner,  L.  R.,  1  Ch.  D.  13  (1875). 
wich,  &c.,  Co.,  1  Paige,  587  (1829).  •»  Farnura  v.  Ballard,   &c.,   Shop,    12 

•■'  Fountain  Ferry,  &c.,  Co.  v.  Jewell,  Cush.  507  (1853);  Oglesby  i'.  Altrill,  105 

SB    Mour.   (Ky.)  140  (1847),  the  court  U.S.   605  (1881);  Came  tf.  Brigham,  39 


by 

tors."  Rep.  753  (1883). 

3  "There  maybe  claims  against  di- 

718 


CH.  XL.] 


ULTRA  VIRES  ACTS,   «fec. 


[§  678. 


Tims  it  is  not  for  the  stockholder  to  institute  a  suit  for  a 
trespass  against  the  corporate  property  ;  ^  nor  can  he  take  out  an 
appeal  or  certm^ari  which  the  corporation  does  not  take  out ;  ^ 
nor  bring  an  action  against  other  corporate  agents  for  injury  and 
loss  to  the  corporation.^  The  great  case  of  Dodge  v.  Wool- 
sey/  however,  was  on  the  very  point  now  under  discussion,  and 
it  was  decided  under  the  facts  of  that  case,  where  the  corporation 
refused  to  defend  itself  agaiust  an  illegal  tax,  that  a  stockholder 
of  the  corporation  might  do  that  which  the  corporation  should 
have  done.^  It  is  within  the  power  of  the  directors  to  compro- 
mise a  pending  law  suit  by  or  against  the  corporation,  and  a 
stockholder  cannot  control  the  directors'  decision.^ 

It  has  been  held,  however,  that  a  stockholder  may  bring 
suit  on  behalf  of  the  corporation,  to  remove  a  cloud  from  the  cor- 
porate title  to  real  estate,''  and  that  a  stockholder  may  sue  for 
the  corporation  to  compel  delinquent  stockholders  to  pay  in  their 
unpaid  subscriptions.^  In  one  case  it  has  been  held  that,  where 
there  is  a  controversy  among  the  stockholders  as  to  how  many 
directors  one  of  the  stockholders,  a  municipality,  is  entitled  to,  a 
stockholder  may  file  a  bill  to  settle  it,  since  the  corporation  is  not 
bound  to  decide  or  test  the  matter.^ 

The  rule  which  ordinarily  prevents  a  stockholder  from  insti- 
tuting or  defending  a  suit  against  third  persons  herein,  is  clearly 


1  Dale  V.  Grant,  34  L.  J.  142  (1870). 

2  Silk  Mfg.  Co.  V.  Campbell,  27  N.  J. 
L.  539(1859). 

^  Forbes  v.  Whitlock,  3  Edw.  Ch.  446 
(1841). 

■•  18  How.  331  (1855),  where  the  court 
said  :  "  Now,  in  our  view,  the  refusal  upon 
the  part  of  the  directors,  by  their  own 
showing,  partakes  more  of  disregard  of 
duty,  than  of  an  error  of  judgment.  It  was 
a  nonperformance  of  a  confessed  official 
obligation,  amounting  to  what  the  law 
considers  a  breach  of  trust,  though  it 
may  not  involve  intentional  moral  de- 
linquency." See  also  Memphis,  Ac,  Ho. 
V.  Williamson,  9  Ileisk.  (Tenn.)  314  (1872), 
where  suit  was  brought  on  the  bond  which 
the  plaintiff  in  Memphis  City  v.  Dean  (8 
Wall.  73),  gave  in  obtaining  an  injunc- 
tion. 

"  See  also  Park  v.  Petroleum  Co.,  25 
W.  Va.  108  (1884);  Id.,  20  Id.  4SC,  (1885). 

'"It  cannot  be  contended  that  the 
directors  of  a  corporation  do  not  possess 


authority,  acting  in  good  faith,  and  in 
the  exercise  of  their  best  judgment,  to 
settle  a  pending  action,  or  that  the  settle- 
ment is  not  binding  on  their  stockhold- 
ers, even  though  it  may  subsequently 
appear  that  they  failed  to  secure  the  best 
terms  to  which  the  corporation  might 
have  been  entitled."  Doiiohue  v.  Mari- 
posa, Ac,  Co.,  «0  Cal.  317  (1885).  See 
also  Shawhan  v.  Zinn,  79  Ky.  300  (1881). 

■I  Baldwin  v.  Canfield,  20  Minn.  43,  56 
(1879). 

"  Wallworth  v.  Holt,  4  Mylne  <fe  C. 
619  (1840),  the  Lord  Chancellor  saying: 
"  I  think  it  the  duty  of  this  court  to  adapt 
its  practice!  an<l  course  of  jiroceodinij:  to 
the  existing  state  of  society,  and  not  by 
too  strict  an  adherence  to  forms  and  rules, 
established  under  different  circumstancea, 
to  decline  to  administer  justice,  and  to 
enforce  rights  for  which  there  is  no  other 
remedy." 

'•'  City  of  Wheeling  v.  Mayor  of  Balti- 
more, &c.,  1  Hughes,  90  (1862). 

719 


§  679.]  ULTRA   VIRES    ACTS,    .fee.  [CH.  XL. 

to  be  distinguished  from  all  other  classes  of  actions  treated  of  in 
the  fourth  part  of  this  work.  The  actions  now  bein^  considered 
are  those  which  exist  for  or  against  the  corporation  in  a  multi- 
tude of  cases,  and  which  are  of  daily  occurrence  to  all  great  cor- 
porations. They  are  actions  not  involving  frauds  or  ultra  vires 
acts  of  the  directors,  but  involve,  at  the  most,  only  a  neglect  of 
the  directors  to  begin  or  defend  suits. 

There  is  a  class  of  cases  which  are  midway  between  these 
two  classes.  This  third  class  involves  both  a  neglect  of  the  direc- 
tors to  defend  a  suit  against  the  corporation,  and  they  involve 
the  further  fact  that  the  defense  is  not  made  on  account  of  the 
fraud  and  collusion  of  the  directors  with  the  complainants  in  the 
suit.  This  generally  happens  in  foreclosures  of  mortgages  on  the 
property  of  the  corporation,  a  subject  which  has  already  been 
treated.^ 

C— Stockholders'  Actions  to  Hold  the  Directors 
Liable  for  Negligence  in  the  Discharge  of 
Their   Duties. 

§  679.  Remedy  of  the  stockholder  herein. — Where,  by  reason 
of  the  negligence  of  the  directors  or  other  officers,  the  corporate 
funds,  property,  or  rights,  have  been  lost,  the  injury  is  practi- 
cally and  ultimately  an  injury  to  the  stockholders.  But,  in  the 
eye  of  the  law,  the  injury  is  to  the  corporation  itself.  The  loss 
has  depleted  its  treasury,  just  as  a  profit  from  the  business 
would  be  for  the  benefit  of  that  treasury.  Moreover,  the  negli- 
gent act  was  in  reference  to  the  affairs  of  the  corporation,  and 
was  an  injury  to  the  corporation.  Accordingly,  it  is  for  the  cor- 
poration to  call  the  directors  to  an  account  for  their  negligence. 
The  action  is  not  an  action  which  the  stockholder  is  to  bring. 
The  negligence  afi'ects  him,  not  directly  but  indirectly,  by  the  in- 
jury to  the  corporation.  Hence,  the  law  is  well  settled  that  a 
stockholder  cannot  bring  the  ordinary  action  at  law  for  damages 
against  the  corporate  directors  for  their  negligence  in  the  man- 
agement of  the  corporate  afi^airs.^     It  is  clear  also  that  the  stock- 


'  See  §  659,  supra.  sance,  is  not  an  injury  to  such   separate 
^  The  leading  case  on  this  point    is  interest,  but  to  the  whole  body  of  stock- 
Smith  V.  Hurd,  53  Mass.  371  (1847),  the  holders    in    common."     Brinckerhoff  v. 
court  saying:  "An  injury  done  to  the  Bostwick,  88  N.  Y,  62  (1882),  where  the 
stock  and  capital,  by  negligence  or  defea-  court  say :  "  The  cause  of  action  set  forth 

720 


CH.  XL.]  ULTRA  VIRES    ACTS,   <fec.  [§  680. 

holder  cannot  hold  the  corporation  itself  liable  for  the  negligence 
herein  of  its  directors.  To  allow  such  an  action  would  be  to  make 
part  of  the  stockholders  liable  to  other  stockliolders  for  the  loss, 
when  all  are  equally  injured,  equally  innocent,  and  equally  in  po- 
sition to  complain.^  Ordinarily,  the  remedy  for  the  negligence  of 
corporate  directors  in  the  management  of  the  corporate  affairs,  is 
an  action  at  law  instituted  by  the  corporation  itself.  If,  however, 
the  corporation  is  under  the  control  of  the  guilty  parties,  or  if  it 
refuses  to  sue,  when  requested  by  a  stockholder  to  do  so,  then  tiie 
stockholder  himself  may  bring  a  suit  in  equity,  in  his  own  behalf, 
and  in  behalf  of  all  other  stockholders  who  may  wish  to  come  in, 
making  the  corporation,  and  the  guilty  parties,  the  defendants, 
and  compel  them  to  make  good  to  the  corporation  the  corporate 
money  or  property  lost  by  their  negligence.  The  money  or 
property  recovered  in  such  an  action  belongs  to  the  corporation, 
and  not  to  the  stockholder  who  brings  the  suit.^  In  a  stockholder's 
suit  to  hold  the  directors  liable  for  negligence,  the  acts  of  negli- 
gence need  not  be  set  out  with  great  particularity.  The  suit  is  in 
a  court  of  equity,  and  the  court  decides  the  questions  of  fact, 
since  the  suit  is  in  the  nature  of  an  accounting.^ 

§  680.  Instances  of  negligence  of  directors  in  tlie  perform^ 
ance  of  tlieir  duties. — It  is  difficult  to  lay  down  any  rules  as  to 
what  acts  will  constitute  negligence  on  the  part  of  corporate  offi- 
cers. Each  case  is  to  be  determined  largely  on  its  own  facts. 
Thus,  where  the  directors  kept  no  accounts,  paid  no  calls,  collect- 


in  the  complaint  are  losses  and  misappli-  corery  of  damages  for  the  plaintiff  indi- 
cation of  the  funds  of  the  bank  through  vidually,  the  case  stated  not  entitling 
the  negligence  and  misconduct  of  its  di-  him  to  such  a  recovery."  Evans  v. 
rectors.  For  these  losses  the  bank,  if  Brandon,  53  Texas,  56  (TSSO);  Kent  v. 
still  exorcising  its  corporate  functions,  Jackson,  2  De  (x.,  M.  &  G.  49  (1852). 
v.ould  have  a  claim  upon  the  guilty  di-  '  Oliphant  v,  Woodburn,  <tc.  Co.,  63 
rectors  which  it  could  enforce  by  action  ;  Iov»ra,  ;:i32  (1884). 

but  if  it  refused  to  ])rosecute,  or  if  it  still  '  Evans  v.  Brandon,  supra  ;  Dewing 
remained  tinder  the  control  of  the  very  v.  Pcrdicaris,  90  U.  S.  193,  198  (IS?*?); 
directors  against  whom  the  action  should  Siriitii  r.  I'oor,  40  Me.  415  (1855);  Car- 
be  brought,  the  stockholders  would  have  ter  v.  Ford,  <fec.  Co.,  85  Ind.  180  (1882). 
a  standing  in  a  court  of  equity  to  sue  in  '  Halsey  v.  Ackcimar.,  38  N.  J.  Eq] 
their  own  names,  making  the  corpora-  501  (18H4)",  affi'g  10  Stew.  Eq.  356.  This 
tion  a  party  defendant."  See  also  Craig  case  holds  also  that  the  stockholder's  ac- 
V.  Gre;,'g,  83  Penn.  St.  19  (1876).  To  tion  lies,  oven  alter  the  corporation  has 
same  effect,  Allen  ti.  Curtis,  26  (,'onn.  456  become  insulvcnl.  See  also  Smith  v 
(1857).  "  A  fatal  defiot  in  the  plnintifrs  Poor,  3  Ware  (IJ.  S.  C.  C),  148  (185H)'; 
petition,  both  ori<,'inal  and  amended,  Gardiner  v.  I'ollard,  10  Bosw.  (N.  Y.j 
is,  that  it  seeks  no  recovery  in  behalf  of  674  (1863),  and  II  N.  Y.  Rev.  Stat.  689, 
the  corporation,  but  seeks  a  direct  re-  §  1,  and  591,  §  16. 

[46]  721 


§  681.]  ULTRA    VIRES    ACTS,    <fec.  [CH.  XL. 

ed  no  subscriptions,  they  are  quite  properly  held  guilty  of  negli- 
gence, and  may  be  made  liable  therefor.^     So  also  the  directors  of  a 
national  bank  are  liable  when  they  loan  money  to  irresponsible  per- 
sons, allow  overdrafts,  employ  dishonest,  unfaithful,  and  incompe- 
tent clerks,  and  neglect  to  take  security  from  the  cashier,   presi- 
dent, and  other  officers,  for  good  conduct  and  the  performance  of 
duties.^     The  president  is  negligent  and  is  liable  if  he  does  not 
require  the  secretary  to  give  a  bond  for  his  good  conduct,  as  re- 
quired by  the  by-laws  of  the  (corporation.^    But  it  has  been  held 
that  the  directors  are  not  liable  for  a  failure  to  have  the  secre- 
tary's bond  renewed,  they  supposing  that  it  did  not  expire  at  the 
end  of  the  year.*     The  law  is  well  established  that  the  corporate 
officers  are  not  liable  on  the  ground  of  negligence,  for  ultra  vires 
acts  which  they  have  done  or  sanctioned,  but  in  good  faith  and 
without  knowledge  of  their  ultra  vires  character.     The  act  itself 
may  be  impeached  and  set  aside,  and  property  transferred  there- 
under may  be  recovered  back,  but  if  the  directors  have  made  an 
honest  mistake,  and  it  was  a  mistake  which  a  man  of  usual  intel- 
ligence might  make,  they  are  not  personally  liable  therefor.     The 
law  does  not  require  them  to  be  learned  in  the  law.^     The   direc- 
tors, however,  are  liable  for  allowing  the  treasurer  to  use  corporate 
funds  for  lobbying  pui-poses.^ 

§  681.  Directors  must  use  ordinary  care  and  diligence  in 
tlxe  management  of  the  corporation  and  the  transaction  of 
its  htisiness. — The  directors  of  a  corporation  are  not  guarantors 
that  no  mistakes  will  be  made  in  the  management  of  the  corpo- 
rate business,  nor  do  they  insure  the  corporation  against  loss  by 
the  frauds  or  embezzlement  of  subordinate  officers  and  agents. 
They  are  required  to  exercise  reasonable  care  and  sound  business 
judgment,  but  nothing  further  than  this.  They  generally  serve 
without  pay,  and  usually,  by  reason  of  their  own  interest  in  the 


1  Neall  V.  Hill,  16  Cal.  145  (1860).  they  esteemed  the  best  interests  of  the 

s  Brinckerhoff  v.  Bostwick,  88  N.  Y.,  company,  they  were  not  willfully  pervert- 

52(1882).     See  also  Smith  v.  Rathbiin,  ing  their  powers,  but  only  misjudged  the 

22  Hun,  150  (1880).  same,  we  cannot  consent  to  compel  them 

3  Po'ntcliartrain  R.  R.  Co.  v.  Paulding,  to  account  personally  for  the  moneys  thus 

11  La  41  (183'7)  expended."     Hodges  v.  New  Eng.  Screw 

^  Vance   v.   Phoenix  Ins.   Co.,  4   Lea  Co.,  1  R.  L,  312,  348  (1850).     Cf.   Joint 

(Tenn.),  385.  Stock  Co.  r.  Brown,  L.  R.  3  Eq.    139;  8 

6  Watt's'  Appeal,   78  Penn.    St.    370  Eq.  381. 

(1875),  the  court  saying:  "  If  while  these  «  Shea  n.  Mabry,   1   Lea  (Tenn.),  319 

men  were  acting  honestly,  and  for  what  (1878). 

722 


CH. 


XL.] 


ULTRA   VIRES   ACTS,   <fec. 


[§681. 


Stock  of  the  company,  are  directly  interested  in  the  welfare  of  the 
corporation.  But,  though  this  is  the  case,  they  must  use  ordinary 
diligence  in  ascertaining  the  condition  of  things,  and  ordinary 
intelligence  in  their  action  as  directors.  They  are  liable  for  losses 
if  they  go  to  sleep  at  meetings  of  the  directors,  or  if  they 
regularly  fail  to  attend  such  meetings.-^  They  must  exercise  the 
same  diligence  and  care  that  men  of  usual  prudence  and  skill 
would  exercise  in  the  management  of  a  similar  business  for  them- 


'  The  leading  case  on  the  liability  of 
directors  for  negligence  is  Charitable 
Corporation  v.  Sutton,  2  Atk.  400  (1742), 
where  Lord  Chancellor  Ilardwicke  said  : 
"  They  may  be  guilty  of  acts  of  commis- 
sion or  omission,  of  malfeasaiice  or  non- 
feasance. Now,  where  acts  are  executed 
within  their  authority,  ...  in  such 
cases,  though  attended  with  bad  conse- 
quences, it  will  be  very  difficult  to  deter- 
mine that  these  are  breaches  of  trust. 
For  it  is  by  no  means  just  in  a  judge,  af- 
ter bad  consequences  have  arisen  from 
such  executions  of  their  power,  to  say 
that  they  foresaw  at  the  time  what  must 
necessarily  happen,  and  therefore  were 
guilty  of  a  breach  of  trust.  Next  as  to 
malfeasance  and  non-feasance.  To  in- 
stance in  non-attendance,  if  some  persons 
are  guilty  of  gross  non-attendance,  and 
leave  the  management  entirely  to  others, 
they  may  be  guilty  by  this  means  of  the 
breaches  of  trust  that  are  committed  by 
others.  By  accepting  of  a  trust  of  this 
sort,  a  person  is  obliged  to  execute  it  with 
fidelity  and  reasonable  diligence,  and  it 
is  no  excuse  to  say  that  tliey  had  no  bene- 
fit from  it,  but  that  it  was  merely  hono- 
rary, and  therefore  they  are  within  tiie 
case  of  common  trustees."  In  Percy  v. 
Millaudon,  6  Mart.  La.  68  (1829),  the 
court  said  :  "  If  nothing  has  come  to  their 
knowledge,  to  awaken  susjiicion  of  the 
fidelity  of  the  president  and  cashier,  or- 
dinary attention  to  the  affairs  of  the  in- 
stitution is  sufficient.  If  they  become 
acquainted  with  iiny  fact  calculatcci  to 
put  prudent  men  on  tlieir  guard,  a  degree 
of  care  commensurate  witli  the  evil  t((  be 
avoided  is  required,  and  a  want  of  that 
care  certainly  makes  Ihem  rcHponsibie." 
This  case  also  holds  thiit  directors  are 
not  liable  for  errors  of  judgment  unhfss 
they  are  grossly  wrong.  In  the  case 
United  Society,  <fcc.  v.  (Tnderwood,  '.) 
Busli  (Ky.),  6(J*9  (187:i),  the  court  said: 
"It  is  the  duty  of  the  board  to  exercise 
a  general  supervision  over  the  affairs   of 


the  bank,  and  to  direct  and  control  the 
action  of  its  subordinate  officers  in  all  im- 
portant   transactions.     The    community 
have  the  right  to  assume  that  the  direc- 
tory does  its  duty,  and  to  hold  them  per- 
sonally liable  for  neglecting  it."     That 
the  directors  must  use  ordinary  diligence, 
see  Williams  v.  Gregg,  2  Strob.   Eq.   (S. 
C.)  297  (1848),  and  in    Richards  v.  New 
Hampshire  Ins.  Co.,  43  N.  H.  263  (1861), 
the  court  say:  "The  rule  is  a  just  one 
that  an  agent  is  bound  to  apply  the  same 
diligence  to  obtain  payment  of  debts  in 
his  care   that  he    does    to    recover    his 
own."     In  the  case  Land  Credit  Co.  v. 
Fermoy,  L.  R.  5  Ch.  763  (1870),  where  it 
was  sought  to  hold  liable  for  negligence, 
directors  who  innocently  approved   of  a 
loan,  which  in  reality  had  not  been  made, 
but  the  moncj'  had  been  used   by  other 
directors   for   speculative   purposes,  the 
court  said:  "I  am  exceedingly  reluctant 
in  any  way  to  exonerate  directors  from 
performing     their    duty,    and    I     quite 
agree  that  it  is  their  duty  to  be  awake,  and 
that  their  being  asleep  would  not  exempt 
them  from  the  consequences  of  not  attend- 
ing to  the  business  of  the  company."     In 
the  case  Dunn's  Adm'r  v.  Kyle's  Atlm'r,  14 
MuAi  (Ky.),  134  (1878),  where  a  cashier 
had  embezzled  the  funds  of  the  bank,  the 
court  said  :   "  Bad  faith    or   gross    negli- 
gence is  certainly  necessary  to  render  the 
director  liable  to  a  stockholder  in  a  case 
like  this."     The  court   also   approved  of 
the  ride  given  in    Morse  on   Baidiing,  p. 
1 17,  to  the  ell'cct  liiat  "  for  excusable  mis- 
takes eoticerning  the  law,   and   for  many 
errors  strictly  of  diiscretioii,  thay  arc  not 
liable.     Though  in  cases  i.i  wiiich  tlieir 
action  has  been  so    grossly  ill-advised  as 
to  warrant  tiie  iiM|iutation  of  fraud,  or  to 
sliow  u  want  of  the   knowledge;   absdlulc- 
ly  necessary  forthr-  pci'lorinance  ol'  their 
duties,  HO  great  that  tln^y  were  not  justi- 
fied in  assuming  tlie  ollice,  they   may  be 
held  responsible." 

728 


§  681.] 


ULTRA   VIRES   ACTS,   &c. 


[CH.  XL. 


selves.  The  directors  are  not  bound  to  examine  the  books  of  the 
company,  nor  investigate  the  mode  of  living  of  their  employees. 
But  they  are  required  to  attend  the  directors'  meetings  with  rea- 
sonable regularity ;  to  have  statements  of  the  business  made  to 
them ;  to  object  to  the  transaction  of  important  business  without 
the  knowledge  and  consent  of  tlie  board  of  directors;  to  examine 
with  reasonable  care  the  reports  and  matters  of  business  brought 
before  them ;  and  not  to  shut  their  eyes  to  obvious  objections  to 
the  business  transactions,  and  general  condition  of  the  corporation, 
or  to  the  character  and  well  known  reputation  of  the  employees.^ 


'  The  law  on  this  subject  is  ably  and 
clearly  set  forth  by  Mr.  Justice  Earl,  in 
Hun  V.  Gary,  82  N.  Y.  65  (1880), as  follows : 
•"  The  trustees  are  bound  to  observe  the 
limits  placed  upon  their  powers  in  the 
charter,  and  if  they  transcend  such  lim- 
its and  cause  damage,  they  incur   liabili- 
ty.   If  they  act  fraudulently  or  do  a  will- 
ful wroug,  it  is  not   doubted   that  they 
may  be  held   for  all    the   damage   they 
cause  to  the  bank  or  its  depositors.     But 
if  they  act  in  good  faith  within  the  limits 
of  powers  conferred,  using  proper  pru- 
dence   and   diligence,  they  are    not    re- 
sponsible for  mere  mistakes  or  errors  of 
judgment     That    the   trustees    of    such 
corpoi'aJtions  are  bound  to  use  some  dili- 
gence in   the    discharge  of  their    duties 
cannot  be  disputed.     AH  the  authorities 
hold  so.     What  degree  of  care  and  dili- 
gence are  they  bound  to  exercise  ?     Not 
the  hi^est  degree,  not  such  as   a   very 
vigilant   or    extremely     careful    person 
would  exercise.     If  such  were  required, 
it  would  be  difficult  to  find  trustees  who 
would   incur  the   responsibility   of  such 
trust  positions.     It  would  not  be  proper 
to  answer  the  question  by  saying    the 
lowest  degree.     Few  persons   would  be 
willing  to    deposit    money    in    savings 
banks,  or  to  take  stock  in   corporations, 
with  the  understanding  that  the  trustees 
or  directors  were  bound  only  to  exercise 
alight  care,   such  as   inattentive  persons 
would  give  to  their  own  business,  in  the 
management  of  the  large  and  important 
interests    committed    to     their     hands. 
When  one  deposits  money  in  a  savings 
bank,  or  takes  stock   in    a   corporation, 
thus  divesting  himself  of  the  immediate 
control  of  his  property,  he  expects,  and 
has  the  right  to  expect,  that  the  trustees 
or  directors,  who  are  chosen  to  take  his 
place  in  the  management  and  control  of 
his  property,  will  exercise  ordinary  care 

724 


and  prudence  in  the  trusts  committed  to 
them — the  same  degree  of  care  and  pru- 
dence that  men  prompted  by  self-interest 
generally  exercise  in  their  own  affairs. 
Where  one  voluntarily  takes  the  position 
of  trustee  or  director  of  a  corporation, 
good  faith,  exact  justice,  and  public  pol- 
icy unite  in  requiring  of  him  such  a  de- 
gree of  care  and  prudence,  and  it  is  a 
gross  breach  of  duty — crassa  negligenlia 
— not  to  bestow  them.  It  is  impossible 
to  give  the  measure  of  culpable  negli- 
gence for  all  cases,  as  the  degree  of  care 
required  depends  upon  the  subjects  to 
which  it  is  to  be  applied.  .  .  .  Like 
a  mandatary,  to  whom  he  has  been 
likened,  he  is  bound  not  only  to  exercise 
proper  care  and  diligence,  but  ordinary 
skill  and  judgment.  As  he  is  bound  to 
exercise  ordinary  skill  and  judgment,  he 
cannot  set  up  that  he  did  not  possess 
them.  Where  damage  is  caused  by  his 
want  of  judgment,  he  cannot  excuse  him- 
self by  alleging  his  gross  ignorance.  One 
who  voluntarily  takes  the  position  of  di- 
rector, and  invites  confidence  in  that  re- 
lation, undertakes,  like  a  mandatary, 
with  those  whom  he  represents  or  for 
whom  he  acts,  tliat  he  possesses  at  least 
ordinary  knowledge  and  skill,  and  that 
he  will  bring  them  to  bear  in  the  dis- 
charge of  his  duties.  .  .  .  Whether, 
under  the  circumstances,  the  purchase 
was  such  as  the  trustees,  in  the  exercise 
of  ordinary  prudence,  skill,  and  care, 
could  make  ;  or  whether  the  act  of  pur- 
cliase  was  reckless,  rash,  extravagant, 
showing  a  want  of  ordinary  prudence, 
skill,  and  care,  were  questions  for  the 
jury."  Cf.  Van  Dyck  v.  McQuade,  86 
N.  y.  38  (1881).  See  also  Scott  v.  De 
Peyster,  1  Edw.  Ch.  513;  Litclifield  v. 
White,  3  Sandf.  545  ;  Liquidators,  <fec.  v. 
Douglas,  11  Sess.  Cases,  3d  series,  112; 
Spering's  Appeal,  '71  Penn.  St.  11  (18*72), 


CH.  XL.] 


ULTRA   VIRES   ACTS,    &c. 


[§  681. 


Moreover,  when  a  director  has  knowledge  that  an  unauthorized 
act  is  being  done,  he  cannot  escape  liability,  however  innocent  he 
may  be,  unless  he  prevents  the  act  by  his  protest,  or  files  a  bill  in 
equity  to  remedy  the  wrong.^ 


an  important  case,  and  one  which  is  fre- 
quently spoken  of  as  the  leading  case 
herein.  A  director  who  trusts  every- 
thing to  the  other  directors,  or  who  per- 
forms all  acts  as  a  mere  man  of  straw,  is 
liable.  Brown's  Case,  L.  R.  8  Eq.  404, 405. 
See  also  Williams  v.  McKay,  40  N.  J.  Eq. 
189  (1885),  where  the  court  said  in  refer- 
ence to  the  trustees  of  a  savings  bank, 
that  they  must  manage  "  in  the  same  way 
that  men  of  common  prudence  and  skill 
conduct  a  similar  bnsiness  for  themselves. 
.  .  .  Doubtless  such  officers  had  tl)e 
right  to  rely  in  many  respects  on  the 
skill  and  diligence  of  their  committeemen 
and  if  exercisingi  a  reasonable  circum- 
spection they  were  unaware  of  the  mis- 
conduct or  neglect  of  such  agents,  they 
would  not  be  responsible  for  the  conse- 
quences. But  so  plain  was  their  duty  to 
oversee  the  business  done  by  such  com- 
mitteemen, that  it  seems  to  me,  they  are 
chargeable,  prima  facie,  with  a  knowl- 
edge of  what  was  doing,  or  had  been  done, 
in  all  important  matters  by  such  bodies." 
See  also  Henry  v.  Jackson,  37  Vt.  431 ; 
Smith  V.  Prattville  Manfg.  Co.,  29  Ala. 
503  ;  Neall  v.  Hill,  16  Cal.  145,  151.  In 
the  case  Ackerman  v.  Halsey,  37  N.  J.  Eq. 
356  (1883),  affi'd,38  Id.  601,  the  court  said: 
"  As  a  general  rule,  the  directors  of  a  cor- 
poration are  only  required  in  the  manage- 
ment of  its  affairs  to  keep  within  the  limits 
of  its  powers,  and  to  exercise  good  faith 


and  honesty.  They  only  undertake, by  vir- 
tue of  their  assumption  of  the  duties  in- 
cumbent on  them,  to  perform  those  du- 
ties according  to  the  best  of  their  judg- 
ment, and  with  reasonable  diligence,  and 
a  mere  error  of  judgment  will  not  subject 
them  to  personal  liability  for  its  conse- 
quence. And  unless  there  has  been 
some  violation  of  the  charter  or  the  con- 
stituting instruments  of  the  company,  or 
unless  there  is  shown  to  be  a  want  of 
good  faith,  or  a  willful  abuse  of  discre- 
tion, there  will  be  no  personal  liability. 
They  are,  personally,  only  bound  in  the 
management  of  the  affairs  of  the  corpo- 
ration, to  use  reasonable  diligence  and 
prudence,  such  as  men  usually  exercise  in 
the  management  of  their  own  affairs  of 
similar  nature.  (Citing  cases.)  But 
they  are  personally  liable  if  they  suffer 
the  corporate  funds  or  property  to  be 
wasted  by  gross  negligence  or  inattention 
to  the  duties  of  their  trust."  Trustees, 
(fee.  V.  Bosseiux,  3  Fed.  Rep.  817  (1880). 
'  Joint  Stock  Discount  Co.  v.  Brown, 
L.  R.  8  Eq.  381,  402 ;  Ashhurst  v.  Fowler, 
L.  R.  20  Eq.  225.  That  a  director  is 
not  in  general  liable  for  misdeeds  of  sub- 
ordinate corporate  agents,  see  Bath  v. 
Catun,  37  Mich.  199;  Bacheller  v.  Pink- 
ham,  68  Me.  263 ;  Nicholson  v.  Mounsey, 
15  East,  384;  Stone  v.  Cartright,  6  Term 
Rep.  411 ;  Hewitt  v.  Swift,  3  Allen,  420. 
Cf.  Weir  v.  Barnett,  L.  R.  3  Ex.  D.  238. 


725 


CHAPTER    XLI. 

BATIFICATION,    ACQUIESCENCE,    OR  LACHES   AS    A    BAR    TO   A 
STOCKHOLDER'S  ACTION  HEREIN. 


682.  Introductory, 

683.  Laches,  acquiescence,  or  ratifica- 

tion as  a  defense  to  a  stockhold- 
er's action  to  remedy  ultra  vires 
acts,  which  are  prohibited  by 
statute  or  contrary  to  public 
policy. 

684.  Ratification    herein   may  be   ex- 

press or  implied. 


§  685.  Stockholder  charcjeable  with 
laches  only  after  he  has  a  full 
knowledge  of  the  facts. 

686.  Stockholder  must  sue  within  rea- 
sonable time  after  knowledge  of 
the  acts. 

68*7.  Miscellaneous  applications  of  the 
doctrine  of  laches  herein. 


§  C82.  Introductory. — When  a  stockholder  briags  an  action 
to  remedy  the  frauds,  ultra  vires  acts,  or  negligence  of  a  director 
or  third  person,  the  most  common  and  dangerous  defense  that 
he  has  to  encounter  is  the  defense  that  he  has  been  guilty  of 
laches  in  bringing  his  action.  Like  the  defense  of  contributory 
negligence,  a  modern  principle  of  law  that  defeats  many  actions 
for  negligence,  so  the  defense  of  laches,  acquiescence,  or  ratifica- 
tion, has  sprung  up  to  defeat  stockholders'  actions  herein.  The 
principles  which  govern,  define,  and  explain  this  defense  have  be- 
come well  settled.     They  form  the  subject  of  this  chapter. 

§  683.  Ladies,  acquiescence,  or  ratification  as  a  defense  to  a 
stocTiliolder'' s  action  to  remedy  ultra  vires  acts,  which  are  pro- 
hibited hy  statute  or  contrary  to  public  policy. — It  has  already 
been  shown  that  a  stockholder  may  bring  an  action  to  remedy 
frauds,  negligence,  or  tdtra  vires  acts.  As  regards  the  frauds  and 
negligence  of  corporate  officers  it  is  well  settled  that  laches  is  a 
good  defense  to  a  stockholder's  action  herein.  But  ultra  vires 
acts  are  subject  to  a  somewhat  difterent  rule.  Ultra  vires  acts 
may  be  said  to  be  of  three  kinds :  first,  acts  which  are  unauthor- 
ized by  statute  and  which  are  contrary  to  public  policy,  in  other 
words,  acts  which  are  mala  in  se ;  second,  acts  which  are  pro- 
hibited by  statute,  such  acts  being  mala prohihita ;  third,  all  other 
acts  which  are  beyond  the  express  or  implied  powers.  As  regards 
the  last  class,  the  defense  of  laches  applies  to  a  stockholder's 
action  herein  just  the  same  as   it  applies  to  actions  to  remedy 

726 


CH.  XLI.]  ACQUIESCENCE    AS    A   BAR.  [§  681. 

a  director's  frauds  or  negligence.  In  reference  to  ultra  vires 
acts,  however,  which  are  mala  jyrohibita  or  mala  in  se,  there 
is  more  difficulty.  It  is  very  clear  that  no  assent  or  acquiescence 
of  the  stockholders  can  validate  such  acts.^  But  it  is  a  different 
question  to  determine  whether,  after  long  acquiescence,  the  stock- 
holder may  take  advantage  of  the  invalidity  of  such  acts.  As  re- 
gards acts  mala  prohihita,  that  is  acts  expressly  prohibited  by 
statute,  it  would  seem  that  the  stockholder  may  by  his  laches  be 
barred  from  complaining  thereof,  since  the  State,  through  its  at- 
torney-general, may  protect  the  interests  of  the  public.^  As  re- 
gards acts  mala  in  se,  probably  the  rule  will  depend  on  the  cir- 
cumstances of  the  case.  If  the  stockholder  has  participated  in 
the  act,  or  knowingly  accepted  the  benefit  thereof,  the  court  will 
not  aid  him,  since  he  who  comes  into  equity  must  do  so  with  clean 
hands.'  When,  however,  a  stockholder  has  not  participated  or 
knowingly  accepted  the  benefit  of  corporate  contracts,  which  are 
mala  in  se,  there  would  seem  to  be  no  reason  why  mere  delay  on 
his  part  in  bringing  suit  to  set  aside  such  acts  should  be  fatal  to 
his  bill. 

§  C84.  Ratification  lierein  may  he  express  or  implied. — There 
are  in  general  two  ways  in  which  a  stockholder  may  be  said  to 
have  ratified  an  act  of  the  directors  which  he  is  attempting  to  en- 
join or  set  aside.  The  ratification  may  be  by  an  express  agree- 
ment or  statement  to  that  efi'ect,  or  it  may  be  by  such  laches  or 
acquiescence  as  will  amount  to  an  implied  ratification.*     Cases 


'  See  Kent  v.  Quicksilver  Min.  Co.,  R.  3  H.  of  L.  249  (1868);  affi'g  L.  R.  3 
78  N.  Y.  159,  186(18'79),  where  the  court  Eq.  769,  the  court  said:  "Consent  might 
says :  "  A  corporation  may  do  acts  be  either  express  or  mipjht  be  inferred 
which  affect  the  public  to  its  harm,  inas-  from  the  acquiescence  of  the  shareholders 
much  as  they  are  per  se  illegal  or  are  alter  full  knowledge  of  the  transaction 
malum  prohiiitum.  Then  no  assent  of  which  was  in  excess  of  the  powers  of  the 
stockholders  can  validate  them."  directors."  In  the  case  Kent  v.  Quick- 
ie See  Stewart  v.  Erie,  Ac.  Trans.  Co.,  silver  Min.  Co.,  78  N.  Y.  159,  187  (1879), 
17  Minn.  372  (1871);  and  in  Gray «;.  tlie  court  said:  "Where  third  parties 
Chaplin,  2  Russ.  Ch.  126  (1826),  the  court  have  dealt  with  the  company,  relying  in 
said  that  the  stockholder  cannot  claim  good  faith  upon  the  existence  of  corporate 
that  the  public  is  wronged.  "  If  a  public  autiiority  to  do  an  act,  there  it  is  not 
right  is  to  be  enforced  it  must  be  at  the  needed  that  there  be  an  express  assent 
suit  of  those  to  whom  the  protection  of  tiiereto,  on  the  part  of  the  stockliolders, 
public  rights  belongs."  <!f.  Ashbury  Ry.,  to  work  an  equitable  estoppel  upon  tliem. 
<fec.  Co.  V.  Riche,  L.  R.  7  H.  of  L.  653  Their  comhict  may  have  been  such, 
(1875);  Taylor  v.  Chichester,  <fec.  Ry.  tliougii  negative  in  character,  as  to  bo 
Co..  L.  R.  2  Ex.  356  (1867).  lakon  for  an  acquiescence  in  the  act  ;  and 
"•  See  §  39,  supra.  when  hiirni  would  come  to  such  third 
■*  Thus  in    Evans  v.    Smallcombe,  L.  parties  if  tlic  act  were  held   invalid,  the 

727 


§  685.J 


ACQUIESCENCE   AS   A  BAR. 


[CH.  XLI. 


involving  the  defense  of  an  express  ratification  rarely  arise  since 
this  defense  is  easy  to  prove.  But  the  defense  of  an  implied  rati- 
fication is  more  difficult  to  establish.  An  implied  ratilication  is 
generally  spoken  of  as  laches.  It  is  the  subject  of  the  remainder 
of  this  cliapter.^ 

§  685.  StocMolder  cliargeaUe  ivitli  laches  only  after  he  has  a 
full  Tiuoivledge  of  the  facts. — Laches  is  a  defense  only  when  the 
stockholder  with  a  fiall  knowledge  of  the  facts  has  delayed  an  un- 
reasonable length  of  time  in  bringing  his  action.  These  two  ele- 
ments, knowledge  and  delay,  are  the  essential  elements  of  the 
defense.^     Until  the  stockholder  has  full  and  complete  knowledge 


stockholders  are  estopped  from  question- 
ing it.  We  suppose  acquiescence  or  tacit 
assent  to  mean  the  neglect  to  promptly 
and  activelj'  condemn  the  unauthorized 
act  and  to  seek  judicial  redress  after 
knowledge  of  the  committal  of  it,  where- 
by innocent  third  parties  have  been  led 
to  put  themselves  in  a  position  from 
which  they  cannot  be  taken  without 
loss.  It  is  the  doctrine  of  equitable  es- 
toppel, which  applies  to  members  of 
corporate  or  associate  bodies  as  well  as 
to  persons  acting  in  a  natural  capacity." 

•  In  the  case  First  Natl.  Bk.  v.  Drake, 
29  Kan.  311  (1883):  "But  what  is  rati- 
fication ?  It  is  the  confirmation  of  a  void- 
able act.  It  is  entirely  immaterial  what 
that  is  which  renders  the  act  voidable  ; 
whether  a  lack  of  present  power  to  make  a 
valid  contract,  as  in  the  case  of  infancy, 
or  because  of  fraud  and  misrepresenta- 
tion  on  the  part  of  the  other  contracting 
party,  or  because  it  is  the  unauthorized 
attempt  of  an  assumed  agent  to  bind 
bis  principal.  Whenever  there  is  a  void- 
able act,  confirmation  of  tliat  act  by  tlie 
party  assumed  to  be  bound,  is  in  law  a 
ratification.  But  in  order  to  constitute 
a  valid  ratification  there  must  be 
knowledge." 

"  Thus  in  the  leading  case  of  Cumber- 
land Coal  Co.  V.  Sherman,  30  Barb.  533 
(1859),  the  following  from  Lewin  on 
Trusts  is  stated  to  be  the  law  in  relation 
to  stockholders.  1.  The  confirming 
party  must  be  sui  juris,  not  laboring  un- 
der any  disability,  as  infancy  or  cover- 
ture. 2.  The  confirmation  must  be  a 
solemn  and  deliberate  act — not  for  in- 
stance fished  out  from  some  expressions 
in  a  letter ;  and  particularly  when  the 
original    transaction  was   infected   with 

728 


fraud  the  confirmation  of  it  is  so  incon- 
sistent with  justice  and  so  likely  to  be 
accompanied  with  imposition  that  the 
court  will  watch  it  with  the  utmost 
strictness,  and  not  allow  it  to  stand  but 
on  the  very  clearest  evidence.  3.  There 
must  be  no  suppressio  veri,  or  suggesiio 
falsi,  but  the  cestui  que  trust  must  be  hon- 
estly made  acquainted  with  all  the  ma- 
terial circumstances  of  the  case.  4.  The 
confirming  party  must  not  be  ignorant 
of  the  law  ;  that  is  he  must  be  aware  that 
the  transaction  is  of  such  a  character  that 
he  could  impeach  it  in  a  court  of  equity. 
5.  The  confirmation  must  be  wholly  dis- 
tinct from,  and  independent  of,  the  origi 
nal  contract — not  a  conveyance  o'  the  es- 
tate, executed  in  pursuance  of  a  cove- 
nant in  the  original  deed  for  further  as- 
surance. 6.  The  confirmation  must  not 
be  wrung  from  the  cestiii  que  trust  by  dis- 
tress or  terror.  7.  When  the  cestuis  que 
trust  are  a  class  of  persons,  as  creditors, 
the  sanction  of  the  major  part  will  not 
be  obligatory  on  the  rest;  but  the  con- 
firmation to  be  complete  must  be  the 
joint  act  of  the  whole  body."  And  in  the 
equally  important  case  Hoffman,  <&c.  Co. 
V.  Cumberland,  &q.  Co.,  16  Md.  456 
(1860),  the  court  said:  "To  render  the 
act  of  ratification  effective  and  conclusive 
certain  considerations  are  necessary.  At 
the  time  of  the  supposed  ratification  the 
principal  must  have  been  fiill_y  aware  of 
every  material  circmnstance  of  the  trans- 
action, the  real  value  of  the  subject  of 
the  contract,  and  his  act  of  ratification 
must  have  been  an  independent  and  sub- 
stantive act,  founded  on  complete  infor- 
mation and  of  perfect  freedom  of  volition, 
and,  in  addition  to  ail  this,  the  cestui  que 
trust  must  not  only  have  been  acquainted 


CH.  XLI.] 


ACQUIESCENCE   AS   A  BAR. 


[§  68G. 


of  all  the  essential  facts  which  would  be  likely  to  induce  him  to 
institute  the  action,  the  beginning  of  the  time  from  which 
laches  will  run  cannot  be  said  to  commence.^  Where,  however, 
the  facts  are  well  known  to  all  intelligent  men,  and  the  means  of 
knowledge  are  open  to  the  stockholder,  he  is  chargeable  with 
knowledge  from  the  date  when  he  should  have  ascertained  t]i& 
facts.' 

But  it  is  not  incumbent  on  the  stockholder  to  keep  himself 
informed  as  to  the  various  acts  of  the  corporation.  He  is  not 
chargeable  with  knowledge  merely  because  he  might  have  ascer- 
tained the  facts  by  an  examination  of  the  corporate  books.^ 
Moreover,  it  is  the  well  established  rule  tliat  lapse  of  time  alone 
cannot  support  the  defense  of  laches.  There  must  be  both  knowl- 
edge and  delay.* 

§  686.  StocMolder  must  sue  ivithin  reasonable  time  after 
knowledge  of  the  facts. — After  a  stockholder  has  knowledge,  or 


with  the  facts,  but  apprised  of  the  law, 
how  these  facts  would  be  dealt  with  if 
brought  before  a  court  of  equity." 

'  In  Oilman,  <fec.  R.  R.  Co.  v.  Kel- 
ly, 77  111.  4  26  (1875),  the  court  said: 
"  No  ratification  will  estop  the  principal 
unless  he  lias  been  made  aware  of  all  the 
material  facts  and  circumstances  of  the 
transaction  that  would  in  any  way  influ- 
ence liis  mind  or  aflect  the  value  of  the 
contract." 

*  Taylor  v.  South,  &c.  R.  R.  Co.,  4 
Woods  (U.  S.),  575  (1882),  the  court  say- 
ing: "The  means  of  knowledge  are  the 
eame  thing  in  effect  as  knowledge  itself. 

.  .  The  circumstances  of  the  discov- 
ery must  be  fully  stated  and  proved,  and 
the  dt'lay  which  has  occurred  must  be 
•hown  to  be  consistent  with  the  requisite 
diligence."  See  also  Kelley  v.  Newbury- 
port,  <kc.  R.  R.  Co.  (Mass.  1886),  24  Am. 
<fe  ling.  ]{y.  Cas.  27.  In  the  case  Phos- 
pliate,  &c.  Co.  V.  Green,  L.  R.  7  Com.  Pi. 
4lj  (1871),  it  was  held  that  to  show  assent 
and  acquiescence  it  is  not  necessary  to 
prove  the  acquiescence  of  each  individual 
shareholder.  It  is  enough  to  show  cir- 
cumstances which  are  reasonably  calcu- 
lated to  satisfy  the  court  or  a  jury  that 
the  thing  to  be  ratified  came  to  the 
knowledge  of  all  who  chose  to  inquire, 
all  having  full  opportunity  and  means  of 
inquiry. 


5  Stewart's  Case,  L.  R.  1  Ch.  511 
(1866);  Stanhope's  Case,  Id.  161,  where 
the  court  said  :  "  It  is  no  part  of  the  duty 
of  a  shareholder  to  look  into  the  manage- 
ment of  the  business.  .  .  .  It  is  not 
enough  to  show  that  they  might  have 
become  acquainted  with  the  mismanage- 
ment of  their  affairs.  It  must  be  shown 
that  they  did  so."  See  Ryan  v.  Leaven- 
worth, &c.,  Ry.  Co.,  21  Kan.  365  (1879). 
Also  Holmes  v.  Newcastle,  &c.,  Co.,  46 
L.  J.  (Ch.)  383  (1876),  holding  that 
knowledge  of  ja  sale  of  property  is  not 
knowledge  of  an  illetral  dividend  from 
the  proceeds.  See  also  Spackman  v.  Ev- 
ans, L.  R.  3  H.  of  L.  171  (1868).  See  also 
Ilonldsworth  v.  Id.,  Id.  263. 

■*  Evans  »,  Smallcombe,  L.  R.  3  II.  of 
L.  249  (1868);  afti'g  L.  R.  3  Kq.  769,  the 
court  saying:  "  Lapse  of  time  nlonc  cer- 
tainly would  not  make  valid  that  which, 
at  the  begiiming,  was  invalid.  .  ,  . 
Length  of  time  may,  in  many  cases,  ma- 
terially assist  in  establishing  the  pre- 
sumption of  acquiescence  in  an  act  which 
requires  a  coTifirnialion  to  give  it  vitlidit\'. 
Hut  tlxni  it  is  not  time,  but  the  acquies- 
cence, which  changes  what  would  other- 
wise be  a  void  act  into  n  valid  one." 
Ashhur-t's  Appeal,  60  Penn.  St.  290 
(1869),  where,  however,  the  court  says 
that  '  acquieacence  is  presumed  from  de- 
lay." 

729 


§686.] 


ACQUIESCENCE    AS   A   BAR. 


[oil. 


XLI. 


is  chargeable  with  knowledge,  of  an  nltra  vires,  fraudulent,  or 
negh'gent  act  of  the  directors,  he  must  institute  his  suit,  if  at  all, 
within  a  reasonable  time  thereafter.^  As  to  what  will  constitute 
a  reasonable  time  depends  on  the  circumstances  of  the  case.  If 
it  is  evident  that  the  stockholder  is  waiting  to  see  whether  the 
nnautliorized  act  will  be  proiitable  to  the  corporation,  the  court 
will  refuse  to  grant  him  any  relief.^     So  also  if  the  stockholder, 


1  In  the  case  Twin  Lick  Oil  Co.  v. 
Marbury,  91  U.  S.  587  (1875),  Mr.  Justice 
Miller  gives  a  cleai-  statement  of  the  law 
herein.  He  says  :  "  The  doctrine  is  well 
settled  that  the  option  to  avoid  such  a 
sale  must  be  exercised  within  a  reason- 
able time.  This  has  never  been  held  to 
be  any  determined  number  of  days  or 
years  as  applied  to  every  case,  like  the 
Statute  of  Limitations,  but  must  be  decid- 
ed in  each  case  upon  all  the  elements  of 
it  which  affect  that  question.  These  are 
generally  the  presence  or  absence  of  the 
parties  at  the  place  of  the  transaction, 
their  knowledge  or  ignorance  of  the  sale, 
and  of  the  facts  which  render  it  voidable, 
the  permanent  or  fluctuating  character  of 
the  subject-matter  of  the  transaction  as 
affecting  its  value,  and  the  actual  rise  or 
fall  of  the  property  in  value  during  the 
period  within  liwhich  this  option  might 
have  been  exercised.  In  fixing  tliis  peri- 
od in  any  particular  case,  we  are  but 
little  aided  by  the  analogies  of  the  Stat- 
utes of  Limitation  ;  while,  though  not 
falling  exactly  within  the  rule  as  to  time 
for  rescinding,  or  offering  to  rescind,  a 
contract  by  one  of  the  parties  to  it  for 
actual  fraud,  the  analogies  are  so  strong 
as  to  give  to  this  latter  great  force  in  the 
consideration  of  the  case.  In  this  class 
of  cases  the  party  is  bound  to  act  with 
reasonable  diligence  as  soon  as  the  fraud 
is  discovered,  or  his  right  to  rescind  is 
gone.  No  delay  for  the  purpose  of  en- 
abling the  defrauded  party  to  speculate 
upon  the  chances  which  the  future  may 
give  him  of  deciding  profitablj' to  himself, 
whether  he  will  abide  by  his  bargain  or 
rescind  it,  is  allowed  in  a  court  of  equity." 
Taylor  v.  South,  Ac,  Ry.  Co.,  4  Woods 
(U.  S.),  575(1882),  the  court  saying:  "  A 
stockholder  of  a  corporation  will  not  be 
allowed,  after  a  reasonable  lime,  to  dis- 
turb and  rescind  a  contract,  made  by  his 
corporation,  after  the  same  has  been  fully 
executed,  on  the  ground  that  it  is  ultra 
vires  and  in  excess  of  the  corporate  pow- 
ers granted  by  the  charter  of  the  corpo- 
ration." 

730 


-  Story's  Eq.  Jurisprudence,  §  1539a; 
Kitchen  v.  St.  Louis,  Ac,  Ry.  Co.,  69 
Mo.  224  (187«),  where  the  court  said: 
"  He  has  no  right  to  lie  idly  by  until  new 
equities  arise,  and  speculate  on  the  suc- 
cess or  non-success  of  the  investment  or 
transaction  of  which  he  complains,  and 
see  others,  in  good  faith  and  without 
fraud,  by  a  vast  expenditure  of  money, 
make  th.at  valuable  which  was  before  val- 
ueless, and  then  come  and  ask  the  aid  of 
the  chancellor  to  enable  him  to  appro- 
priate to  himself  such  benefits  and  advan- 
tages." In  Gregory  v.  Patchett,  33  Beav. 
595  (1864),  the  court  said  :  "  Sharehold- 
ers cannot  lie  by  sanctioning,  or  by  their 
silence,  at  least  acquiescing  in  an  ar- 
rangement which  is  tdtra  vires  of  the 
company  to  which  they  belong,  watching 
the  result;  if  it  be  favorable  and  profit- 
able to  themselves  to  abide  by  it  and  in- 
sist on  its  validitj%  but  if  it  prove  unfav- 
orable and  disastrous,  then  to  institute 
proceedings  to  set  it  aside."  Banks  v. 
Judah,  8  Conn.  145  (1830),  where  the 
court  said :  "  Equity  will  not  suffer  a 
party  to  lie  by  till  the  event  of  the  ex- 
periment shall  enable  him  to  make  his 
selection  with  certainty  of  profit  one  way, 
and  without  loss  any  way.''  In  the  case 
Watt's  Appeal,  78  Penn.  St.  370  (1875), 
the  court  said:  "When  an  act,  done  by 
directors,  is  in  excess  of  their  authority, 
yet  has  been  done  with  the  bona  fide  in- 
tent of  benefiting  the  corporation  which 
they  represent,  and  a  shareholder,  know- 
ing thereof,  does  not  dissent  within  a 
reasonable  time,  his  assent  to  the  act  will 
be  presumed,  and  he  will  be  estopped 
from  gainsaying  it.  .  .  .  When  the 
act  complained  of  is  to  be  followed  by  a 
large  expenditure  of  monej-,  the  share- 
holder should  not  only  file  his  protest 
within  a  reasonable  time,  but  should  fol- 
low up  the  same  by  active  preventive 
means.  .  .  .  He  may  not  thus  pocket 
the  gain  resulting  from  his  delay,  or  thus 
waif  in  order  to  observe  the  result  of  the 
experiment,  and  when  it  fails  to  produce 
the  result  expected,  fall  back  upon  his 


CH. 


XLI.] 


ACQUIESCENCE   AS   A  BAR. 


[^  686. 


after  a  full  knowledge  of  the  facts,  stands  by  and  allows  large 
operations  to  be  completed,  or  money  expended,  or  alterations  to 
be  made  before  he  brings  suit,  he  is  guilty  of  laches,  and  his  rem- 
edy is  barred.^  In  like  manner,  where  the  stockholder,  with  full 
knowledge,  has  accepted  the  benefit  of  the  act,  he  cannot  com- 
plain thereafter.^  And,  in  general,  where  it  is  clear  that  the 
stockholder  had  a  full  knowledge  of  all  the  essential  facts  of  an 
act  which  he  might  bring  a  suit  to  remedy,  but  which,  for  an  un- 
reasonable length  of  time  he  fails  to  object  to  by  a  bill  in  equity, 
he  will  be  held  guilty  of  laches,  and  his  right  to  institute  the  suit 
is  barred.' 


protest  as  a  saving  of  his  legal  remedies." 
In  Sheldon  v.  Eickemeyer,  <fec.,  Co.,  90 
K  Y.  607  (1882),  the  court  said:  "The 
principal  may.  nevertheless,  affirm  the 
act,  and  a  ratification  is  equivalent  to  a 
prior  authorization.  If  all  the  stockhold- 
ers of  this  corporation  had,  with  full 
knowledge,  subsequently  ratified  the 
transfer  and  affirmed  the  settlement,  the 
act,  though  beyond  the  power  given  the 
trustees  by  the  charter,  could  not  subse- 
quently be  avoided  by  the  stockholders 
or  the  corporation.  .  .  .  The  party 
upon  -whose  rights  or  interests  a  fraud  is 
committed  should  not  be  allowed,  after 
the  facts  come  to  his  knowledge,  to  spec- 
ulate upon  the  possible  advantages  to 
himself  of  confirming  or  repudiating  the 
transaction.  He  must  repudiate  at  once, 
and  surrender  his  securities." 

1  "  If,  with  knowledge  of  that  fact,  the 
shareholders  remain  a  long  time  and  take 
no  step  whatever;  still  more,  if  they  so 
remain  while  great  alterations  are  going 
on  in  the  company,  they  must  be  taken 
to  have  retrospectively  sanctioned  what 
has  been  done."  llouldsworth  v.  Evans, 
L.  R.  3  H.  of  L.  263,  276  (1868).  "  Where 
the  summary  interference  of  this  court  is 
invoked  in  cases  of  this  nature,  it  must 
be  invoked  jjromplly.  Parties  who  have 
lain  by  and  permitted  a  largo  expendi- 
ture to  be  made,  in  contravention  of  tlio 
rights  for  which  they  contend,  cannot 
call  upon  this  court  for  its  summary  in- 
terference. .  .  .  The  weight  wliich 
is  due  to  lapse  of  time  must,  as  I  appre- 
hend, in  a  great  measure,  depend  upon 
the  extent  of  the  expenditure."  Delay 
of  eight  months  held  fatal.  Great  West- 
ern Ry.  Co.  V.  Oxford,  tfcc.f  Ry.  Co.,  3 
De  G.,  M.  «fe  G.  341  (1853).  See  also 
Boston,  Ac,  R.  R.  Co.  v.  N.  Y.  &.  N.  E.  R. 


R.  Co.,  13  R.  I.  260  (1881);  Aurora,  «fec., 
Soc.  V.  Paddock,  80  111.  263  (1875);  Stew- 
art V.  Erie,  &c.,  Trans.  Co.,  17  Minn.  372 
(1871),  where  the  court  said  :  "  If  a  stock- 
holder assents  to  acts  ztltra  vires,  or  al- 
though not  originally  or  expressly  assent- 
ing, has  for  an  unreasonable  time  acqui- 
esced, and  has  permitted  them  to  go  un- 
questioned, so  that  other  parties  who 
have  acted  upon  the  faith  of  them  (as,  for 
instance,  by  making  large  expenditures 
of  money),  would  suffer  great  injury  from 
their  repudiation,  a  court  of  equity  would 
not  easily  be  induced  to  grant  relief  at 
the  instance  of  such  stockholder."  Good- 
in  V.  Cincinnati,  <tc.,  R.  R.  Co.,  18  0.  St. 
150(1868).  In  the  well-considered  case, 
however,  of  Covington,  <fec.,  R.  R.  Co.  v. 
Bowler's  Ex'rs,  9  Bush,  570,  the  court 
held  that  a  delay  of  six  years  was  not 
a  bar  to  the  stockholder's  remedy,  and 
the  court  said  that  "merely  remaining 
passive  does  not  deprive  a  party  of  the 
right  to  seek  redress,  unless,  in  addition 
thereto,  he  does  some  act  to  induce  or 
encourage  others  to  expend  their  money 
or  to  alter  their  conditions,  and  thereby 
render  it  unconscientious  for  him  to  en- 
force his  rights." 

*  "  When  a  purchaser  has  taken  pos- 
session of  and  enjoyed  the  subjocl-nuitter 
of  a  contract,  it  is,  in  my  opinion,  the 
duty  of  this  court  to  make  every  reason- 
able  presum)>tion  in  favor  of  the  validity 
of  tiie  contract."  London  Assurance 
Co.'s  Case,  5  De  G.,  M.  &  G.  465,  481 
(1854).  See  also  Weed  v.  Little  Falls, 
<fec.,  Co.,  31  Minn.  154  (1883). 

•'  Spacknian  )•.  Evans,  L.  R.  3  H.  L. 
171  (1868);  Downes  v.  Ship,  Id.  343; 
Ashhurst's  A],i)cal,  60  Penn.  St.  290 
(1869);  Zabriskie  V.  Ilnckonsack,  <tc.,  R. 
R.   Co.,   18   N.   J.    F:q.    178  (1867);  Mc- 

731 


§  687.] 


ACQUIESCENCE   AS   A  BAR. 


[CH.  XLI, 


There  has  been  considerable  doubt  and  diflSculty  in  determin-. 
ing  whether  the  Statute  of  Limitations  will  be  applied  by  a  court 
of  equity  to  cases  of  this  nature.  It  has  been  held  in  England 
that  the  statute  will  be  applied  to  a  corporate  action  to  compel  a 
director  to  pay  over  to  the  corporation  money  received  by  him  as 
a  bribe,  and  that  the  statute  begins  to  run  from  the  time  when 
the  corporation  discovers  the  facts.^  And  a  similar  rule  seems 
to  prevail  in  Pennsylvania,^ 

§  687.  Miscellaneous  applications  of  the  doctrine  of  laches 

herein. — It  is  well  settled  that  the  ratification  of  an  act  which 
the  stockholder  might  have  complained  of  does  not  authorize  or 
ratifv  in  advance  a  repetition  of  that  act.^     A  stockholder's  right 


Loughlin  v.  Detroit,  Ac,  Ry.  Co.,  8  Mich. 
100  (I860);   Gray  v.  Chaplin,  2  Russ.  Ch. 
126   (1826),  where  the  stockholder  had 
acquiesced  4*7  years  in  an  ultra  vires  lease. 
In  the  case  Mills  v.  Central  R.  R.  Co.,  41 
N.  J.  Eq.  6  (1886),  it  was  very  properly 
held  that  a  delay  of  54  days  was  no  bar, 
and  also  that  a  failure  to  vote  against  the 
act  was  no  bar.     In  the  case  Gifford  v. 
N.  J.  R.  R.  Co.,  10  N.  J.  Eq.  171  (1854), 
a  delay  of  20  years  was  held  to  be  a  bar. 
In  the  following  cases  the  court  held  de- 
lay to  be  a  bar:  Peabody  v.   Flint,  88 
Mass.  54  (1863),  the  delay  being  three 
and  one-half  years.     Gregory  v.  Patchett, 
33  Beav.  595  (1864),  six  years;  Interna- 
tional,  <fec.,    R.   R.    Co.  V.   Bremond,  53 
Tex.   96  (1880),  two  years;   Graham  v. 
Birkenhead,   <fec.,  Co.,  2  Mac.  cfe  G.   146 
(1850),  eighteen  months;  Kitchen  v.  St. 
Louis,  &c.,  Ry.  Co.,  69  Mo.   224  (1878), 
two  years;  Boston,  <fec„  R.  R.  Co.  v.  N. 
Y.    &   N.   E.    R.   R.  Co.,   13   R.   I.    260 
(1881);  Ashhurst's  Appeal,  60  Penn.  St. 
290  (1869),  seven  years;  Sheldon,   <fec., 
Co.  V.  Eickemeyer,  <fec.,Co.,  90  N.Y.  607 
(1882),  four  years;  Pneumatic  Gas  Co.  v. 
Berry,  113  U.  S.  322  (1884);  Graham  v. 
Boston,  (fee,  R.  R.  Co.,   118  U.  S.   161 
(1886);  Jn  re  Pinto  Silver  Min.  Co.,  L.  R. 
8  Ch.  D.  273  ;  Royal  Bk.  of  Liverpool  v. 
Grand  Junction  R.  R.  Co.,  125  Mass.  490 
(1878);  Lire  Magdalena,  Ac,  Co.,  6  Jur. 
N.  S.  975  (1860),  where  a  delay  of  two 
years   was  held   a  bar;     Brotherhood's 
Case,  31  Beav.  365  (1862),  twelve  years; 
Hervey  v.  Illinois,  &e.,  Ry.  Co.,  28  Fed. 
Rep.  169(1884);  Thompson  v.  Lambert, 
44   Iowa,  239  (1876);  Vigers  v.  Pike,   8 
CI.  <fe  Fin.  562,  650  (1840);  Zabriskie  v. 
ClevelaDd,  Ac,  R.  R.  Co.,  23  How.  381 

732 


(1859).  Cf.  Boardman  v.  Lake  Shore, 
Ac,  Ry.  Co.,  84  N.  Y.  157  (1881);  Bad- 
ger V.  Badger,  2  Wall.  87  ;  Harwood  v. 
Railroad  Co.,  17  Wall.  78  ;  Rochdale 
Canal  Co.  v.  King,  2  Sim.  N.  S.  89; 
§§  161,  162,  198,  supra. 

'  Metropolitan  Bk.  v.  Heiron,  L.  R.  5 
Ex.  D.  319  (1880).  Contra,  Ernest  v. 
Croysdill,  2  De  G.,  F.  A  J.  175  (1860). 

^  Watts'  Appeal,  78  Penn.  St.  370 
(1875).  See  also  Taylor  v.  South,  Ac, 
R.  R.  Co.,  4  Woods,  575  (1882).  Also  in 
California.  See  Dannmeyer  v.  Coleman, 
11  Fed.  Rep.  99  (1882),  holding  that  the 
three  years'  limitation  to  actions  based  on 
fraud,  after  discovery  thereof,  applies  to 
directors'  frauds  herein.  But  see  Philippi 
V.  Philippi,  115  U.  S.  151.  See  in  gen- 
eral, Coit  V.  Campbell,  82  N.  Y.  509,  514; 
Farnani  v.  Brooks,  9  Pick.  242 ;  Godden 
V.  Kimmell,  99  U.  S.  201,  210;  Preston  v. 
Prestou,  95  U.  S.  200  ;  Badger  v.  Badger, 
2  Wall.  87;  Medder  v.  Norton,  11  Wall. 
442;  Bowman  w.  Wathen,  1  How.  188; 
Beckford  v.  Wade,  17  Ves.  87. 

3  Irvine  v.  Union  Bank  of  Australia, 
37  L.  T.  N.  S.  176  (1877);  s.  c,  L.  R.  2 
App.  366 ;  Bloxham  v.  Metropolitan  Ky. 
Co.,  L,  R.  3  Ch.  337,  354  (1868),  where 
the  court  said:  "If  the  acts  of  the  direc- 
tors were  positively  illegal,  the  fact  of 
knowing  them,  or  even  of  deriving  bene- 
fit from  them,  would  not  have  prevented 
the  original  holder  of  the  stock  from  af- 
terwards objecting  to  similar  acts.  But 
it  never  can  be  held  that  the  acquiescence 
of  the  original  holder  of  stock  in  illegal 
acts  of  the  directors  of  a  company  will 
bind  a  subsequent  holder  of  that  stock  to 
submission  to  all  future  acts  of  the  same 
character." 


CH.  XLI.] 


ACQUIESCENCE  AS  A  BAR. 


[§  68Y. 


to  object  to  a  director's  act  can  be  exercised  by  bira  alone.^  It 
is  also  well  established  that  the  ratification  which  will  bind  a 
stockholder  must  be  by  himself  alone.  It  cannot  be  by  the  other 
stockholders.^  But  the  acquiescence  of  a  stockholder  bars  an 
action  by  any  transferee  of  that  stock. 


I-  3 


1  Taylor  v.  Chichester,  <fec.,  R.  Co. ,  L. 
R.  2  Ex.  356,  378  (1867),  where  the  court 
said:  "But  the  sharehokler  may  waive 
any  right  which  is  given  to  him  for  his 
own  protection  only ;  and  if  he  has  either 
expressly  or  tacitly  done  so,  he  can  no 
longer  object.  And  neither  a  stranger, 
nor  the  body  corporate  itself,  can  raise 
such  an  objection  to  a  contract  made  by 
the  corporation  if  no  shareholders  choose 
to  raise  it  for  themselves." 


'  Hazard  v.  Durant,  11  R.  I.  195 
(1875).  This  principle  of  law  is  substan- 
tially a  mere  restatement  of  the  principle 
that  the  majority  cannot  bind  the  minor- 
ity as  regard  vltra  vires  acts ;  nor  can  the 
directors.  See  Gallery  v.  Natl.  Ex.  Bk., 
41  Mich.  169(1879);  Green's  Brice's  Ul- 
tra Vires,  2d  ed.  675. 

3  Ffooks  V.  South,  tkc,  Ry.  Co.,  1  Sim. 
A  G.  142  (1855). 


733 


CHAPTER   XLII. 


PARTIES,    PLEADINGS,    AND   REMEDIES. 


688. 
689. 

690. 


Jurisdiction  of  the  court. 

Parties  plaintiflf. — Who  may  bring 
the  suit. 

Rule  when  the  plaintiff  stock- 
holder sues  in  the  interest  of 
a  rival  company,  or  purchased 


the 


purpose 


of 


his   stock   for 
bringing  suit 

The  complainant  stockholder  must 
sue  in  behalf  of  himself  and  other 
stockholders. 

Parties  defendant  herein. 
693.  Complainant's  bill  must  not  im- 
properly join  two  or  more  causes 
of  action  herein. 

Complainant  must  allege  that  he 
requested  the  corporation  to 
bring  the  suit,  and  that  the  cor- 
poration refused  or  neglected  to 
do  so. 


691. 


692. 


694. 


695.  When  such  an  allegation  may  be 

omitted. 

696.  Miscellaneous  allegations  of  the 

complainant. 

697.  Prayer  for  relief. 

698.  Property  received  under  the  act 

objected   to   must  be  returned 
upon  that  act  being  set  aside. 

699.  Injunction  restraining  the  corpo- 

rate  officers   and    others   from 
doing  specified  acts. 

700.  Injunction  against  corporate  of- 

ficers acting  at  all,  and  the  ap- 
pointment of  a  receiver. 

701.  Miscellaneous  remedies. 

702.  The  complaining  stockholder  con- 

trols the  conduct  of  the  suit. 

703.  No  contribution  among  the  direc- 

tors. 


§  688.  Jurisdiction  of  the  court. — There  has  been  some  dif- 
ficulty in  determining  whether  the  Federal  courts  have  jurisdic- 
tion of  a  stockholder's  suit  herein,  when  the  corporation  and  the 
directors  are  citizens  of  one  State,  and  the  complainant  stock- 
holder is  a  resident  of  another  State.  Inasmuch  as  the  suit  is  for  the 
benefit  of  the  corporation,  it  has  been  claimed  that  the  non-residence 
of  the  stockholder  is  insufficient  to  give  jurisdiction.  The  Federal 
courts  have  decided,  however,  that  such  jurisdiction  exists,  and  it  is 
in  these  courts  that  a  large  proportion  of  these  suits  are  brought.^ 
It  is  also  a  rule  of  law,  that  the  courts  of  one  State  will  not,  at 
the  suit  of  a  stockholder,  enjoin  or  set  aside  acts  of  a  foreign 
corporation,  since  there  is  no  method  of  enforcing  the  decree  of 


'Dodge  V.  Woolsey,  18  How.  331; 
Pond  V.  Vt.  Valley  R.  R.  Co.,  12  Blatch. 
280  (1874),  the  court  holding  also  that 
the  complainant  might  omit  as  party 
plaintiff,  a  stockholder  residing  in  the 
State  of  the  corporation.  See  also  Hatch 
V.  Chicago,  Ac,  R.  R.  Co.,  6  Blatch.  105 
(1868);  Bell  ?;.  Donohue,  17  Fed.  Rep. 
710  (1883),  holding  that  the  court  has  no 

734 


jurisdiction  if  the  stockholder  and  the 
corporation  are  citizens  of  the  same  State. 
Cf.  La  Grange  v.  State  Treas.,  24  Mich. 
468  (1872).  In  Hawes  v.  Oakland,  104 
U.  S.  450  (1881),  the  court  vigorously 
denounced  transfers  of  stock  made  for  the 
purpose  of  giving  the  Federal  courts  juris- 
diction. Tlie  94th  Rule  was  made  in  con- 
sequence thereof. 


CH.   XLII.]  PARTIES,   PLEADINGS,   AND   REMEDIES. 


[§  089. 


the  court.^     Moreover,  the  stockholder's  suit  herein  must  always 
he  brought  in  a  court  of  equity.     It  is  never  in  a  court  of  lavv.^ 

§  689.  Parties  plaintiff.— Who  may  Iring  the  s«it.— Ordi- 
narily, a  suit  herein  is  instituted  by  one  or  more  stockholders 
who  are  registered  as  such  on  the  corporate  books.  It  has  been 
held,  however,  that  the  suit  may  be  brought  by  a  purchaser  of  a 
certificate  of  stock  who  has  not  as  yet  obtained  a  registry  there- 
of.^ The  suit  brought  by  one  or  more  stockholders  herein 
must  be  in  behalf  of  themselves  and  such  other  stockholders 
as  may  wish  to  come  in.  Care  is  to  be  exercised,  however, 
that  stockholders,  who  are  disqualified  from  participating  in 
the  suit,  should  not  be  joined  as  parties  plaintiff.^  It  is  doubt- 
ful whether  a  corporate  creditor  may  maintain  a  suit  herein, 
to  compel  the  corporate  directors  to  account  for  their  frauds, 
negligence,  or  rdira  vires  acts.  The  later  rule  seems  to  hold 
that  such  a  suit  will  lie.^  Moreover,  it  has  been  held  where 
a  person,  who  holds  stock  as  a  trustee,  refuses  to  bring  the  suit, 
that  the  cestui  que  trust  may  institute  it,  making  the  trustee  a 


'  Williston  V.Michigan,  &c.,  R.  R.  Co., 
95  Mass.  400  (1866);  Howell  v.  Chicago, 
(fee,  Ry.  Co.,  51  Barb.  378  (1867);  Greg- 
ory V.  N.  Y.,  (fee,  R.  R.  Co.,  40  N.  J.  Eq. 
38  (1885),  where  a  resident  stockholder 
in  a  foreign  corporation  sought  to  set 
aside  its  lease  to  a  resident  corporntion; 
Cunningham  v.  Pell,  5  Paige,  607  (1836), 
holding  that  no  personal  judgment  could 
be  rendered  against  an  absent  director 
who  was  not  personally  served.  In  the 
case  Ervine  v.  Oregon,  Ac,  Co.,  62  How. 
Pr.  490  (1882),  the  court  sustained  the 
jurisdiction  where  service  on  the  direc- 
tors was  personal,  even  though  tiie  cor- 
porate property  was  not  in  the  State.  The 
court  said  :  "  The  relief  witliin  the  power 
of  the  court  to  grant  may  be  incomplete, 
and  not  commensurate  with  the  injuries 
and  loss  sustained,  growing  out  of  the 
fact  that  material  interests  affected  are 
outside  of  this  jurisdiction;  but  that  af- 
fords no  adequate  reason  why  an  attempt 
in  that  direction  ,-hould  not  be  made. 
Efforts  in  such  direction  frequently  afford 
only  approximate  justice." 

■^  See  (iardiner  v.  i'ollard,  10  Bosw. 
674  (1863);  (jraig  o.  Gregg,  83  I'enn.  St. 
19  (1876),  and  see  §  itI'J,  mpru.  This 
principle  of  law  is  assumed  in  nearly  all 
the  cases  cited  in  Part  IV  of  this  work. 

"  Bagshaw  v.  Eastern  Union  Ry.  Co., 


7  Hare,  114  (1849);  Ervine  v.  Oregon, 
Ac,  Co.,  62  How.  Pr.  490  (1882);  Par- 
rott  V.  Byers,  40  Cal.  614  (1871).  Cf. 
Landes  v.  Globe,  <fec.,  Co.,  73  Ga.  176 
(1884),  where  a  stockholder  had  not  paid 
his  subscription.  Contra,  Ran)sey  v. 
Erie  Ry.  Co.,  7  Abb.  Pr.  (N.  S.)  156 
(1869);  Heath  v.  Erie  Ry.  Co.,  8  Blatch. 
347  (1871);  Hersey  v.  Veazie,  24  Me.  9 
(1844). 

''  Clements  v.  Bower,  1  Drew.  684 
(1853).  Cf.  Parrott  v.  Byers,  xupra, 
liolding  that  if  one  of  the  complainants 
is  competent,  it  is  immaterial  that  the 
others  are  not.  See  also  Burt  v.  British, 
<fec.,  Assn.  4  De  G.  A  J.  158  (1859),  where 
the  court  said  that  if  the  stockholders 
"  sue  by  a  plaintiff  who  is  personally  pre- 
cluded from  suing  the  suit  cannot  pro- 
ceed." 

''Warner  c.  Hopkins,  111  Penn.  St. 
328  (1885);  Lothrop  v.  Stedman,  42  Conn. 
583  (U.  S.  C.  C.  1875);  I'.rowu  v.  Orr,  3 
Atl.  Uep.  815  (I'enn.  1886);  but  see  I?al- 
VwA.v.  Brown,  103  Penn.  St.  ,546(1883); 
Mills  V.  Northern  Ry.,  Ac,  Co.,  L.  R.,  5 
Ch.  621  (1870);  Gavenstein's  Appeal,  49 
IVnn.  St.  310  (18()r));  Heath  v.  I'h-io  Ry. 
(^o.,  8  Blatdif.  347(1871);  Currier  w.  N. 
v.,  Ac.,  R.  R.  Co.,  3.-)  Hun,  35:.  (1885). 
Cf.  Van  Weel  v.  Winston,  llr.  U.  S.  228. 


735 


§  090.] 


PARTIES,   PLEADINGS,   AND    REMEDIES.  [CH.  XLII. 


party  defendant.^  When  some  of  the  complainants  are  prose- 
cuting- the  same  cause  of  action  elsewhere,  the  suit  will  be  dis- 
missed.^ 

§  690.  Bule  tvlien  the  2)laint iff  stockholder  sues  in  tlie  interest 
of  a  rival  company,  or  imrchased  his  stocTc  for  the  "purpose 
of  bringing  suit. — The  law  is  well  settled,  that  if  a  stockholder 
institutes  a  suit  in  behalf  of  himself  and  other  stockholders,  to 
enjoin  or  to  bring  to  an  accounting  the  corporate  directors,  and 
such  suit  is  instituted,  not  to  protect  and  benefit  the  stockholders' 
interest  in  the  corporation,  but  to  benefit  some  other  corporation, 
the  court  will  refuse  to  entertain  the  suit   and  will  dismiss  it.^ 


1  Great  Western  Ry.  Co.  v.  Rushout, 
5  De  G.  <fe  Sm.  290  (1852). 

2  Black  V.  Hiiggins,  2  Tenn.  Ch.  780 
(1877). •  See  also  as  to  who  may  be  a 
complainant  herein.  Green's  Brice's  Ultra 
Vires,  2d  ed.,  649.  In  the  case  Daun- 
meyer  «.  Coleman,  11  Fed.  Rep.  97  (1882), 
the  court  queries  whether  each  stock- 
holder may  institute  a  separate  suit  here- 
in. 

=*  The  difficulty  herein  is  in  proving 
that  the  complainant  is  suing  for  the 
rival  company.  If,  however,  the  latter 
is  paying  the  costs  of  the  suit,  that  is 
sufficient  proof.  Forrest  v.  Manchester, 
<fec.,  Ry.  Co.,  4  De  G.,  F.  &  J.  126(1861), 
where  the  court  said  :  "  The  principle 
upon  which  the  constructive  representa- 
tion of  the  shareholders  is  permitted,  in- 
disputably requires  that  the  suit  shall  be 
a  bona  fide  one,  faithfully,  truthfully,  sin- 
cerely directed  to  the  benefit  and  the 
interests  of  these  shareholders  whom  the 
plaintiff  claims  a  right  to  represent." 
The  court  will  not  permit  "  a  man  who 
is  the  puppet  of  another  company  to 
represent  the  shareholders  of  the  com- 
pany against  whom  he  desires  to  estab- 
lish the  interests  and  benefits  of  a  rival 
scheme.  That  would  be  entirely  contrary 
to  the  principle  upon  which  this  construc- 
tive representation  has  been  permitted 
to  be  founded."  There  is  a  wide  differ- 
ence between  this  suit,  which  "  directed, 
and  a  suit  which  is  bona  fide  instituted  by 
the  plaintiff,  persuaded  only  to  the  institu- 
tion of  it  by  the  arguments  of  another 
company.  .  .  The  motives  of  plaint- 
ifi"s  have  nothing  to  do  with  the  litiga- 
But  an  acknowledgment  that  the 


tioD. 

suit  is  brought  for  othei's  makes  it 


imposition  on  the  court.'" 

736 


an 
To  same  ef- 


fect Belmont  v.  Erie  Ry.  Co.,  52  Barb. 
637  (1869),  See  also  Felder  v.  London, 
(fee,  Ry.  Co.,  1  Hem.  &  M.  489  (1863), 
where  the  court  said  :  "  To  entitle  a  share- 
holder to  maintain  a  suit  of  this  nature, 
the  risk  and  responsibility  must  be  upon 
him,  so  that  the  court  can  feel  that  he  is 
acting  for  the  benefit,  or  what  he  believes 
to  be  the  benefit  of  the  company.  .  . 
What  the  court  looks  at  is  this,  is  the 
suit  bona  fide  the  plaintiff's  own  suit,  or  is 
he  merely  the  hand  by  which  some  one 
else  acts  ?  And  there  is  no  ingredient 
entitled  to  greater  weight  in  arriving  at 
a  conclusion  on  this  point  than  the  ques- 
tion, who  is  responsible  for  the  costs  of 
the  suit  ?"  To  same  effect  see  Camblos  v. 
PhiL,  Ac,  R.  R.  Co.,  4  Brews.  563  (U.  S. 
C.  C.  1873);  Waterbury  v.  Merchants, 
(fee,  Ex.  Co.,  50  Barb.  157  (1867);  s.  c. 
3  Abb.  Pr.  (N.  S.)  163;  Rogers  v.  Oxford, 
(fee,  Rj'.  Co.,  2  De  G.  &  J.  662  (1858). 
See,  however,  Densmore  v.  Central  R.  R. 
Co.,  19  Fed.  Rep.  153  (1883),  holding 
that  the  fact  that  the  complainant  stock- 
holder has  business  relations  with  the 
rival  company,  and  is  aided  by  it  in  pre- 
paring his  case,  is  no  bar,  and  that  if  it 
were,  the  objection  is  to  be  raised  by  a 
plea  in  abatement.  In  the  case  Ffooks  v. 
Southwestern  Ry.  Co.,  1  Sm.  &  G.  142 
(1853),  the  court  said:  "  Where  the  fact 
is  establislied  that,  under  the  pretense  of 
serving  the  interests  of  one  company,  the 
shareholders  in  a  rival  company,  by  pur- 
chasitig  shares  for  the  purpose  of  litiga- 
tion, can  make  this  court  the  instrument 
of  defeating  or  injuring  the  company  into 
which  they  so  intrude  themselves,  in 
order  to  raise  questions  and  disputes  on 
matters  as  to  which  all  the  other  mem- 
bers of  the  company  may  be  agreed,  I 


CH. 


XLH.] 


PARTIES,   PLEADINGS,   AND   REMEDIES. 


[i  690. 


The  application  of  a  stockholder  herein  to  a  court  of  equity  will 
not  be  denied  merely  because  it  is  for  the  interest  of  the  public, 
or  of  the  corporation,  or  of  the  stockholder  himself,  that  the  act 
complained  of  be  allowed  to  stand.  The  law  does  not  depend 
upon  the  opinion  of  the  court  as  to  the  benefit  of  the  act.^ 

In  regard  to  purchases  of  stock  for  the  very  purpose  of  bring- 
ing a  stockholder's  suit  herein,  there  is  some  difference  of  opinion. 
The  common  law  clearly  is  that  such  a  stockholder  has  the  same 
right  to  bring  the  suit  that  his  transferrer  had.^  Such  is  the  rule 
even  though  the  stock  was  purchased  for  the  purpose  of  bringing 
the  suit.  The  law  has  nothing  to  do  with  the  motive  of  a  legal 
act.' 


cannot  consider  that  in  such  a  case  it  is 
the  province  of  this  court  ordinarily  to 
interfere." 

'  Hoole  V.  Great,  <fec.,  Ry.  Co.,  L.  R., 
3  Ch.  262  (18(37);  Stevens  v.  Rutland, 
&c.,  R.  R.  Co.,  29  Vt.  545  (1851),  where 
the  court  said:  "In  regard  to  the  expe- 
diency of  bringing  this  bill,  the  chan- 
cellor cannot  and  has  no  riglit  to  judge. 
The  orator  has  the  constitutional  and 
sole  right  of  determining  this  matter ; 
and  if  he  thinks  it  expedient,  we  must 
acquiesce  in  it ;  and  no  plea  of  the  pub- 
lic good  or  inequality  of  interests  in- 
volved can  justify  the  chancellor  in  deny- 
ing to  the  orator  a  right  which  is  clearly 
accorded  to  him  by  well  established  chan- 
cery principles." 

•■'  Winsor  v.  Bailey,  55  N.  IT.  218 
(1875),  the  court  so  holding  and  saying 
that  to  hold  otherwise  "  would  seem  to 
involve  the  singular  consequence  that  the 
transfer  of  stock  in  a  corporation  extin- 
guishes the  right  to  inquire  into  the  pre- 
vious fraudulent  conduct  of  its  officers, 
whereby  its  funds  have  been  misappro- 
priated. .  .  The  transfer  of  the  stock 
conveyed  to  them,  not  only  the  owner- 
ship of  the  shares  and  the  right  to  the 
future  dividends  thereon,  but  also  placed 
them  on  an  equal  footing  with  the  other 
stockholders  in  respect  to  the  right  to 
call  the  officers  and  agents  of  the  corpo- 
ration to  an  account  for  their  fraudulent 
conduct."  To  same  effect  see  Bloxam  v. 
Metropolitan  Ry.  Co.,  L.  R.,  3  Ch.  337 
(1868),  where  the  complainant  on  Decem- 
ber 13,  1867,  advertised  to  induce  the 
stockholders  to  combine  ;  on  January  15, 
1868,  purchased  stock  himself,  and  on 
January  25,  1868,  commenced  suit.  So 
also  see  Seat  on  v.  Grant,  L.  R.,  2  Ch.  459 


(1867),  where  the  court  sustained  the  suit, 
although  it  said  :  "  He  buys  five  shares 
in  the  company,  and  then  files  his  bill,  in 
order  to  induce  the  company  to  buy  off 
the  litigation.  That,  no  doubt,  is  a 
course  of  conduct  which  would  meet 
with  little  approval  in  this  court,  or,  in- 
deed, in  any  other  court,  and  such  con- 
duct might  be  material  at  the  hearin"-, 
with  reference  to  the  amount  of  relief 
which  the  plaintiff  could  obtain  or 
whether  he  was  entitled  to  any  relief 
at  all."  Nevertheless  the  court  said  also 
that  "however  questionable  the  mode  of 
the  plaintift''8  introduction  to  the  com- 
pany may  have  been,  he  has  an  actual 
interest  in  the  subject-matter  of  the  suit." 
In  the  case  Du  Pout  v.  Northern  Pac.  R 
R.  Co.,  18  Fed.  Rep.  467  (1883),  Judge 
Wallace  said :  "  A  court  of  equity  will 
not  be  swift  to  grant  the  stringent  relief 
of  a  preliminary  injunction  to  an  officious 
plaintiff  who  seems  to  have  acquired  his 
interests  as  a  stockholder  with  a  view  of 
assailing  transactions  in  the  corporate 
affairs  of  which  existing  stockholders  do 
not  seem  to  have  complained." 

"  Cases,  supra,  also  Elkins  v.  Camden 
(fee,  R.  R.  Co.,  36  N.  J.  Eq.  6  (1882); 
Ramsey  v.  Gould,  57  Barb.  398  (187o), 
where  the  court  said:  "The  court  iias  no 
right  to  look  into  the  plainliff's  motive 
in  bringing  it;  and,  although,  in  moving 
it,  his  malice  is  gratified,  or  liis  indepen- 
dent litigations  incidentally  subserved, 
still,  unless  the  court  can  j)lainly  see 
that  he  has  no  meritorious  c;iuse  of  ac- 
tion, or  that  he  is  estopped  from  prose- 
cuting it,  his  prosecution  of  it  will  ntit  be 
deemed  a  perversion  or  abuse  of  the  pro 
cess  of  the  court.  This  is  equally  true  in 
a  court  of  equity,  as  in  a  court   of  law. 


[471 


T.*^*? 


§  690.] 


PARTIES,   PLEADINGS,    AND   REMEDIES.  [CH.  XLII, 


But  where  the  transfer  is  merely  nominal,  the  transferee  can- 
not bring  suit  herein,  since  he  has  no  pecuniary  interests  of  his  own 
to  protect,  and  equity  will  not  aid  him.^  The  smallness  of  this 
stockholder's  interest,  however,  will  not  prevent  his  instituting  a 
istockholder's  suit  to  remedy  a  corporate  wrong.  An  owner  of 
one  share  is  to  be  protected  by  a  court  of  justice  equally  with  the 
owner  of  a  thousand  shares.  The  old  doctrine  of  de  Tninimis 
non  curat  lex,  has  sometimes  been  applied  to  this  class  of  cases, 
but  such  decisions  are  not  to  be  commended.  If  there  are  no 
suspicious  circumstances  connected  with  the  suit,  it  is  believed 
that  this  maxim  of  the  law  will  not  be  applied  to  a  case  of  this 
character.^ 

In  the  Federal  courts  different  rules  prevail.  It  was  found 
that  transfers  of  stock  were  frequently  made  for  the  purpose 
gation  that  properly  belonged  to  the  State  courts  was  added 
of  securing  jurisdictions  of  the  case  in  the  Federal  courts.  Liti- 
to  the  already  overburdened  calendars  of  the  United  States 
courts.^  Accordingly  the  Supreme  Court  of  the  United  States 
made  it  a  rule  of  the  Federal   courts  that  a  transferee  of  stock 


.  .  The  intent  with  which  he  pur- 
chased does  not  change  or  affect  these 
rights,  or  raise  any  equities  respecting 
them,  in  favor  of  the  defendants." 

'  M'Donnell  v.  Grand  Canal  Co.,  3  Ir. 
Ch.  Rep.  N.  S.  578  (1853),  the  court  say- 
ing, "  The  petitioners,  with  full  knowl- 
edge of  the  transaction,  for  the  purpose 
of  intervening  in  a  concern  in  which 
they  had  no  property,  and  preventing 
this  transaction,  got  transferred  to  them 
shares  for  a  nominal  consideration,  for 
the  purpose  of  filing  this  petition  just 
when  the  transaction  was  about  to  be 
completed.  This  court  is  not  to  be  made 
the  instrument  of  such  a  proceeding."  See 
also  Kobson  v.  Dodds,  L.  R.,  8  Eq.  302 
(1869). 

**  Armstrong  v.  Church  Society,  13 
Grant  Ch.  (U.  C.)  552  (1867),  the  court 
saying,  "  Every  member  of  a  corporation 
has  a  right  to  object  to  any  illegal  diver- 
sions of  its  funds ;  and  in  this  respect 
those  who  contribute  most  have  no 
greater  rights  than  those  who  contribute 
least."  Seaton  v.  Grant,  L.  R.,  2  Ch;  459 
(1867),  where  the  court  said,  the  maxim 
did  not  apply  since  the  stockholder  sued, 
not  on  his  own  behalf  alone,  but  for  him- 
self and  otiiers.  However,  in  the  case 
of  Dannemeyer  v.  Coleman,  11  Fed.  Rep. 
97  (1882)  the  court  said,  "  It  is  always  a 

738 


suspicious  circumstance  where  a  single 
stockholder,  among  a  large  number  in  a 
corporation,  rushes  into  a  court  of  equity 
to  vindicate,  unaided  and  alone,  the 
rights  of  the  corporation  and  all  other 
stockholders ;  and  especially  is  this  so 
where  the  amount  of  stock  owned  by 
him  is  so  very  limited  that  in  case  of  suc- 
cess his  own  share  of  the  recovery  will 
be  so  small  as  to  make  the  maxim  de 
minimis  non  curat  lex  very  properly  ap- 
plicable." Cf.  Ithaca,  <fec.,  Co.  v.  Treman, 
93  N.  Y.  660  (1883).  In  the  case  of 
Charlton  v.  Newcastle,  (fee,  Ry.  Co.,  5 
Jur.  N.  S.  1096(1859),  the  court  said, 
"  A  single  shareholder,  holding  five  or 
ten  shares  or  less,  is  perfectly  justified  in 
applying  to  the  court  to  restrain  a  com- 
pany, on  behalf  of  himself,  and  the  other 
shareholders  by  injunction,  from  com- 
mitting any  illegal  act,  beyond  their 
powers.  It  does  not  signify  if  all  the 
other  shareholders  are  pitted  together 
against  this  holder  of  ten  shares,  the 
court  holds  it  is  better  for  the  real  in- 
terests of  the  company  that  they  should 
obey  the  law,  and  any  one  single  share- 
holder who  invokes  the  aid  of  the  court 
is  entitled  to  its  aid  for  that  purpose." 

^  See  the  vigorous  denunciation  of 
such  transfers  by  Mr  Justice  Miller,  in 
Ilawes  V.  Oakland,  104  U.  S.  450  (1881). 


CH.  XLn.]  PARTIES,   PLEADINGS,   AND  REMEDIES.     [§§  091,  692. 

cannot  sustain  a  stockholder's  suit  to  remedy  a  corporate  wrong 
which  was  perpetrated  before  he  became  a  stockholder,^ 

§  691.  The  complainant  stoclclwlder  must  sue  in  hehalf  of 
himself  and  other  stockholders. — It  is  a  well  established  rale  of 
law  that  a  stockholder's  suit  to  remedy  a  wrong  done  to  the  cor- 
poration must  be  in  behalf  of  all  the  stockholders,  since  they  are 
all  equally  interested  in  the  results  of  the  suit.  Accordingly  the 
complainant  or  complainants  must  bring  the  suit  in  behalf  of 
themselves,  and  such  others  of  the  stockholders  as  care  to  come 
in.^  If  all  the  stockholders,  however,  are  made  parties,  there  is 
no  need  of  the  suit  being  brought  in  behalf  of  others  who  may 
choose  to  come  in.^ 


§  C92.  Parties  defendant  herein. — The  coiporation  itself  is 
an  indispensable  party  defendant  to  a  stockholder's  action  for  the 
purpose  of  remedying  a  wrong  which  the  corporation  itself  should 
have  remedied.*     This  rule  is  due  to  the  fact   that  all  other  pos- 


'  Rule  94,  ns  follows:  "Every  bill 
brought  by  one  or  more  stockholders 
in  a  corporation,  against  the  corporation, 
and  other  parties,  founded  on  rights 
which  may  properly  be  asserted  by  the 
corporation,  must  be  verified  by  oath, 
and  must  contain  an  allegation  that  the 
plaintiff  was  a  shareholder  at  the  time  of 
the  transaction  of  which  he  complains,  or 
that  his  share  had  devolved  on  him  since 
by  operation  of  law,  and  that  the  suit  is 
not  a  collusive  one  to  confer  on  a  court 
of  the  United  States  jurisdiction  of  a  case 
of  which  it  would  not  otherwise  have 
cognizance."  Promulgated,  January  23, 
1882.  See  Dimpfcl  v.  Ohio,  <fec.,  U.  11 
Co.,  110  U.  S.  209  (1884).  But  see  Leo 
*.  Union  Pacific  Ry.  Co.,  17  Fed.  Rep.  273 
(1883).  In  Lafayette  Co.  v.  Neely,  21 
Fed.  Rep.  738  (1884),  it  is  held  that  this 
rule  does  not  bar  the  stockliolderft' 
right  to  bring  the  action  after  a  dissolu- 
tion of  the  corporation.  See  also  Whitte- 
raore  v.  Amoskeag  Natl.  Iik.,26  Fed.  Rep. 
819  (1885). 

'  Wallworth  v.  Holt,  4  Mylne  <fe  0., 
619(1840);  Taylor  v.  Soloman.  Id.  134 
(1838),  ou  the  ground  "  that  where  the 
parties  interested  arc  numerous,  and  the 
suit  is  for  an  object  common  to  them  all, 
some  of  the  body  may  maintain  a  bill  on 
behah  of  themselves  and  of  the  others  is 
established."     Beman  v.  Rufr.»rd,  1   Sim. 


N.  S.  550  (1851);  Baldwin  v.  Lawrence,  2 
Sim  <feStu.  18(1824);  Bromley  ?;.  Smith, 
1  Sim.  8  (1826);  White  v.  Carmarthen, 
(fee,  Ry.  Co.,  1  Hem.  <fe  M.  786(1863); 
Bailey  v.  Birkenhead,  <fec.,  Ry.  Co..  12 
Beav.  433  (185u);  Preston  v.  Grand 
Collier  Dock  Co.,  11  Sim.  327  (1840); 
Winsor  v.  Bailey,  55  N.  H.  218(1875); 
Blatchford  v.  Ross,  54  Barb.  42(1869); 
Cunningham  v.  Pell,  5  Paige,  607  (1836); 
Fawcett  v.  Laurie,  1  Dr.  &  Sm.  192 
(1860);  March  ?;.  Eastern  R.  R.  Co.,  40 
N.  H.  548  (1860);  Whitney  v.  .Mayo,  15 
111.  251  (1853).  But  see  Cass  v.  Ottawa, 
(fee,  Co.,  22  Grant  (U.  C),  512  (1875); 
and  Hoole  v.  (ireat  Western  Ry.  Co.,  L. 
R.,  3  Ch.  262  (1867),  to  the  effect  that 
the  rule  is  otherwise  as  regards  ultra 
vires  acts. 

•'  Rogers  v.  Lafayette  Agri.  Works,  52 
Ind.  295  (1875).  Gf.  Bengley  v.  Wheeler, 
45  Mich.  493  (1881). 

*  Davenport  v.  Dows,  18  Wall.  626 
(1873);  Coxe  V.  Hart,  63  Mich.  557 
(1884);  Black  v.  Huggtns.  2  Tenn.  Ch. 
780  (1877);  Samuel  v.  Halladay,  1 
Woolw.  000  (KS09);  Allen  v.  H.  J. 
Southern  R.  R.  Co.,  49  How.  Pr.  14 
(1875);  Bagshaw  v.  Eastern,  tfec.,  Ry. 
Co.,  7  Hare,  114  (1849);  Gregory  V. 
Patchett,  33  Beav.  595  (1864);  Charles- 
ton, &c.,Co.v.  Sebring,  4  liicli.  I'^q.  (8. 
C.)  842  (1853) ;    Hrinckorhoff  w.  Bostwick, 

7.'i9 


§  693.] 


PARTIES,   PLEADINGS,   AND   REMEDIES. 


[CH.  XLII. 


sible  future  suits  by  the  corporation  are  thereby  prevented,  the 
rights  of  the  corporation  are  duly  ascertained,  and  the  remedy 
nmde  effectual  against  the  corporation  as  well  as  others.  It  is  not 
necessary  nor  proper  to  join  the  directors  of  the  corporation  as 
parties  defendant  where  the  only  object  of  the  suit  is  to  enjoin  an 
act  or  to  set  aside  an  ultTa  vires  act.  The  decree  against  the  corpo- 
ration is  effective  and  binding  upon  all  the  officers  of  the  corpora- 
tion.^ Where,  however,  the  object  of  the  suit  is  to  hold  the 
directors  personally  liable  for  frauds  or  for  negligence,  the  nile 
is  different.  In  such  cases  they,  of  course,  are  necessary  parties 
defendant.^  As  regards  outside  parties  they  are  to  be  joined  as 
parties  defendant  whenever  the  relief  asked  would  affect  their 
rights.^ 

§  G93.  Com2)lainanfs  hill  must  not  irn^yroperly  join  tivo  or 
more  causes  of  action  herein. — If  the  complainant's  bill  is  mul- 
tifarious it,  of  course,  cannot  succeed  as  against  the  objection  of 
the  defendants.  Thus  it  has  been  held  that  the  stockholders 
cannot  join  an  action  in  reference  to  dividends  with  one  for  an 
injunction  to  restrain  the  corporate  business  from  committing  a 


88  N.  Y.  52  (1882)  ;  Cunningham  v.  Pell, 

5  Paige,  607  (1836). 

1  Winch  V.  Birkenhead,  <fec.,  Ry.  Co., 

6  De  G.  &  Sm.  562  (1852),  where  the 
court  said,  "  1  do  not  think  it  is  neces- 
sary that  the  directors  should  be  parties. 
The  act  that  is  sought  to  be  restrained  ia 
the  act  of  the  company.  The  company 
itself  cannot  act  except  by  means  of  its 
officers."  Pioneer  Gold,  <fec.,  Co.  v. 
Baker,  20  Fed.  Rep.  4  (1884);  Heath  v. 
Erie  Ry.  Co.,  8  Blatch.  347  (1871); 
Bryson  v.  Warwick,  «fec.,  Co.,  1  Sm.  &  G. 
447  (1853);  Bagshaw  v.  Eastern,  <fec.,  Ry. 
Co.,  7  Hare,  114(1849);  Ahen  v.  N.  J. 
Southern  R.  R.  Co.,  49  How,  Pr.  14 
(1876),  the  court  saying,  "They  are  rep- 
resented by  the  corporation  of  which 
they  are  alleged  to  be  directors,  and 
when  the  corporation  itself  is  made  a 
party  defendant  it  is  improper  to  add  the 
trustees  or  directors  as  parties  when  no 
personal  claim  or  judgment  is  asked 
against  them."  But  see  Ribon  v.  Rail- 
road Cos.,  16  Wall.  446  (1872). 

^  See  cases  in  Cliapter  XXXIX,  and 
Chapter  XL,  "C;"  Ducket  v.  Gover,  L. 
R.,  6Ch.  D.  82;  Mason  v.  Harris,  L.  R., 
11  Ch.D.  97(1879). 

8  Rnssell  v.  Wakefield,  Ac,  Co.,  L.  R., 

740 


20  Eq.  474,  the  court  saying,  "  When 
you  have  got  the  second  corporation  or 
person  a  party  to  the  suit,  it  may  happen 
that  in  addition  to  the  relief  that  you  are 
entitled  to  as  regards  the  first,  you  are 
entitled  to  have  relief  against  the  second 
for  something  that  has  been  done  under 
the  ultra  vires  agreement.  You  may  be 
entitled  to  have  money  paid  back  which 
has  been  paid  under  the  ultra  vires  agree- 
ment .  .  .  and  30U  may  be  entitled 
to  have  property  returned  or  other  acts 
done."  Hare  v.  London,  <fec.,  Ry. 
Co.,  1  John.  &  H.  252  (1860),  holding 
that  in  an  action  to  set  aside  a  traffic  con- 
tract, all  the  corporations  who  were 
parties  to  the  contract  are  necessary 
parties.  Tyson  v.  Mahone,  1  Hughes 
(U.  S.  C.  Ct.),  80  (1871),  to  the  effect  that, 
in  an  action  to  set  aside  a  consolidation, 
the  other  corporation  is  a  necessary  party. 
Bill  V.  Donohue,  17  Fed.  Rep.  710(1883); 
Abbot  V.  American  Hard  Rubber  Co.,  4 
Blatch.  489  (1861);  Bengley  v.  Wheeler, 
45  Mich.  493  (1881)  ;  Shawhan  v.  Zinn, 
79  Ky.  300  (1881),  holding  that  the  ob- 
jection to  a  defect  of  parties  herein  may 
be  raised  at  the  trial,  and  need  not  be 
raised  by  demurrer.  Cass  v.  Ottawa, 
&c.,  Co.,  22  Grant  (U.  C).  512   (1875), 


en.  XLII.]  PARTIES,   PLEADINGS,    AND   REMEDIES. 


[§  694. 


fraud.^  A  bill  combining  an  action  to  restrain  the  corporation 
from  investing  in  the  stock  of  another  company,  and  one  to  re- 
strain it  from  aiding  that  company,  has  been  held  to  be  multifa- 

2 


rions. 


The  stockholders  cannot  join  a  suit  against   the  corpora- 
tion, with  one  against  third  persons  in  behalf  of  the  corporation. 

§  694.  Complainant  must  allege  that  he  requested  the  corpo- 
ration to  hring  the  suit,  and  that  the  corporation  refused  or 
neglected  to  do  so. — Inasmuch  as  a  fraud,  uUm  vires  or  negligent 
act  of  the  directors  of  a  corporation  is  an  injury  done  to  the  cor- 
poration itself,  it  is  the  duty  and  proper  function  of  the  corpora- 
tion to  institute  any  action  that  may  be  brought  to  remedy  the 
injury  to  the  corporation.  As  already  explained,  however,  a 
stockholder  may  bring  the  action  if  the  corporation  improperly 
refuses  or  neglects  to  institute  such  suit.  Before  the  stockholder 
brings  suit  he  must  make  a  formal  request  to  the  corporate  offi- 
cers that  suit  be  instituted  by  the  corporation.  Upon  its  refusal 
or  neglect  to  comply  with  that  request  he  may  then  bring  suit 
himself.  It  is  well  settled,  however,  that  he  must  allege  in  his 
bill  in  equity  that  such  a  request  has  been  made  and  has  not  been 
complied  with.^     There   has  been  considerable  discussion  as  to 


holding  that  the  attorney-general  is  not  a 
necessary  parly  defendant.  Cf.  Rynn  v. 
Ray.  3;}  Alb.'L.  J.  321  (Ind.  1880). 
Sometimes  the  directors  of  another  cor- 
poration are  proper  parties  defendant. 
See  'I'erhune  v.  Midland  R.  R.  Co.,  38  N. 
J.  Eq.  423  (1884).  A  person  may  be 
made  a  party  defendant  for  purposes  of 
discovery  onlv.  See  Lewis  v.  St.  Albans, 
Ac,  Works,  50  Vt.  477  (1878). 

'  Winsor  v.  Bailey,  55  N.  H.  218 
(1875). 

*  Salomons  v.  Laing,  12  Beav.  339 
(1849). 

3  Thomas  v.  Hoblen,  8  Jur.  N.  S.  125 
(1862).  And  see  in  general  on  multifa- 
riousne-s  herein.  Merchants,  etc..  Line  v. 
Waganer,  71  Ala.  581  ;  Smith  v.  Ratiibun, 
22  Hun,  150(1880). 

"  Cogswell  V.  Bull,  39  Cal.  320  (1870); 
Hazard  v.  Durant,  1 1  R.  I.  195  (1875),  the 
court  saying  that  the  allegations  of  re- 
quest "  will  be  sustained  by  proof  of  a  re- 
quest to  the  stockholders  in  corporate 
meeting,  or  to  the  directors  in  office  when 
the  suit  began,  or  in  any  other  mode,  so 
that  it  be  in  legal  effect  a  request  to  the 
corporal  ion.  Talbot  jj.  Scripps,  31  Mich. 
268  (1875),    where  Mr.    Justice    Cooky 


says :  "  The  wrong  alleged  will  be  seen 
to  be  a  corporate  wrong,  in  which  all  the 
stockholders  are  proportionally  inter- 
ested, and  any  legal  redress  should  be 
at  the  instance  of  the  corporation,  if  the 
board  of  directors  will  consent  to  demand 
it.  There  is  no  allegation  that  the  board 
has  been  requested  to  bring  suit  and  has 
refused.  Under  the  circumstances  we 
know  of  no  ground  on  which  the  suit  can 
be  maintained.  As  well  might  an  indi- 
vidual stockiiolder  bring  suit  to  recover 
his  share  of  corporate  funds  which  iiad 
been  lost  by  negligence  or  embezzlement, 
or  his  proportion  of  insurance  money  on 
the  corj)orate  property  destroyed  by  fire. 
The  injury  counted  on  is  not  a  separate 
injury  to  each  of  the  stockholders,  but  a 
joint  injury  to  all,  and  the  corporation 
represents  all  for  the  purjioses  of  legal 
remedy  ;  at  least  until  it  is  shown  that 
the  corporate  authorities  refuse  after 
proper  application  to  act."  Ware  v.  Baze- 
more,  58  Ga.  316  (1877);  Merchants,  <fec. 
Line  v.  Waganer,  71  Ala.  581 ;  Horsey  v. 
Veazie,  24  Me.  9  (1844);  Memphis  (^ity 
V.  Dean,  8  Wall.  64  (1868);  House  v. 
Cooper,  30  Barb.  157  (1858);  Abbott  ». 
Merriam,  62  Mass.  588  (1851);    Morgan 

741 


§(;94] 


PARTIES,   PLEADINGS,   AND    REMEDIES.  [cH.  XLII. 


whether  the  stockholder,  in  addition  to  his  request  to  the  corpo- 
rate officers  to  institute  the  suit,  should  not  also  be  required  to 
attempt  to  induce  the  stockholders  in  meeting  assembled  to  take 
action  by  directing  the  directors  to  bring  suit,  or  by  refusing  to 
re-elect  them  at  the  next  election.  The  facts,  however,  that  tlie 
stockholders  in  meeting  assembled  cannot  control  the  discretion 
of  the  directors  in  bringing  such  a  suit ;  that  the  remedy  of  re- 
fusing to  re-elect  them  involves  delay,  and  the  assumption  that  a 
majority  of  the  stockholders  can  by  the  election  control  such  a 
suit;  that  irreparable  injury  or  the  vesting  of  great  financial  in- 
terests may  occur  in  the  meantime  ;  and  that  laches  may  arise  as 
a  bar  to  the  stockholder's  suit,  have  settled  the  rule  that  the  stock- 
liolder's  request  to  the  corporate  directors  to  institute  the  suit  is 
sufficient.  He  need  not  also  apply  to  a  stockholders'  meeting.^ 
In  the  Federal  courts  the  necessity  of  an  allegation  that  the  cor- 
poration has  been  requested  to  sue  and  has  refused,  is  fixed  by 
a  rule  of  the  court.^ 


(-.  R.  R.  Co.  29  Vt.  545(1861).  But  a  re- 
quest to  brinfc  the  suit  in  a  Federal  court 
is  insufficient.  See  Newby  v.  Oreeon 
Central  R.  R.  Co.,  1  Sawyer,  63  (1870). 
The  leading  case,  Foss  v.  Harbottle,  2 
Hare,  461  (1843),  failed  by  reason  of  a 
failure  to  make  this  effort  to  induce  the 
corporation  to  act.  In  the  important 
case  Greaves  v.  Gouge,  69  N.  Y.  154 
(1877),  the  court  said  that  "an  action  for 
injuries  caused  by  such  misconduct  must 
be  brought  in  the  name  of  the  corpora- 
tion, unless  such  corporation  or  its  offi- 
cers, upon  being  applied  to  for  such  a  pur- 
pose by  a  stockholder,  refuse  to  bring 
such  action.  In  that  contingency  and 
then  only  can  a  stockholder  bring  an  ac- 
tion for  the  benefit  of  himself,  and  others 
gimilarly  situated,  and  in  such  an  action 
the  corporation  must  necessarily  be  made 
a  party  defendant.  When  a  stockholder 
brings  such  an  action  the  complaint  should 
allege  that  the  corporation  on  being  ap- 
plied to  refuses  to  prosecute ;  and  as  this 
averment  constitutes  an  essential  ele- 
ment of  the  course  of  action  the  complaint 
is  defective  and  insufficient  without  it." 
Cogswell  V.  Bull,  39  Cal.  320(1870),  where 
the  court  said :  "  So  long  as  the  corpora- 
tion is  willing  to  perform  its  duty 
towards  its  stockholders  by  instituting 
and  conducting  in  good  faith  the  neces- 
sary legal  proceedings  to  recover  money 
misapplied   by  the  trustees,    the    stock- 

742 


holders  have  no  cause  to  complain;  but 
if  the  corporation,  after  a  proper  demand, 
refuses  to  institute  the  action,  the  stock- 
holders may  sue  in  their  own  names.  If 
it  were  otherwise  there  would  be  a  failure 
of  justice  and  a  great  many  of  the  stock- 
holders might  go  without  redress.  It  is, 
therefore,  necessary  in  an  action  by  a 
stockholder  in  such  cases  to  aver  a  de- 
mand and  refusal,  without  which  the  ac- 
tion will  not  be  sustained."  The  defend- 
ant cannot  raise  this  point  in  the  appel- 
late court  for  the  first  time.  See  Bulk- 
ley  V.  Beg,  <fec.,  Co.,  77  Mo.  105  (1882). 
Tlie  request  to  the  directors  must  be 
made  in  good  faith  and  the  refusal  must 
be  real  and  not  collusive.  Bacon  v.  Ir- 
vine, 11  Pac.  Rep.  646  (Cal.  1886). 

'  Mason  v.  Harris,  L.  R.  11  Ch.  D. 
97  (1879),  holding  also  that  the  court  has 
no  power  to  order  such  a  meeting.  See 
a  discussion  of  this  question  in  Brewer  v. 
Boston  Theatre,  104  Mass.  378  (1870). 
See  also  Gregory  v.  Patchett,  33  Beav. 
595  (1864). 

"^  Rule  94  "  .  .  .  It  [the  bill] 
miist  also  set  foi-th  with  particularity  the 
efforts  of  the  plaintiff  to  secure  such  ac- 
tion as  he  desires  on  the  part  of  the  man- 
aging directors  or  trustees,  and,  if  neces- 
sary, of  the  shareholders  and  the  causes 
of  his  failure  to  obtain  such  action."  Mc- 
Henry  v.  N.  Y.,  <fec.  R.  R.  Co.,  22  Am.  & 
Eng.  R.  R.   Cas.   50.     See  Leo  v.  Union 


CH.  XLII.l  PARTIES.   PLEADINGS,   AND   REMEDIES.    [§§  695,  696. 

§  695.  When  such  an  allegation  may  he  omitted.— There  are 
occasions  when  the  allegation  that  the  stockholder  has  requested 
the  directors  to  bring  suit  and  they  have  refused,  may  be  omitted, 
since  the  request  itself  is  not  required.  This  occurs  when  the 
corporate  management  is  under  the  control  of  the  guilty  parties. 
No  request  need  then  be  made  or  alleged,  since  the  guilty  parties 
would  not  comply  with  the  request,  and  even  if  they  did  the  court 
would  not  allow  them  to  conduct  the  suit  against  themselves.^ 
Nevertlieless,  instead  of  this  allegation  the  complainant  must  al- 
lege the  facts  which  excuse  such  a  demand  or  request  to  the  direc- 
tors, and  these  facts  must  be  stated  with  particularity  and  definite- 
ness.^ 

§  696.  Miscellaneous  allegations  of  the  complainant. — The 
alleo-ations  which  set  forth  the  complaining  stockholder's  cause  of 
action  will  depend  largely  of  course  on  the  particular  facts  of  each 
case.  It  is  necessary,  however,  to  determine  first,  whether  the 
allegations  are  to  make  out  a  case  of  fraud,  or  of  an  ultra  vires 
act  or  of  a  negligent  act.  If  an  ulh^a  vires  act  is  complained  of, 
the  gist  of  the  action  is  not  fraud,  and  it  need  not  be  alleged.'* 
But  where  the  action  is  to  remedy  a  fraud,  the  allegations  must 
clearly  charge  to  that  effect.  The  word  "  corrupt "  has  been  held 
insufficient  herein.*  If  the  action  is  to  set  aside  an  ultra  vires 
act,  the  act  itself  must  be  stated  with  particularity.'^ 

Pacific  Ry,  Co.,  19  Fed.  Rep.  283  (1884);  this  bill."  Mussina  v.  Goldthwaite,  .34 
Converse  v.  Diinock,  6  Am.  &  Eng.  Corp.  Texas,  125  (18*70);  Dowd  v.  Wisconsin, 
Cas.  418  (1884);  Bill  v.  Western  Union  &c.  R.  R.  Co.,  65  Wis.  108  (1886);  Pond 
Tel.  Co.  16  Fed.  Rep.  14 ;  Foote  v.  Cunard  v.  Vermont,  <fec.  R.  R.  Co.,  12  Blatch.  280 
Min.  Co.  \1  Id.  46  (1883),  holding  that  an  (1874).  But  an  allegation  that  the  man- 
allegation  that  the  corporation  would  agement  is  under  the  control  of  persons 
probably  refuse  relief  is  insufficient.  appointed  by  the  guilty  parties  is  insuffi. 
'  Brinckerhoff  v.  Bostwick,  88  N.  Y.  cienf.  See  McMurray  v.  Morthern,  «fec. 
fi2;  Rogers  v.  Lafayette,  <fec.  Works,  52  Ry.  Co.,  22Grant(lJ.  C), 476(1875).  And 
Ind.  295(1875);  County  of  Tazewell  tJ.  an  allegaiiou  that  the  directors  are  "  near- 
Farmers,  etc.  Co.  12  Fed.  Rep.  752(1882);  ly  if  not  entirely"  in  league  with  the 
Board  of  Tipi)ecanoe  Co.  w.  Lafayette,  <fec.  guilty  parties  is  insufficient.  Cogswell 
R.  R.  Co.,  50  Ind.  85  (1875);  Wilcox  v.  v.  Bull,  39  Cal.  320  (187(»). 
Brickel,  11  Neb.  154  (1881),  where  the  '■'See  cases  in  preceding  note.  The 
officers  had  absconded;  Currier  ?;.  N.  Y.,  stockholder  may  bring  his  suit  although 
«fec.  R.  R.  Co.,  35  llun,  Z5r,  (1885);  Ram-  the  cor|)oration  has  been  dissolved, 
sey  II.  Gould,  57  Barb.  398  (187n);  Kel-  Lafayette  Co.  v.  Neely,  21  Fed.  Rep.  788 
aej  V.  Sargent,  40  Hun,  150(1886);  I'ar-  (1884). 

rott  V.  Byers,  40  Cal.  614  (1871);  Fisher  '•'  Clinch  v.  Financial   Co.,  L.  R.  5  Eq. 

V.  Andrews,  37  Hun,  176 ;    Heath  v.  Erie  450,  482  (1868). 

Ry.  Co.,  8  Blatch.   347  (1871).  the  court  *  Russell  v.  Wakefield,  Ac.  Co.,  L.  R. 

saying:    "  It  would   be  a  mockery  to  re-  20  Eq.  474  (1876). 

quire  or  i.ermit  a  suit  against  them  to  be  ^  Leo  i;.  Union,  <fec.  Ry.  Co.,  19  Fed. 

brought  and  prosecuted  under  their  man-  Rep.  283  (1884). 


agement   to   obtain  the   relief  sought  by 


743 


§§  697-700.]     PARTIES,   PLEADINGS,   AND   REMEDIES.  [CH.  XLH. 

§  697.  Prayer  for  relief. — The  relief  for  whicli  prayer  is 
made  in  the  bill  will  depend  upon  the  character  of  the  act  com- 
plained, and  also  of  the  facts  in  the  particular  case.  Generally  it 
is  to  compel  the  director  or  third  parties  to  pay  over  to  the  cor- 
poration money  or  property  fraudulently  held  by  the  defendants, 
or  to  enjoin  acts,  or  to  set  aside  transactions,  or  for  a  receiver,  or 
for  dissolution,  or  for  more  than  one  of  these.  It  is  well  settled 
that  the  prayer  for  relief  may  be  in  the  alternative.^  The  relief 
granted  cannot  exceed  that  which  is  asked.^ 

§  698.  Property  received  under  the  act  objected  to  must  l)e 
returned  iqjon  that  act  being  set  aside. — This  is  a  principle  of 
law  that  applies  to  all  the  remedies  given  by  a  court  of  equity  in 
remedying  the  frauds  or  ultra  vires  acts  of  the  directors  or  third 
persons  against  the  corporation.  He  who  seeks  equity  must  do 
equity.  An  ultima  vires  act  will  not  be  set  aside  unless  the  money 
or  property  received  by  the  corporation  from  third  persons  there- 
by is  returned  to  such  persons.^ 

§  699.  Injunction  restraining  tlie  corporate  officers  and 
others  from  doing  specified  acts. — The  ordinary  remedy  of  the 
stockholder  is  an  injunction  by  a  court  of  equity  restraining  the 
corporate  officers  from  doing  the  specified  fraudulent  or  tilti^a 
vires  act  which  the  stockholder  complains  of.*  Generally  the  in- 
junction runs  to  the  corporation  itself,  and  this  is  sufficient  to 
make  it  effectual  and  binding  upon  all  corporate  officers  to  whose 
notice  it  comes.^ 

§  700.  Injunction  against  corporate  officers  acting  at  all, 
and  the  appointment  of  a  receiver. — The  law  is  well  settled 
that  the  courts  have  no  power  to  remove  corporate  officers.^  Nor 


1  Colton  V.  Ross,  2  Paige,  S96  (183 1 ) ;  caojo,  &c.,  R.  R.  Co.,  6  Blatch.  105  (1868) ; 

Thomas  v.  Hobler,  4  De  G.,  F.  &  J.  199  Trimmer  v.  Penn.  <fec..  R.  R.  Co.,  36  N. 

(1861).  J.  Eq.  411  (1883),  holding,  however,  that 

^   Latimer    v.    Eddy,    46    Barb.     61  the  officers  are  not  liable  herein  for  con- 

{1864).  tempt  by  reason  of  the  acts  of  sub-con - 

3  Buford  V.  Keokuk,  Ac,  Co.,  69  Mo.  tractors.     See  People  v.  Sturtevant,  9  N. 

611   (18Y9);  Harpending  v.  Munson,  91  Y.  263  (1853);  Id.  «;.  Pendleton,  64  N.Y. 

N.  Y.   650  (1883).     Cf.  Gray  v.  N.  Y.,  622  (1876). 
Ac,  Co..  5  T.  &  C.  224  (1875).  «  Neall  v.  Hill,  16  Cal.  145  (1860),  the 

*  River  Dun  Nav.  Co.  v.  North,  <fec.,  court  sayitig;    "  It  is  well   settled   that 

Ry.   Co.,    1    Ry.    Cas.    134,    153   (1838):  there  is  no  jurisdiction  in  equity  with  re- 

Blatchford  v.  Ross,  54  Barb.  42  (1869).  gard  to  the  removal  of  corporate  officers 

5  See  §  692, sw/>ra.    Also  Hatch  ji,  Chi-  of  any  description." 

744 


CH.  XLn.]         PARTIES,  PLEADINGS,   AND   REMEDIES. 


[§700. 


can  the  stockholders,  in  meeting  assembled,  remove  the  officers.' 
It  is  also  well  established  that  a  court  of  equity  cannot  practically 
remove  corporate  officers  by  enjoining  them  from  performing 
any  of  their  customary  duties,  and  by  appointing  a  receiver  to 
manage  the  corporate  affairs.'^  Frequently,  however,  the  power 
to  restrain  or  remove  corporate  officers,  and  to  appoint  a  receiver 


'  Imperial,  &c.,  Co.  v.  Hampson,  1882, 
W.  N.  189.     See  §  627. 

2  People  V.  Albany-,  <fec.,  R.  R.  Co.,  55 
Barb.  344,  383  (1869) ;  Einstein  v.  Rosen- 
field,  38  N.  J.  Eq.  309  (1884),  where  the 
court  said:  "The  general  jurisdiction  of 
equity  over  corporate  bodies  does  not,  in 
the  absence  of  express  statutory  author- 
ity, extend  to  the  power  of  disso1vin<i  the 
corporation,  or  of  winding  up  its  affairs 
and  sequestrating  the  corporate  effects 
and  property ;  and  courts  of  equity  will 
not,  ordinarily,  by  virtue  of  their  general 
equitable  jurisdiction  or  of  their  visitorial 
powers  over  corporate  bodies,  sequestrate 
the  effects  of  the  corporation,  or  take  the 
management  of  its  affairs  from  the  hands 
of  its  own  officers,  or  intrust  it  to  the 
control  of  a  receiver  of  the  court,  upon 
the  application  either  of  creditors  or 
shareholders."  Howe  v.  Deuel,  43  Barb. 
504  (1865);  "Waterbury  v.  Merchants, 
&c.,  Co.,  50  Barb.  157  (18G7),  where  the 
court  said:  "The  infidelity  or  miscon- 
duct of  some,  or  even  of  all,  of  the  trus- 
tees or  managers  of  such  an  association, 
affords  no  grounds  for  taking  away  the 
rights  of  the  shareholders  who  constitute 
the  company,  either  by  dissolving  it  or 
taking  away  its  management  and  placing 
it  in  the  hands  of  an  officer  of  the  court. 
In  buch  a  case  the  principles  of  remedi.al 
or  preventative  justice  go  no  further  than 
to  enjoin  or  forbid  the  misconduct  or  re- 
move the  unfaithful  officer."  Cicotte  v. 
Anciaux,  53  Mich.  227  (1884) ;  La  Grange 
V.  State  Treas.,  24  Mich.  468  (1872), 
where  the  court  said :  "It  is  not  within 
the  power  of  any  court,  except  in  pro- 
ceedings to  divest  the  corporation  of  its 
ciiarter  francliises,  to  take  away  the  man- 
agement of  its  affairs  from  the  hands  of 
the  directors  lawfully  invested  with  that 
management,  and  give  it  into  the  hands 
of  other  managers.  The  corporate  func- 
tions must  be  performed  by  corporate  of- 
ficers." In  Hyde  Park  Gas  Co.  v.  Kerber, 
5  I'.radw.  (111.)  132  (1879),  where  a  decree 
had  been  made  tliat  a  receiver  be  appoint- 
ed unless  the  officers  f)aid  over  money 
received  by  them  in  fraud  of  corporate 


rights,  the  court  set  aside  the  decree,  and 
said :  "  In  principle  this  is  very  much 
like  sending  the  creditor  to  jail  because 
his  debtor  cannot  pay  him,  and  is  so  op- 
posed to  tliat  spirit  of  justice  which  per- 
vades all  the  true  doctrines  of  equity 
jurisprudence,  that  it  will  not  bear  dis- 
cussion." Bayless  v.  Orme,  Freeman's 
Ch.  (Miss.)  161  (1841);  People  v.  Conklin, 
5  Hun,  452  (1875);  Hand  i;.  Dexter,  41 
Ga.  454  (1871);  Baker  v.  Adm'r  of  Back- 
us, 32  111.  79  (1863);  People  v.  Albany, 
(fee,  R.  R.  Co.,  7  Abb.  Pr.  N.  S.  290 ;  Bel- 
mont?;. Erie  Ry.  Co.,  52  Barb.  637  (1869); 
Smith  V.  Wells,  20  How.  Pr.  168.  Even 
where  two  rival  boards  of  directors  are 
litigating  their  respective  rights,  the  court 
cannot  turn  the  corporate  affairs  over  to 
a  receiver.  See  Karnes  v.  Rochester,  <fec., 
R.  R.  Co.,  4  Abb.  Pr.  N.  S.  107  (1867), 
where  the  court  said :  "This  contest  does 
not,  in  my  judgment,  give  the  court  any 
authority  or  furnish  any  ground  for  it  to 
step  in,  in  the  meantime,  and  take  charge 
of  the  i.ft'airs  of  the  corporation,  and  per- 
form the  duties  of  its  existing  legal  board 
of  directors."  See  Gavenstine's  Appeal, 
49  Penn.  St.  310  (1865),  holding  that  the 
appointment  of  a  receiver  is  equivalent 
to  enjoining  the  officers  from  managing 
the  corporate  business.  A  few  cases  have 
held  that  the  court,  under  extreme  cir- 
cumstances, may  appoint  a  receiver  to 
take  charge  of  the  corporate  business, 
even  though  the  corporation  is  solvent, 
and  no  dissolution  is  intended,  and  no 
corporate  creditors'  interests  are  involved. 
See  Stevens  v.  Davison,  18  Gratt.  (Va.) 
819  (1868),  where  a  railroad  was  turned 
over  to  a  receiver  to  protect  stockholders' 
rights.  Frostburg  Bldg.  Assn.  v.  Stark, 
47  Md.  338  (1877).  In  the  case  of  Ilay- 
ward  V.  Lincoln  Lumber  Co..  26  North- 
west. Rep.  184  (Wis.,  1885),  the  corpora- 
tion was  insolvent.  In  Lawrence  v. 
Greenwich  Fire  his.  Co.,  1  Paige,  587 
(1829),  the  court  appointed  a  receiver 
to  preserve  the  cor|)orate  property,  there 
having  been  no  ofliccrs  elected  by  the 
stockholders.  See  also  Conro  i'.  Gray,  4 
How.  Pr.  166. 

745 


§§  701-703.]     PARTIES,   PLEADINGS,  AND   REMEDIES.  [CH.  XLII. 


of  the  corporation,  is  given  to  the  court  by  a  statutory  enact- 
ment.^ 

§  701.  Miscellaneous  remedies.— It  has  been  held  and  clearly 
established  that  a  stockholder  cannot  bring  about  the  dissolution 
of  the  corporation  merely  because  the  officers  have  been  guilty 
of  a  breach  of  trust.^  Nor  can  he  defeat  an  action  for  his  sub- 
scription by  alleging  such  a  defense.^  ^  . 

§  702.  The  complaini7ig  stockholder  controls  the  conduct 
of  the  suit. — It  is  a  principle  of  equity  practice,  when  a  person 
brings  a  suit  in  behalf  of  himself  and  such  others  as  may  wish  to 
come  in,  who  are  similarly  situated,  that  the  complaining  stock- 
holder controls  the  case,  and  may  continue,  compromise,  abandon, 
or  discontinue  it  at  his  pleasure.*  In  case  the  suit  is  successful, 
the  complaining  stockholder  is  entitled  to  have  his  costs  paid  by 
the  corporation.^ 

§  703.  No  contrihution  among  the  directors. — There  is  no 
contribution  among  directors  guilty  of  a  breach  of  trust,  for 
which  a  part  are  held  liable.^ 


'  In  New  York  it  would  seem,  under 
§  1810  of  the  Code  of  Civil  Procedure, 
that  a  receiver  cannot  be  appointed  at 
the  instance  of  a  stockholder  suing  to 
remedy  the  frauds,  ul/ra  vires  acts,  or 
neglioence  of  a  director.  See  also  Ver- 
planck  V.  Mercantile  Ins.  Co.,  1  Edw.  Ch. 
83  (1831).  In  New  York  it  has  been  held 
that  a  stockholder  may  have  a  corporate 
officer  arrested  for  his  frauds  on  the  cor- 
poration. Crook  V.  Jewett,  12  How.  Pr. 
19(1854). 

'^  See  §  632,  supra. 

*  See  §  187,  supra.  Also  Chetlain  v. 
Republic  Life  Ins.  Co.,  86  111.  220  (187*7); 
South  Georgia,  (fee,  R.  R.  Co.  v.  Ayres, 
66  Ga.  230  (1876).  Nor  can  the  stock- 
holder enjoin  a  call.  Ex  parte  Booker,  18 
Ark.  338  (1857).  If  an  illegal  consolida- 
tion is  set  aside,  the  stockholder,  of  the 
new  company  may  recover  back  the 
amount  paid  in  by  them.  In  re  Bank  of 
Hindustan,  L.  R.  16  Eq.  417  (1873). 

*  "  The  plaintiff,  as  he  acts  upon  his 
own  mere  motion,  and  at  his  own  expense, 
retains  (as  in  other  cases)  the  absolute 
dominion  of  the  suit  until  decree,  and 
may  discuss  the  bill  at  his  pleasure ;  after 
decree,  however,  he  cannot  by  his  con- 
duct, deprive  other  persons  of  the  same 

746 


class  of  the  benefit  of  the  decree,  if 
they  think  fit  to  prosecute  it."  1  Dan- 
iel's on  Ch.  PI.  <fe  Pr.  (4th  Am.  ed.)  244; 
Allen  V.  N.  J.  Southern  R.  R.  Co.,  49 
How.  Pr.  14  (1875),  where  the  court 
said :  "Actions  like  the  present  one  may  be 
discontinued,  settled,  or  compromised  by 
the  plaintiff  at  any  time  before  judgment, 
nor  could  any  other  stock  prevent  such  re- 
sult. Nor  would  such  settlement  or  com- 
promise prevent  a  suit  by  the  corporation 
itself  hereafter,  for  the  same  objects  and 
results  as  are  contemplated  by  this  ac- 
tion, unless  made  a  party  to  this  proceed- 
ing, by  the  final  determination  of  which, 
on  the  merits,  it  would  be  concluded  and 
truly  bound."  But  see  Seaton  v.  Grant, 
L.  R.,  2  Ch.  459  (1867).  Cf.  Scarth  v. 
Chadwick,  14  Jur.  300  (1849).  In  the 
case  Belmont  v.  Erie  Ry.  Co.,  52  Barb. 
637  (1869),  the  court  held  that  the  other 
stockholders  could  interfere  in  the  man- 
agement of  the  case. 

6  Central  R.  R.  Co.  v.  Pettus,  113  U. 
S.  116  (1885).  Cf.  In  re  Atty.-Gen.  v. 
North,  &c.,  Ins.  C.,  91  N.  Y.  57  (1883). 

6  Wilkinson  v.  Dodd,  40  N.  J.  Eq.  123 
(1885);  Peck  v.  Ellis,  2  Johns.  Ch.  131 
(1816).  See  Power  v.  Conner,  19  W.  R. 
923. 


GENERAL  INDEX. 


747 


GENERAL   INDEX 

[The  references  are  to  sections.] 


A. 


ABANDONMENT    OF    SUBSCRIPTION.     See  Defenses. 
ACCEPTANCE    OF   AMENDMENTS.     See  Charter. 
ACQUIESCENCE    AS   A    BAR  to  stockholder's  actions. 

See  Laches. 
ACTION    WHEN    STOCKHOLDER    IS    DEPRIVED    OF    HIS 
STOCK,  pleading  and  practice  herein,  573. 
assumpsit,  574. 
trespass  on  the  case,  575. 
trover,  576. 

detinue  and  replevin,  577. 
action  for  money  had  and  received,  578. 
bill  in  equity,  579. 
special  action  on  the  case,  580. 
ACTS    OF   THE    LEGISLATURE.     See  Charter. 
ADMINISTRATORS.     See  Executors. 

their  right  to  vote  upon  stock  belonging  to  the  decedent's 
estate,  612. 
AGENT,  may  subscribe  for  stock,  64. 

when  unauthorized  principal  may  repudiate,  65. 
when  unauthorized  to  represent  corporation.     Effect  of  sub- 
scription, 66. 
liability  of. 

See     Liability     of     Trustees,     Executors, 
Agents,  &c.;   Sales  of  Stock,  &c. 
AGREEMENTS  to  subscribe,  how  far  enforceable,  67. 

See  Subscriptions. 
ALLOTMENT  OF   SHARES.     ^"^^  Contract  of  Subscription; 

Increase  and  Reduction  of  Stock. 
ALTERATION    OF   CHARTER.     See  Charter. 

749 


GENERAL   INDEX. 

[77i€  references  are  to  sections.^ 

AMALGAMATIONS  without  authority  of   charter  or   statute  are 

ultra  vires,  668. 
AMENDMENT    OF   CHARTER.     See  Charter. 
APPORTIONMENT.     6'(f<f  Contract  of  Subscription. 

ARREARS    OF    DIVIDENDS  on  preferred  stock. 

See  Preferred  Stock. 
ASSENT.     See  Contract  of  Subscription. 

ASSESSMENTS  by  the  corporation  on  stock  in  excess  of  the  par 
value,  241. 

such  assessments  considered,  241,  242. 
are  generally  invalid,  242. 
See  Calls. 

ASSETS.     See  Capital  Stock. 
ASSIGNEE   IN   BANKRUPTCY. 

his  powers  and  duties  in  respect  to  unpaid  subscriptions,  208. 

ASSIGNEE   IN   INSOLVENCY. 

liability  of,  in  transfers  of  stock,  25 2. 
See  Sales  of  Stock. 
ASSIGNMENT   OF   CERTIFICATE.     See  Sales  of  Stock. 
ASSUMPSIT.     See  Action. 

ATTACHMENT  and  execution  on  shares,  480-491- 
no  execution  at  common  law,  480. 

nor  relief  in  equity,  481. 
execution  a  statutory  remedy,  482. 
attachment,  how  far  provided  for  by  statute,  483. 
of  pledge  and  of  stock  fraudulently  transferred,  484. 
stock  can  be  attached  only  in  the  State  creating  the  corpo- 
ration, 485. 
rights  of  unregistered  transferee  against  an  attachment  or 

execution,  486. 
the  rule  herein  in  various  specified  jurisdictions,  487. 

in  the  Federal  courts,  487. 
rights  and  duties  of  the  corporation  herein,  488. 
the  rule  herein  in  various  specified  jurisdictions,  489,  490. 
shares  not  subject  to  garnishment,  491. 

ATTORNEY,  power  of. 

See  Sales  of  Stock. 


750 


GENERAL  INDEX. 
[TTie  references  are  to  seclions.'\ 

B. 

BEQUEST.     .S^.?  Legacies;  Life  Estates  and  Remainders. 
BOARD   OF   DIRECTORS.     See  Directors. 
BONA   FIDE  PURCHASER.     See  Sales  of  Stock. 
BOOKS  OF  THE  CORPORATION.     See  Inspection  of  Corpo- 
rate Books. 
BREACH  OF  TRUST.     See  Directors. 

BY-LAWS. 

when  liens  on  stock  can  be  created  by,  522. 

no  lien  on  national  bank  shares  can  be  created  by,  522. 

liens  on  stock  created  by,  bind  only  purchasers  with  notice, 

524- 

See  Corporate  Meetings. 


c. 

CALLS,  definition  of,  104. 

generally  necessary,  105. 

when  unnecessary,  106. 
the  rule  herein  in  New  York,  107. 
in  case  of  corporate  insolvency  not  necessary,  108. 
who  may  make,  109. 
by  directors,  no. 
sale  or  mortgage  of  subscription  by  corporation  before  or 

after,  in. 
interest  runs  from  time  call  is  due,  112. 
stockholders  cannot  question  advisability  of,  113. 
must  be  impartial  and  uniform,  114. 
method  of  making,  no  formality  necessary,  115. 
lime,  place,  amount,  and  person  to  whom  payable,  i  16. 
notice  of — 

when  not  necessary,  117, 

when  necessary,  118. 
methods  of  serving  notice  of,  119. 
demand,  waiver,  pleadings,  &c.,  in  suits  herein,  120. 

CANCELLATION.     See  Defenses. 

751 


GENERAL   INDEX. 

l^The  references  are  to  scciions.] 

CAPITAL   STOCK,  defined,  3. 

a  trust  fund  for  benefit  of  creditors,  42. 
not  the  rule  in  England,  43. 

See  Increase  and  Reduction;  Corporate  Cred- 
itors. 

CERTIFICATES   OF    STOCK,  negotiability  of,  7,  411,  etc. 
defined,  10. 

not  same  thing  as  the  stock  itself,  10. 
failure  to  tender. 

See  Defenses;  Sales  of  Stock. 

CHARTER,  amendment  and  repeal  of,  492,  503. 

a  triple  contract,  492,  665. 

(a.)  between  corporation  and  stockholders,  493,  665. 
(^.)  between  State  and  corporation,  494,  665. 
{e.)  between  State  and  stockholders,  495,  665. 

stockholders  may  prevent  repeal  of,  except  under  the  re- 
serve power,  496. 

what  amendments  may  be  imposed  upon  stockholders,  497. 

amendments  of;  offered  to  shareholders,  498. 

auxiliary  and  incidental  amendments,  499. 

material  amendments,  valid  only  upon  unanimous  consent, 
500. 

amendments  under  the  reserved  power,  501. 

dissenting  stockholders'  remedy,  502. 

assent  and  acquiescence  as  a  bar,  503. 

COLLATERAL  SECURITIES.     See  Pledges. 

COLORABLE   SUBSCRIPTIONS.      See  Defenses    to    Subscrip- 
tions, 

COMBINATION  OF  STOCKHOLDERS.    6"^^  Elections;  Frauds. 

COMITY   OF   STATES.     See  Liability  as  Partners. 

COMMISSIONERS  to  take  subscriptions,  59. 
may  subscribe  for  stock,  61. 

COMMON   STOCK,  defined,  9. 

COMPETENCY  to  buy  and  sell  stock. 

See  Sales  of  Stock. 
to  subscribe,  60. 

COMPROMISE.     See  Defenses. 

by  corporation  of  a  contract  of  subscription  to  the  capital 
stock,  171. 

752 


GENERAL  INDEX. 

[  The  references  are  to  seeti<yns.'\ 

CONDITIONAL   SUBSCRIPTION  defined,  77. 
conditions  precedent  and  subsequent,  78. 
not  allowed  when  subscriptions  are  taken  to  obtain  charter 

79- 
in  New  York  such  a  subscription  is  void,  80. 
in  Pennsylvania  the  condition  is  void,  80. 
parol  conditions  void,  81. 

after  the  incorporation  conditional  subscription  valid,  82. 
what  conditions  are  valid,  83. 

acceptance  of  conditional  subscription  necessary,  84. 
how  to  be  construed,  85. 
performance  of  condition,  86,  87. 
waiver  of  the  condition,  88. 
notice  of  performance  of  a  condition,  89. 

CONFEDERATE    MONEY,  how  far  payment  for  stock  in,  is  valid, 
197. 

CONFISCATION   OF   STOCK,  371. 

See  Sales  of  Stock. 

CONSIDERATION  for  contract  to  take  stock,  70. 

CONSOLIDATIONS  without  authority  of  charter  or  statute  are  ultra 
vires,  668. 

See  Charter. 

CONSTITUTIONAL   LAW.     See  Charter  Amendments. 
CONSTITUTIONAL  PROVISIONS  making  fictitious  stock  void,  26. 
CONTRACT  FOR    PAYMENT  OF  SUBSCRIPTION  in  proper- 
ty, performance  of,  19. 
by  stock  dividend,  20. 

CONTRACT   OF   SUBSCRIPTION,  no  formalities  necessary,  52. 
certificate  no  part  of,  52,  n. 
must  be  in  writing,  52. 
need  not  be  in  a  special  book,  53. 
valid  if  on  a  scrap  of  paper,  53. 
may  become  binding  by  estoppel,  54. 
when  subscriber  is  not  bound,  55. 

the  English  rule,  57. 

statutory  rules  herein,  58. 
as  to  commissioners,  59. 
who  competetent  to  make,  60. 
corporation  itself  not,  60. 

[48]  753 


GENERAL  INDEX. 

[The  references  are  to  sections.'] 

CONTRIBUTION,  shareholder  compelled  to  pay  his  unpaid  sub- 
scription may  enforce  contribution  from  other  share- 
holders, 2IO,  229. 
directors  convicted  of  fraud  or  breach  of  trust  not  entitled 
to,  703. 
CONVERSION   OF   STOCK.     6*^^  Action. 
CONVERTIBLE   BONDS.       See  Increase    and   Reduction  of 

Stock. 
CORPORATE    BUSINESS,  general  method  of  transacting,  621. 

can  be  transacted  by  stockholders  only  at  corporate  meet- 
ings, 622. 
CORPORATE   CREDITORS.     See  Capital  Stock;    Dividends; 
Liability  of  Stockholders,  etc. 

may  complain  when  stock  is  issued  for  property,  &c.,  when, 
44. 

CORPORATE  MEETINGS,  must  be  held  at  the  specified  time,  590. 

time  of  meeting  must  be  reasonable,  590. 

must  be  within  the  State  creating  the  corporation,  591. 

no  legal  corporate  organization  can  be  affected  by  a 

meeting  outside  of  the  State,  591. 

no  valid  acts  can  be  performed  at  such  a  meeting, 

591- 
validity  of  corporate  acts  at  meetings  outside  the 

State,  592. 
by  whom  meetings  must  be  called,  593. 
notice  of,  when  stockholders  are  entitled  to,  594. 

essential  elements  of  notice  are  time,  place,  and  busi- 
ness, 595. 
service  of  notice,  596. 

must  be  served  a  reasonable  time  before  the  meeting,  597. 
ordinary  and  extraordinary  meetings,  598. 
waiver  of  notice  by  stockholder,  599. 

what  constitutes  a,  599. 
presumed  to  have  been  regularly  given,  600. 
adjourned  meetings,  601. 

what  may  be  done  at,  601. 

CORPORATE   POWERS.     See  Ultra  Vires. 

CORPORATIONS,  classification  of,  i. 

having  capital  stock,  the  subject  of  this  treatise,  2. 

754 


GENERAL  INDEX. 
[77i€  refei'ences  are  to  sections.'] 

CORPORATION,  as  transferrer  or  transferee  of  its  own  shares,  its 
liability  thereupon,  251,  309-314. 

as  vendor  or  vendee  of  shares  of  stock.   See  Sales  of  Stock. 

rights  and  duties  of,  in  allowing  or  refusing  registry,  385-392. 
See  Sales  of  Stock. 

rules  regulating  registry,  393-410. 
CORPORATOR,  defined,  4. 

COSTS,  statutory  liability  of   stockholder  not    enforceable    to    pay 
judgment  recovered  against  the  corporation  for,  220,  «. 
COUNTER-CLAIM.     See  Defenses. 

CREDIT,  may  be  given  upon  a  subscription  for  stock,  when,  56. 
CREDITORS  OF  CORPORATIONS.     See  Corporate  Creditors. 
CUMULATIVE  voting  at  elections  of  directors,  609. 


D. 


DAMAGES,  the  action  for,  in  case  of  a  breach  of  contract  to  buy  or 
sell  stock,  335. 

defenses  herein,  336. 

specific  performance,  337. 

See  Measure  of  Damages. 
DANGERS  INCURRED  IN  PURCHASING  STOCK,  417-444. 
status  of  the  purchaser  of  a  certificate,  417. 
liability  of  purchaser  on  unpaid  par  value,  418. 

to  forfeiture  for  non-payment  of  calls,  419. 

upon  statutory  liability,  420. 

when  transfer  is  made  to  a  nominal  holder,  421. 

for  assessments,  422. 

when  stock  was  originally  issued  for  property,  423. 

as  partner  under  certain  circumstances,  424. 

as  to  lien  of  the  corporation,  425. 

in  case  of  overissued  stock,  426. 

when  transferrer  or  previous  holder  was  Incompetent  to 
contract,  or  hold  stock,  427. 

when  stock  is  transferred  by  or  from  the  corporation 
itself,  428. 

by  joint-owners,  partners,  or  agents,  429. 

at  sheriff's  sale,  or  from  assignee  in  bankruptcy,  or  in 
solvency,  430. 

755 


GENERAL  INDEX. 
[TTie  references  are  to  sections.'] 

jyh^G'Ej'K.^— continued. 

from  pledgee,  431, 

when  the  transferee  of  a  pledgee  is  protected,  432. 
from  executor  or  administrator,  433. 
from  a  trustee,  434. 

in  respect  to  the  possibility  of,  there  being  another  vendee 
of  the  same  stock  without  delivery  of  certificate,  435. 
in  respect  of  forgery,  436. 
or  of  a  loss  or  theft  of  the  certificate  endorsed  in  blank, 

437- 
or  of  a  previous  holder's  loss  of  the  stock  by  fraud,  438. 

or  of  the  statute  of  frauds,  439. 
in  gambling  sales  of  stock,  440. 

in  respect  to  the  methods  of  assigning  a  certificate,  441. 
as  to  the  registry,  442. 

not  affected  by  rights  of  holders  back  of  the  last  regis- 
try, 443- 
summary,  444. 

DEATH   REVOKES  offer  to  subscribe,  75,  n. 
DEBENTURE,  defined,  5,  n. 

DECEIT.      See  Fictitious    Stock;    Fraudulent    Representa- 
tions; Sales  of  Stock. 
DECLARATION  OF  DIVIDENDS.     See  Dividends. 
DEED   OF   SETTLEMENT,  defined,  5,  n. 
DE  FACTO  CORPORATION.     See  Liability  as  Partners. 

DEFENSES  TO  ACTIONS  TO  ENFORCE    SUBSCRIPTIONS, 
166. 

See  Liability  of  Stockholders. 

not  favored  by  the  courts,  166. 

definition  of  the   terms  "  release,''  "  withdrawal,"  "  surren- 
der," "cancellation,"  and  "rescission,"  167. 

subscription  may  be  cancelled  by  mutual  consent,  168. 
consent  must  be  unanimous,  169. 

when  cancellation  may  be  impeached,  170, 

compromise  of  subscription,  171. 

non-payment  of  statutory  percentage  not  available  as  a  de- 
fense, 172. 

this  is  the  general  rule,  173. 
the  New  York  rule  herein,  174. 
the  Pennsylvania  rule  herein,  175. 

756 


GENERAL  INDEX. 

[Tfu  references  are  to  seciians.l 

DEFENSES  TO  ACTIONS   TO   ENFORCE  SUBSCRIPTIONS 

— continued. 

failure  to  obtain  the  full  amount  of  subscription,  176. 

a  charter  provision  may  do  away  with  this  defense,  177. 
the  express  provision  of  the  contract  may  govern,  178. 
in  England  the  matter  is  governed  by  statute,  179. 
what  subscriptions  are  to  be  counted  herein,  180. 
this  defense  may  be  waived,  181. 
faifure  to  fix  definitely  the  capital  stock,  182. 

this    defense    avails   especially   in   the   New   England 
States,  182. 
irregular  incorporation  of  the  company,  183. 

this  defense  not  available  against  corporate  creditors,  184. 
quere  as  between  the  de  facto  corporation  and  the 
subscribers,  185. 

the  effect  of  the  law  of  estoppel  or  of  acquiescence 
herein,  186. 

ultra  vires  acts  of  the  corporation  or  the  corporate  ofiicers, 
187. 

the  various  remedies  open  to  the  subscriber  herein,  187. 
frauds  and  mismanagement  of  the  directors,  188. 

when  this  defense  is  not  available,  188. 
delay  and  abandonment  of  the  enterprise,  189. 

this  defense  not  generally  open  to  the  subscribers,  189. 

failure  of  the  corporate  enterprise,  190. 

other  subscriptions  cancelled,  or  released,  or  taken  condi- 
tionally, 191. 

how  far  this  defense  is  available,  191. 
failure  to  tender  certificate,  192. 

this  generally  not  a  valid  defense,  192. 
set-off  and  counter-claim,  193. 

this  defense  not  available  against  corporate  creditors, 

193- 

where  subscriber  has  voluntarily  paid  corporate  debts, 
194. 

statute  of  limitations,  195. 

how  far  available  in  a  court  of  equity,  195. 
ignorance  or  mistake,  196. 

generally  invalid,  196. 
miscellaneous  grounds  of  defense  herein,  197. 

material  alteration  of  the  terms  of  the  contract,  197. 
waiver  of,  198. 

757 


GENERAL   INDEX. 

[  The  references  art  to  sections.'\ 

DEFERRED   STOCK,  defined,  9. 

DELEGATION    OF   POWERS.      See  Calls;  Corporate  Meet- 
ings. 
DETINUE.     See  Action. 
DIRECTORS,  may  subscribe  for  stock,  61. 
who  may  be  elected,  620. 
cannot  be  removed  by  stockholders,  621. 
are  trustees,  648. 
the  frauds  of,  contrast  between   Europe   and  the   United 

States  in  respect  of,  640-642. 
three  classes  of  stockholders'  wrongs  considered,  643. 
the  corporation  is  the  proper  party  to  bring  action  to  rem- 
edy these  wrongs,  644. 
but  the  corporation  failing  or  refusing  to  suit,  a  stockholder 

may  bring  the  action,  645. 
methods  of  perpetrating  these  frauds,  647. 
in  general  a  breach  of  trust,  648. 
when  interested  in  a  construction  company,  649. 
when  gifts  are  received  from  persons  contracting  with 

the  corporation,  650. 
in  sales  of  property  by  them  to  the  corporation,  652. 
in  purchases  of  property  by  them  from  the  corporation, 

653- 

when  such  purchases  or  sales  are  valid,  652,  653. 

in  voting  salaries  or  compensation  to  corporate  officers, 

657- 
in  contracts  between  companies  having  one  or  more 

directors  in  common,  658. 
in  collusion  with  mortgagees  on  the  foreclosure  of  a 

mortgage  on  corporate  property,  659. 

stockholder's  remedies  herein,  659. 
in  buying  up  property  for  resale  to  the  company,  660. 
in  the  misapplying  or  giving  away  of  corporate  funds, 

674. 
in  the  misuse  or  embezzlement  of  corporate  funds,  661. 
in  reorganizations,  654-656. 

See  Reorganizations. 
the  discretion  of,  as  to  mfra  vires  acts,  not  to  be  questioned 
by  the  courts,  677. 
on  refusing  to  institute  or  defend  suits  not  generally 

questioned  by  the  courts,  678. 
negligence  of,  remedy  of  the  stockholders  for,  679. 

for  what  negligent  acts  herein  an  action  lies,  680. 

758 


GENERAL  INDEX. 

[^The  references  are  to  sections.^ 

DIRECTORS— continued. 

are  liable  for  failure  to  exercise  ordinary  care  and  diligence 

in  managing  corporate  affairs,  68 1. 
no  contribution  among,  when  made  liable  for  fraud  or  breach 

of  trust,  703. 

DISCRETION    OF   DIRECTORS,  as  to  infra  vires  acts,  not  to  be 

questioned  by  the  courts  unless  fraudulent,  677,  678. 
DISCRIMINATION  AS  TO  DIVIDENDS.     See  Dividends. 
DISFRANCHISEMENT.     See  Expulsion. 
DISPUTES.    See  Intra  Vires. 

DISSENTING    MEMBERS.     3"^^  Directors  ;    Frauds;    Ultra 
Vires  Acts. 

DISSOLUTION,  the  several  methods  of,  628. 

voluntary  dissolution  by  unanimous  consent,  629. 

whether  a  majority  may  dissolve,  630,  631. 

corporate  insolvency  a  ground  for  dissolution,  632. 

what  will  and  what  will  not  operate  to  dissolve,  d^y 

statutes  regulating,  634. 

the  English  statute,  635. 

a  lease  or  transfer  of  the  corporate  property  and  franchises 

as  a  means  of,  636. 
by  legislative  repeal  or  forfeiture  or  by  judicial  forfeiture  or 

by  lapse  of  time,  637. 
the  assets  upon,  638. 

the  common  law  rule  as  to,  abandoned,  638. 
stockholders  entitled  to,  upon  dissolution,  639. 

this  right  depends  upon  the  law  of  the  country  cre- 
ating the  corporation,  639. 
DIVERSION    OF    CORPORATE    FUNDS.     See   Ultra  Vires 

Acts. 
DIVIDENDS,  definition  of,  and  the  relation  of  the  shareholder  there- 
to, 534. 
four  kinds,  535. 

scrip  and  property  dividends,  536. 
stock  dividends,  537. 
interest-bearing  stock,  538. 
can  be  made  only  from  net  profits,  539. 

net  profits  defined,  539,  540. 
discretion  of  directors  as  to  declaring,  541. 

not  usually  interfered  with  by  the  courts,  541. 
when  the  courts  will  intervene,  541. 

Y59 


GENERAL  INDEX. 

[7%c  references  are  to  sections.] 

DIVIDENDS— confinued. 

to  whom  a  dividend  should  be  paid,  542. 

as  between  two  or  more  claimants,  542. 

to  whom  a  dividend  belongs,  543. 

as  between  vendor  and  purchaser,  legatee  and  adminis- 
trator, &c.,  543. 

must  be  equal  and  without  preference,  544. 

bill  in  equity  may  be  had  to  restrain  an  unequal  distri- 
bution, 544. 

when  declared  becomes  a  debt  due  the  stockholder,  545. 

which  may  be  collected  by  legal  proceedings,  546. 

either  at  law  or  in  equity,  546. 

parties  in  such  actions,  546. 

corporate  lien  on  dividends  for  debts  due  to  it  by  the  stock- 
holder, 547. 
dividends  which  impair  the  capital  stock  are  illegal,  548. 
may  be  recovered  back,  548. 
form  of  the  action  herein,  549. 
liability  herein  of  the  corporate  officers,  550. 

enforceable  by  corporate  creditors,  the  corporation 
and  non-participating  stockholders,  550. 
DURATION   OF  CORPORATIONS.    6"^^  Dissolution. 


E. 


EARNINGS.     See  Dividends. 
ELECTIONS,  are  held  by  the  stockholders,  603. 
who  are  to  preside  at,  604. 
conducting,  opening  and  closing,  605. 
mandamus  to  compel,  606. 
the  majority  of  votes  elect,  607. 
every  share  is  entitled  to  one  vote,  608. 
cumulative  voting,  609. 
proxies,  610. 

no  special  form  necessary,  610. 

how  far  they  may  be  irrevocable,  610. 
transfer  book  as  evidence  of  a  right  to  vote,  611. 

how  far  conclusive,  611. 

right  of  trustees,  pledgees,  married  women,  administrators, 
&c.,  to  vote  at,  612. 

760 


GENERAL   INDEX. 
[7%e  references  are  to  sections.'\ 

ELECTIONS— ^^;z//««^^. 

corporation  itself  cannot  vote  upon  its  own  stock,  613. 
injunction  against  voting  particular  stock,  614. 

elections,  617. 
illegal  or  fraudulent  acts  at,  615. 

shareholder's  remedies  herein,  615. 
the  action  of  quo  warranto y  615. 
the  action  in  equity,  615. 
only  a  shareholder  who  is  injured  can  complain,  616. 
combinations  and  contracts  as  to,  618. 
how  far  lawful,  618. 

majority  for  the  purpose  of  controlling  may  lawfully 
enter  into,  618. 
failure  to  elect  officers,  the  effect  of,  619. 
who  may  be  a  director  or  corporate  officer,  620. 
the  New  York  statute,  620. 
EMBEZZLEMENT.     See  Frauds. 

EQUITABLE  OWNERS.      See  Trustee  ;    Liability  ;    Agent  ; 
Sales  of  Stock. 

ESTOPPEL.     See  Acquiescence. 

EVIDENCE    OF   SUBSCRIPTION,  what  is,  73. 

EXECUTION   ON   SHARES.      See  Attachment    and    Execu- 
tion. 

EXECUTORS.   See  Liability  of  Trustees  ;  Executors;  Agents, 
etc. 

EXECUTORS   AND   ADMINISTRATORS,  liability  of,  as  trans- 
ferrer or  transferee  of  shares  of  stock,  248,  322,  397. 

EXPRESS    PROMISE  to  pay  the  subscription  necessary  in   New 
England  States,  68. 
reason  of  this  rule,  68. 

EXPULSION    OF    MEMBERS,  in  general  no  power  to  expel  mem- 
bers of  modern  incorporated  companies,  626. 


F. 

FALSE   REPRESENTATIONS.     See  Fraudulent  Representa- 
tions. 
FICTITIOUSLY    PAID-UP   STOCK,  defined,  9. 
not  void,  25. 

constitutional  provisions  making  it  void,  26. 
may  be  voidable,  29. 

7G1 


GENERAL  INDEX. 

[The  references  are  to  seclions.'\ 

FICTITIOUSLY    PAID-UP  STOCK— continued. 
issue  of,  an  uUra  vires  act,  29. 
issue  of,  by  discount  in  cash,  30. 
dangers  of  this  method,  31. 
English  rule  sustains  issues  below  par,  32. 
issue  of,  for  property  taken  at  an  overvaluation,  33. 

New  York  rule  herein,  34. 
subscriptions  to.     See  Defenses. 

See  Issue  of  Fictitiously  Paid-Up  Stock;  Issue  of 
Stock,  etc. 
FICTITIOUS   SUITS.     See  Pleadings,  etc. 
FIDUCIARY   POSITION   OF   DIRECTORS.     See  Directors. 
FORECLOSURE.     See  Directors;  Frauds. 
FORFEITURE   OF   SHARES  for  non  payment,  121. 
remedies  against  delinquent  subscriber,  121. 
by  strict  foreclosure,  122. 
by  forfeiture  and  sale,  123. 

this  remedy  is  purely  statutory,  123. 
is  cumulative,  124. 
the  remedies  are  exclusive,  125. 
cannot  be  resorted  to  in  succession,  125. 

a  contrary  view  herein,  126. 
relieves  the  shareholder  from  liability  to  corporate  creditors, 

127. 
motives  inducing  the  corporate  officers  herein,  128. 
statutory  formahties  of,  129. 
notice  to  delinquent  subscribers  when  necessary,  130. 

is  not  forfeiture,  131. 
tender,  by  stockholder,  before  forfeiture,  effect  of,  132. 
surplus  after  forfeiture  belongs  to  the  corporation,  133. 
when  equity  will  relieve  from  an  unauthorized  forfeiture,  134. 
FORFEITURE   OF   CHARTER.     See  Amendments. 
FORGERY,  as  affecting  a  sale  of  stock,  363-367,  401. 

See  Sales  of  Stock. 
FORMALITIES.    See  Contract  of  Subscription. 
FORMATION   OF   CORPORATIONS.     See  Liability  as  Part- 
ners. 
FORMS   OF  ASSIGNMENT  of  certificate,  375,  n. 

of  powers  of  attorney  for  transferring  stock,  375,  n. 
FRAUD  affecting  a  sale  of  stock,  349-357- 

See  Sales  of  Stock;  Defenses;  Statute  of  Frauds. 

762 


GENERAL   INDEX. 
[  The  references  are  to  seclions.^ 

FRAUDS   OF   DIRECTORS.     ^^^  Directors. 

FRAUDS   OF   STOCKHOLDERS.     6"^^  Stockholders. 

FRAUDULENT    REPRESENTATIONS,  135,  139. 

corporation  chargeable  with  those  of  its  agents,  139. 

early  common  law  rule  to  the  contrary  now  disapproved, 
140. 

to  bind  the  corporation  must  be  by  authorized  agents,  141. 

of  officers  at  a  public  meeting,  corporation  not  bound  there- 
by, 142. 

may  be  made  in  prospectuses,  143, 

or  by  reports,  144. 

when  mere  misrepresentations  are  equivalent  to,  145. 

statements  as  to  questions  of  law,  when  equivalent  to,  146. 

may  be  made  by  suppression  of  the  truth,  147. 

or  by  statements  made  without  knowledge  of  their  falsity, 
148. 

misrepresentations  which  do  not  amount  to,  149. 

subscriber  is  not  bound  to  investigate  the  truth  of  the  repre- 
sentations made  to  him,  150. 

subscriptions  induced  by  fraud,  voidable,  not  void,  151. 

remedies  of  subscriber  herein,  152. 

rescissions  without  legal  proceedings,  153. 
how  far  a  defense  to  an  action  for  calls,  154. 

remedy  herein  by  bill  in  equity,  155. 

parties  and  pleading  herein,  156. 

by  action  at  law  for  deceit,  157. 

directors  not  liable  to  such  an  action,  158. 

by  action  for  money  had  and  received,  159. 
ratification  as  a  bar  to  a  subscriber's  action  herein,  160. 
laches  as  a  bar,  161. 

what  constitutes  laches,  162. 
corporate  insolvency  as  a  bar,  163. 

doubtful  whether  this  is  the  rule  in  this  country,  164. 
necessary  allegations  in  pleadings  in  these  actions,  165. 


G. 

GAMBLING   SALES   OF  STOCK.     See  Sales  of  Stock. 

GARNISHMENT    OF   SHARES   OF    STOCK,  not  a  proper  rem- 
edy, 491. 

See  Attachment. 

763 


GENERAL   INDEX. 


[T^  references  are  to  8ections.'\ 


GIFTS   OF   STOCK.     See  Legacies  and  Gifts  of  Stock. 
GRANT   OF   INCREASE   OF   SHARES.     See  Life  Estate. 
GUARANTEED    STOCK.     See  Preferred  Stock. 


I. 


ILLEGAL  ACTS.     See  Ultra  Vires. 

ILLEGAL  INCORPORATION.     See  Liability  as  Partners. 
ILLEGALITY  AT  ELECTIONS.     See  Elections. 
ILLUSORY  SUITS.     See  Pleadings,  etc. 
INCOME.     See  Life  Estate;  Dividends. 

INCREASE  AND  REDUCTION  OF  STOCK,  when  capital  stock 
may  be  increased  or  reduced,  279. 
the  legislature  may  authorize  such  increase  or  reduc- 
tion, 280. 
the  corporate  authorities  have  no  power  herein,  281. 
effect  of  purchase  by  corporation  of  its  own  shares,  282. 

does  not  reduce  the  capital  stock,  282. 
convertible  bonds,  their  nature  and  characteristics,  283. 
power  of  a  court  to  order  an,  284. 
shareholders,  not  directors,  should  authorize  an,  285. 
right  of  the  old  stockholders  to  buy  the  new  stock  upon  an 
increase,  286. 

how  this  right  must  be  exercised,  286. 
time  within  which  the  subscription  can  be  made  may  be 
limited,  286. 
sometimes  affected  by  declaring  a  stock  dividend,  287. 
liability  of  the  stockholders  upon  an  increase,  288. 
rights  and  liabilities  of  stockholders  upon  a  reduction,  289. 
change  in  the  number  or  par  value  of  the  shares,  effect  of, 

290. 
overissued   stock,   unauthorized   increase  may  amount  to, 
291. 
is  absolutely  void,  292. 
the  "  Schuyler  frauds,"  292,  n. 
liability  of  the  corporation  upon,  293. 
defenses  of  the  corporation  as  to,  294. 
personal  liability  of  the  corporate  officers,  295. 
liability  of  the  vendor  of,  296. 

764 


GENERAL  INDEX. 

[The  references  are  to  seciions."] 

INCREASE  AND  REDUCTION  OF  STOCK— cofitinued. 

equity  will  enjoin  voting  transfers  or  dividends  on,  297. 

will  adjust  the  rights  of  all  parties,  297. 
subscriber  may  defeat  an  action  to  recover  subscription 

to,  298. 
and  recover  back  money  paid  thereon,  298. 

INDIVIDUAL  LIABILITY.     See  Liability. 

INFANT  subscriber  may  avoid,  6^. 

liability  of,  as  transferrer  or  transferee  of  shares  of  stock, 
250,  318. 

See  Sales  of  Stock. 

INFORMALITIES  will  avoid  subscription  for  stock,  when,  55. 
INJUNCTION,  against  elections.     See  Elections. 

against  voting  particular  stock,  when  granted,  614. 
restraining  corporate  ofificers  and  others  from  doing  specified 
acts,  699. 
from  acting  at  all,  700. 

INSOLVENCY.     See  Defenses. 
INSPECTION  of  the  corporate  books,  511-520. 

stockholders'  rights  herein  at  common  law,  511. 
action  at  common  law  for  damages  for  refusal  to  allow,  512. 
the  remedy  by  mandamus,  513. 
not  granted  as  of  course,  514. 
when  it  will  be  granted  and  when  not,  515. 
allegations  and  form  of  writ,  516. 
inspection  of  minutes  of  directors'  meetings,  517. 
statutory  provisions  conferring  the  right  of,  518, 
order  of  court  to  the  corporation  to  allow  inspection,  519. 
subpoena  duces  tecum  to  a  corporate  officer,  520. 

INTEREST-BEARING  STOCK,   how   distinguishable    from    pre- 
ferred stock,  277. 
rights  and  liabilities  of  the  holders  of,  277. 
INTERFERENCE  with  corporate  affairs.     See  Intra  Vires. 
INTERNAL  AFFAIRS  OF  CORPORATIONS.   See  Tntra  Vires. 
INTERPLEADER,  BILL  OF,  corporation  may  have,  between  two 

claimants  to  corporate  stock,- 387,  407. 
INTRA  VIRES  ACTS  distinguished  from  acts  ultra  vires,  676. 

See  Directors. 
IRREGULARITIES.     See  Formalities. 

765 


GENERAL   INDEX. 


[The  references  are  to  sections.J 


ISSUE   OF  FICTITIOUSLY  PAID-UP  STOCK,  who  is  liable— 
{a.)  corporation,  45. 
{d.)  persons  receiving  the  stock  from  the  corporation,  46. 

extent  of  the  liability,  45,  47. 
{c.)  the  corporate  officers,  48. 
.  {d.)  purchaser  with  notice,  49. 
(e.)  bona  fide  transferees  without  notice  not  liable,  56. 
See  Fictitiously  Paid-Up  Stock. 
ISSUE  OF  STOCK  below  par  valid  in  England,  32. 

for  property  at  an  overvaluation,  danger  herein,  36. 
who  may  complain  of  an  issue  of  stock  as  "  paid  up  ''  when 
it  is  not  full  paid,  37. 
(fl!.)  the  State,  37. 
((^.)  the  corporation  itself,  38. 
(r.)  participating  stockholders  cannot,  39. 
(^.)  their  transferees  cannot,  40. 

remedy  of  such  transferee  herein,  40. 
(^.)  dissenting  stockholders  may  complain,  41. 
(/.)  so  corporate  creditors.  42. 


J. 

JOINT  OWNERS  OF  STOCK,  their  liability  thereon,  252. 
JOINT-STOCK  COMPANY,  504-510. 

definition  of,  504. 

statutory,  505. 

may  arise  by  implication,  506. 

how  one  becomes  a  member  of  a,  507. 

liability  to  creditors  and  to  the  company  of  members  of  a, 
508. 

actions   against  officers  and  the  company  liy  members  of  a, 

509- 

the  dissolution  of  a,  510. 
JUDGMENT  AGAINST  CORPORATION,  a  condition  precedent 
to  an  action  to   enforce  payment  of  unpaid  subscrip- 
tions, 200. 
or  to  enforce. the  statutory  liability,  221. 

how  far  conclusive,  in  action  against  the  stockholder,  as  to 
the  validity  of  the  creditor's  claim,  200,  222. 
JURISDICTION,  what  court  has   jurisdiction  in  stockholder's  ac- 
tions, 688. 

766 


GENERAL  INDEX. 
[The  references  are  to  sections. 1^ 

L. 

"LABORERS,  SERVANTS  AND  APPRENTICES,"  who  are,  in 
construing  statutes  making  stockholders  liable  primarily 
to  such  persons,  215,  n. 

LACHES,  as  a  bar  to  a  stockholder's  action,  682. 

bars  action  for  fraud  and  negligence,  683. 

as  to  actions  for  ultra  vires  acts  there  is  a  different  rule, 
683. 

stockholders  chargeable  with,  only  after  full  knowledge  of 
the  facts,  685. 

suit  must  be  brought  within  a  reasonable  time,  686. 
what  is  "  reasonable  time  "  herein,  686. 

the  application  of  the  statute  of  limitations  herein,  686. 

miscellaneous  incidents,  687. 

LAPSE  OF  TIME.     See  Laches. 

LAW  OF  PLACE  governing  stock,  8. 

LEASE.     See  Amendments. 

LEASES  OR  SALES  of  railroads  without  authority  of  charter  or 
statute  are  ultra  vires,  668. 

LEGACIES  AND  GIFTS  OF  STOCK,  definition  of  general,  spe- 
cific and  demonstrative  legacies  of  stock,  299. 

importance  of  the  distinction   between  general  and  specific 
legacies,  300. 

specific  legacies,  characteristics  of,  301. 

legacies  of  stock  are   held  general  whenever  the  language 
permits,  302. 

forms  of  general  bequests,  303. 

as  to  the  amount  of  stock  conveyed  by  certain  legacies,  304. 

various  common  phrases  in  legacies  defined  and  distin- 
guished, 305. 

ademption  or  revocation  of  legacies,  306. 

abatement  of  legacies,  306. 

duty  of  executor  or  administrator  as  regards  general  or  spe- 
cific legacies,  307. 

gifts  of  stock,  308. 

rights  and  liabilities  resulting  from,  308. 

LEGAL  PROCEEDINGS.     See  Actions;  Suits. 

LEGATEES,  liability  of,  as  transferees  of  shares  of  stock,  252. 

See  Liability  of  Stockholders;  Transfers;  Lega- 
cies AND  Gifts  of  Stock. 

LEGISLATIVE  control  over  corporations.     See  Amendments. 

767 


GENERAL    INDEX. 
[  The  references  are  to  sectionsj] 

LEGISLATURE  may  authorize  municipal  subscriptions,  91. 

cannot  compel  such  subscription,  91. 

LEVY  OF  ATTACHMENT    OR   EXECUTION.     See  Attach- 
ment. 

LEX  LOCI.     See  Law  of  Place. 

LIABILITY  UPON  SHARES  AS  AFFECTED  BY  TRANSFERS. 
See  Transfer  of  Shares. 

LIABILITY  OF  STOCKHOLDERS— 

{a.)  to  corporate  creditors  upon  unpaid  subscriptions — 

unpaid  subscriptions  a  trust  fund  for  benefit  of  creditors, 
199. 
an  American,  not  an  English  doctrine,  199,  n. 

available  only  after  judgment  against  the  corporation  and 
execution  returned  unsatisfied,  200. 

reason  of  this  rule,  200. 

the  remedy  by  garnishment  or  attachment,  201. 

by  mandamus,  202. 

by  action  at  law,  203. 

by  bill  in  equity,  204. 

parties  to  the  bill — 

{a.)  parties  plaintiff,  205. 

{b.)  parties  defendant,  206. 

court  of  equity  may  make  a  call,  207. 

receivers  and  assignees  in  bankruptcy,  their  functions  herein, 
208. 

may  collect  unpaid  subscriptions,  208. 

may  make  calls,  208. 

stand  in  the  place,  in  this  respect,  of  the  corporation, 
208. 

the  judgment  against  the  corporation,  how  far  impeachable, 
209. 

defenses  herein  available  to  the  subscriber  against  corporate 
creditors,  210. 

shareholder  who  pays  may  have  contribution,  211. 
{b.)  statutory  liability  to  corporate  creditors — 
definition  of,  212. 

may  be  imposed  by  State  constitution,  or  by  statute,  213. 
these  statutes  are  to  be  strictly  construed,  214. 
particular  statutes  construed,  215. 

who  are  "  laborers,  servants  and  apprentices"  within  the 
meaning  of  these  statutes,  215,  n. 

can  be  enforced  only  by  corporate  creditors,  216. 
768 


GENERAL   INDEX. 
\Therefereneei  are  to  sections.'\ 

m 

LIABILITY  OF  STOCKHOLDERS -^^«//;z//^^. 

waiver  by  corporate  creditors  of  their  rights  herein,  217. 

enforcement  of,  outside  the  State  in  which  the  corpora- 
tion exists,  218. 

not  enforceable  when  a  penalty,  218. 
when  enforceable  in  the  Federal  courts,  218. 
as  to  the  adequacy  of  the  remedy  or  procedure  in 
the  State  where  the  enforcement  is  sought,  219. 
not  enforceable  to  pay  damages  in  tort  recovered  against 
the  corporation,  220. 

nor  generally  to  pay  costs  recovered  against  the  cor- 
poration, 220,  n. 

enforceable  only  after  judgment  against  the  corporation 
and  execution  returned  unsatisfied,  221. 
when  this  rule  is  to  be  modified,  221. 
how  far  the  judgment  against  the  corporation  is  con- 
clusive as  to  the  creditors'  claim,  222. 
whether  the  creditors'  remedy  is  at  law  or  in  equity,  223. 
particular  statutes  construed,  224. 
the  remedy  at  law,  how  far  exclusive,  225. 
the  remedy  in  equity,  226. 
parties  to  the  bill,  226. 
practice  herein  in  various  jurisdictions,  226. 
the  stockholders'  defenses  to  actions  to  enforce,  227. 
(a.)  release — 
{b.)  estoppel — 
(r.)  liabilities  already  paid — 
{d.)  set-off— 
(^.)  interest — 
(/.)  costs — 

{g.)  statute  of  limitations,  227. 
priority  among  creditors,  228. 
contributions  among  shareholders,  229. 
(<r.)  liabilities  as  partners,   and  for  assessments    beyond  the  par 
value  of  the  stock,  230-243. 

the  several  liabilities  of  the  stockholder  on  his  stock,  230. 
because  of  defective  incorporation,  231. 

when  the  validity  of  incorporation  cannot  be  questioned 
232. 

when  it  may  be  questioned,  233. 

instances  hereof,  234. 

extent  of  the  liability  herein,  235. 

[49]  769 


GENERAL    INDEX. 


[JTie  references  are  to  sections.'] 


LIABILITY  OF  STOCKHOLDERS— ^^«//««^^. 

because  a  corporation  cannot  be  created  for  the  business  pro- 
posed, 236. 

by  reason  of  the  migration  of  the  corporation,  237. 
what  constitutes  a  corporate  migration,  238,  239. 

when  the  enterprise  is  abandoned  before   incorporation  but 
after  liabiUties  are  incurred,  240. 
{d.)  miscellaneous  instances  of  liability,  243. 
LIABILITY    OF   TRUSTEES;    EXECUTORS;    AGENTS,    &c., 
the  different  phases  of  this  liability,  244. 

the  apparent  though  not  the  real  owner  of    stock  is  liable 
thereon,  245. 

trustee,  how  liable  on  stock  held  in  trust,  246. 

pledgee  of  shares,  how  liable,  247. 

executors  and  administrators,  the  liability  of,  248. 

agent,  as  transferrer  or  transferee,  how  liable,  249,  321. 

infants  and  married  women,  as  transferrers  or  transferees,  how 
liable,  250. 

the  corporation  itself  as  transferrer  or  transferee,  liability  of, 
251. 

legatees,  assignees  in  insolvency  and  joint-owners  as  transfer- 
rers or  transferees,  liability  of,  252. 

nominal  and  fictitious  transfers,  liability  thereon,  253. 
LIENS   OF   THE   CORPORATION    ON    STOCK,  no  lien  at  com- 
mon law,  521. 

may  be  created  by  statute,  by  charter,  or  by  by-law,  522. 

as  to  national  bank  shares  cannot  be  created  by  by-law,  522, 

533- 
created  in  many  jurisdictions  by  statute,  523. 

need  not  to  be  set  out  in  the  certificate,  523. 

when  unauthorized  does  not  avail  against  bona  fide  purchaser, 

523- 
may  be  created  by  special  agreement,  523. 

when  created  by  by-law  binds  only  purchasers  with  notice,  524. 
what  phrases  in  charters  or  statutes  will  authorize,  525. 
when  valid,  cover  all  the  shareholders'  shares  and  dividends, 
526. 

protects  the  corporation  as  to  all  debts  due  to  it  by  the 
stockholder,  527. 

although  barred  by  the  statute  of  limitations,  527. 
only  covers  debts  due  by  a  duly  recorded  stockholder,  528. 
there  may  be  a  contrary  rule  in  equity,  528. 

770 


GENERAL   INDEX. 

[The  references  are  to  spetions.] 

LIENS  OF  THE  CORPORATION  ON  STOCK— co»iwued. 

can  be  enforced  only  for  the  benefit  of  the  corporation,  529. 

a  contrary  rule  in  some  jurisdictions,  529. 
methods  of  enforcing,  530. 
corporation  may  waive,  531. 

how  waiver  may  be  effected,  531. 

as  affected  by  transfers  and  notice,  532. 

LIFE-ESTATES    AND   REMAINDERS    IN    STOCK,   difficulties 
herein,  552. 

cash  dividends  belong  to  the  life-tenant,  552. 

to  whom  stock  or  property  dividends  belong,  553. 

{a.)  the  Pennsylvania  rule,  554. 

this  is  the  general  rule  in  the  United  States,  554. 

not  yet  passed  upon  by  the  New  York  Court  of  Ap- 
peals, 554. 

this  rule  is  more  favorable  to  the  life -tenant,  554. 

(/a)  the  Massachusetts  rule,  being  "the  rule  in  Minot's 
Case,"  555. 

this  rule  prevails  in  Georgia,  the  District  of  Colum- 
bia, and  Rhode  Island,  555. 

this  rule  is  more  favorable  to  the  remainderman, 
555- 
{c.)  the  English  rule,  556. 

the  intent  of  the  creator  of  the  trust  governs,  557. 

apportionment  of  dividends,  558. 

right  to  subscribe  for  new  shares  upon  an  increase  of  the 
capital  stock,  559. 

who  must  pay  calls  and  taxes,  as  between  life-tenant  and  re- 
mainderman, 560. 

miscellaneous  rights  herein,  560. 

LIFE-TENANT.     See  Life-Estate. 

LIMITATIONS.     See  Statute  of  Limitations. 

LIMITED   COMPANY.     6*^^  Joint-Stock  Company. 

LIQUIDATION.     See  Dissolution. 

LIS  PENDENS,  as  affecting  a  purchase  of  stock,  362. 

LOST   OR   STOLEN   CERTIFICATES,  368-370,  406. 

See  Sales  of  Stock. 

M. 

MAJORITY.     ^^<f  Elections;  Frauds;  Ultra  Vires  Acts. 
MANAGEMENT  OF  CORPORATIONS.     See  Intra  Vires;  Cor- 
porate Meetings. 

771 


GENERAL  INDEX. 
[^The  references  are  to  section s.'\ 

MANDAMUS.      See   Calls    of    Meetings;    Sales    of    Stock; 
Rules  Regulating  Registry. 

MARRIED   WOMEN   may  subscribe  for  stock,  62. 

liability  of,  as  transferrer  or  transferee  of   shares  of   stock, 

250,  319- 
their  right  to  vote  upon  stock,  612. 
may  be  a  director  in  New  York,  620. 
MEASURE   OF   DAMAGES,  (a),  the  value  at  the  time  of  the  con- 
version, 581. 

this  is  the  prevailing  rule,  581. 
{b.)  the  value  on  the  day  of  the  trial,  582. 

this  rule  not  favored,  582. 
(<:.)  the  highest  value  between  the  conversion  and  the  day  of 

the  trial,  583. 
whether  the  plaintiff  may  recover  interest,   dividends,  and 

accretions,  584. 
special  damages,  585. 
nominal  damages,  586. 

in  actions  between  stock-broker  and  client — 
{a.)  actions  against  the  broker,  587. 
{b.)  actions  against  the  client,  588. 
MEETINGS.     See  Corporate  Meetings. 
MEMBERS.     See  Stockholders. 
MEMORANDUM   OF   ASSOCIATION   defined,  5,  «. 
MERGER   OF   CORPORATIONS.     See  Ultra  Vires  Acts. 
METHODS    OF    ISSUING    STOCK.     ^"^^  Stock. 
METHODS  OF  TRANSFERRING   THE   CERTIFICATE,  375- 
380. 

See  Sales  of  Stock. 

MINORITY,    RIGHTS    OF.     See  Ultra    Vires    Acts;    Amend- 
ments; Corporate  Meetings;  Frauds. 

MISAPPLICATION    OF    CORPORATE    FUNDS.      See  Ultra 
Vires  Acts;   Frauds;   Directors;   Stockhold- 
ers. 
MISREPRESENTATIONS.     See  Fraudulent  Representations; 

Sales  of  Stock. 
MORTGAGE.     See  Ultra  Vires  Acts. 
MORTGAGE    OF    STOCK.       See  Pledge    and    Mortgage    of 

Stock. 
MOTIVE   OF   TRANSFERRER   OR  TRANSFEREE,  no  ground 

for  refusal  to  register  the  transfer,  386. 
MUNICIPAL   CORPORATION    AS   A    STOCKHOLDER,  99. 
may  compel  delivery  of  stock  to  itself,  100. 
772 


GENERAL   INDEX. 

[TTie  references  are  to  sectiont.^ 

MUNICIPAL   SUBSCRIPTIONS,  municipality  no  implied  power  to 

subscribe  for  stock,  90. 
legislature  may  authorize,  91. 

cannot  compel  such  a  subscription,  91. 
this  power  much  abused,  91. 
constitutional  provisions  prohibiting,  92. 

such  provisions  not  retroactive,  92. 

prohibition  of  a  subscription  prohibits  donation,  92. 

power  to  subscribe,  how  exercised,  93. 

submission  to  popular  vote,  94. 

what  municipal  officer  may  make  the  subscription,  95. 

formalities  herein,  96. 

may  be  conditional,  97. 

may  be  paid  in  bonds  instead  of  money,  98. 

effect  of  change  in  State  constitution,  after,  loi. 

consolidation  of  companies  for  whom  subscription  is  made, 
after,  103. 

division  of  municipality,  after,  102. 

N. 

NAME    OF   CORPORATION.     See  Liability  as  Partners. 

NATIONAL   BANK   SHARES,  no  lien  in  favor  of  the  bank  can  be 

created  by  by-law,  522,  533. 
NEGLIGENCE  OF   DIRECTORS.     See  Directors,  Negligence 

OF. 

NEGOTIABLE   CHARACTER   OF   STOCK,  7. 

NET   PROFITS,  defined,  539,  340. 

NEW  SHARES.     See  Increase  and  Reduction  of  Stock. 

NOMINAL   OR   FICTITIOUS    TRANSFERS,   liability  of    trans- 
ferrer and  transferee  thereon,  253. 

NON-NEGOTIABILITY   OF   CERTIFICATES,  411-416. 
nature  and  varieties  of  negotiable  instruments,  411. 
certificates  of  stock  not  negotiable,  412. 
''quasi  negotiability,"  defined,  413. 
the  "legal"  and  the  "equitable"  title,  414. 
when  the  purchaser  is  protected,  415. 

particular  rules  protecting  dona  fide  purchasers,  estoppel, 
416. 

NON-USER   OF   FRANCHISES,     ^^-f^  Dissolution. 

NOTICE.  6"^^  Corporate  Meetings;  Sales  of  Stock;  Dangers 
in  Purchasing  Stock  ;  Calls  ;  Forfeiture  ; 
Acquiescence. 

773 


GENERAL   INDEX. 
[7%e  references  are  to  8eciions.'\ 

o. 

OFFICERS.     See  Directors. 

ORDINARY    CARE    AND    DILIGENCE    is  the  measure   of   the 

responsibility  of  directors  of  corporations,  68 1 
ORGANIZATION    OF    CORPORATIONS.       See   Liability    as 

Partners. 
OVERISSUED    STOCK   defined,  9. 

See  Increase  and  Reduction  of  Stock. 


P. 


PAID  UP  STOCK.     See  Fictitiously  Paid-Up  Stock. 
PARLIAMENT.     See  Ultra  Vires  Acts. 
PAROL  AGREEMENTS,  definition  of,  136. 

when  not  admissible  to  vary  or  contradict  the  written  con- 
tract, 137. 
illustrations,  138. 

See  Fraudulent  Representations. 
as  affecting  subscriptions,  56. 
PAROL  CONDITIONS  affixed  to  a  subscription  to  stock  are  void, 

81. 
PARTIES  TO  STOCKHOLDERS'  SUITS,  689. 

whether  complainant  may  sue  in  the  interest  of  a  rival  com- 
pany, 690. 
whether  complainant  may  buy  his  stock  for  the  purpose  of 

bringing  the  suit,  690. 
suit  must  be  on  behalf  of  complainant  and  other  stockholders, 

691. 
who  are  to  be  defendants,  692. 
PARTNERS  may  subscribe  for  stock,  61. 
PARTNERSHIP.      See  Liability  as  Partners. 
PENAL  LIABILITY.     See  Liability. 

PLEADING,  complainant's  bill  in  a  stockholders'  action,  Sg^. 
must  not  join  two  or  more  causes  of  action,  693. 
must  allege  a  request  to  the  corporation  to  sue,  694. 

where  this  rule  is  modified,  694,  695. 
other  miscellaneous  allegations,  696. 
prayer  for  relief,  697. 

See  Suits  in  Equity. 
774 


GENERAL  INDEX. 
[T^e  references  are  to  aecdom.] 

PLEDGE  AND  MORTGAGE  OF  STOCK,  463-479. 
definitions  of  pledge,  mortgage  and  lien,  463. 
mortgages  and  pledges  of  stock,  464. 

how  this  contract  is  made,  465. 

pledgee  may  have  registry  in  his  own  name,  466. 

margmal  contracts  constitute  broker  a  pledgee,  467 

rights  of  pledgee,  468. 

as  to  the  particular  stock  he  must  retain  and  return 
on  termmation  of  contract,  469. 

liabilities  of   pledgee  on   subscription  and  on  statutory 
liability,  470. 

cannot  sell  or  repledge  stock,  471. 
purchasers  or  repledgees  with  notice  not  protected,  472 
^ona  fide  purchasers  or  repledgees  protected,  473.' 
pledges  by  agents,  trustees,  executors,  etc.,  474. 
pledgor's  remedies  for  a  conversion,  475. 
pledgee's  remedies  when  debt  is  not  paid,  476 
notice  of  sale  by  pledgee,  477. 
formalities  of  the  sale,  478. 
pledgee  himself  cannot  purchase,  470 
PLEDGEE  OF  SHARES,  lial.ili.,.  of,  to  corporate  creditor.  .4, 
323,  393-  '       '' 

unrecorded,  not  protected  against  corporate  liens  on  the  stock 
525.  ' 

the  right  to  vote  upon  stock  held  in  pledge,  612 
POOLING  CONTRACTS.     See  Ultra  Vires  Acts.' 
POWERS.     See  Ultra  Vires  Acts 
PRE-EMPTION.     See  Increase  and  Reduction 
PREFERENCE  SHARES.     See  Preferred  Stock. 
PREFERRED  STOCK,  definition  of,  9,  267. 
power  to  issue,  268. 

not  to  be  implied,  268. 

nor  exercised  by  the  directors,  267. 
general  rights  of  holders  of,  269. 
are  not  creditors,  270. 

entitled  to  dividends  only  from  profits,  270. 
discreuon  of  directors  in  reference   to  declaring  dividendi^ 

when  a  court  of  equity  will  compel  a  dividend,  271. 

arrears  of  dividends  on,  to  what  extent  payable  subsequently, 
272. 

the  right  of  assignee  or  transferee  in,  274 

775 


GENERAL   I2^DEX, 

[Tke  references  are  to  sections.'\ 

PREFERRED  ?>'VOC}^— continued. 

the  option  to  exchange  common  stock  for.  273. 
"special  stock"  in  Massachusetts,  274. 
nature  and  characteristics  of,  274. 
remedies  of  holders  of,  in  reference  to  dividends,  276. 
rights  of  holders  of,  upon  dissolution,  278. 
PRELIMINARY  EXPENSES.     See  Liability. 
PROFITS.     See  Dividends. 

PROMOTERS,  the  frauds  of,  as  to  the  corporation,  651. 
PROSPECTUS.     See  Fraudulent    Representations  ;    Sale?  of 

Stock. 
PROXIES.     S-je  Elections. 
PURCHASERS  of  stock  may  rely  on  the  statements  of  officers  that 

stock  is  paid  up,  50. 
PURCHASES  without  a  certificate  of  the  stock,  358-360. 

See  Sales  of  Stock. 
PURCHASES  OF  STOCK.     See  Dangers  Ixcurred. 


Q. 

QUALIFICATION  for  holding  a  directorship    or    corporate   office, 

620. 
QUORUM.     See  Corporate  Meetings. 
QUO    WARRANTO.     See  Elections. 


R. 


RATIFICATION  as  a  bar  to  an  action  by  subscriber  whose  subscrip- 
tion was  induced  by  fraud,  160. 
as  a  bar  to  a  stockholder's  action,  684. 

may  be  either  express  or  implied,  684. 
not  a  bar  to  an  action  to  remedy  ultra  vires  acts,  683. 
See  Laches. 
RECEIVERS,  their  powers  and   duties   in  reference  to   unpaid  sub- 
scriptions, 208. 
the  appointment  of,  632,  700. 

776 


GENERAL   INDEX. 

[The  references  are  to  sections.'\ 

RECOVERY  of  money  advanced  when  the  enterprise  fails,  76. 

REDEMPTION.     See  Forfeiture. 

REDUCTION    OF    STOCK.     See  Increase  and  Reduction  of 
Stock. 

REFUSAL  to  issue  certificate,  HabiUty  of  corporation  herein,  74. 

REGISTRY  OF  TRANSFER,  rules  regulating,  393-410. 

REISSUE  OF  STOCK.     See  Sales  of  Stock. 

RELEASE.     See  Defenses. 

REMAINDERS   IN    STOCK.      See   Life-Estates   and   Remain- 
ders. 
REMEDIES.     See  Actions;  Suits. 

REORGANIZATIONS,  purchases  of  corporate  property  by  a  majority 
of  the  stockholders,  654. 

may  be  set  aside  for  fraud,  654. 

various  methods  of,  654. 

{a.)  the  usual  method  by  foreclosure  of  a  mortgage,  654. 

,   {b.)  by  foreclosure  under  an  arrangement  prescribed  by 
statute,  655. 

{c.)  by  an  assignment  of  assets  to  a  new  corporation,  656. 

REPEAL  OF  CHARTER.     See  Charter. 

REPLEVIN.     See  Action. 

REPORTS.       See    Fraudulent    Representations  ;     Sales    of 
Stock. 

REPRESENTATIONS.     Sec  Fraudulent  Representations. 

RESCISSION.     See  Defenses. 

RESERVATION.     See  Amendments. 

RESTRAINT  OF  TRADE.     See  Sales  of  Stock;    Elections. 

RISKS  INCURRED   IN  PURCHASING  A  CERTIFICATE  OF 

STOCK.     See  Dangers  Incurred,  &c. 
RIVAL  COMPANY.     See  Suns  in  Equity. 
RULES  REGULATING  REGISTRY,  393-410. 

purpose  of  these  rules,  393. 

as  to  the  right  to  refuse  registry  until  the  subscription  is  paid, 
394- 

as  to  irresponsil)le  transferees,  395. 

as  to  transferees  incompetent  to  contract,  396. 

as  to  trustees,  executors,   guardians,   agents  and   pledgees  as 
transferees,  397. 

as  to  sales  by  executors  or  administrators,  398. 

by  trustees,  399. 

by  guardians,  400. 
as  to  forgery  of  transfer,  401. 

777 


GENERAL   INDEX. 

yrhe  refer encea  are  to  section  s.~\ 

RULES  REGULATING  REGISTRY— r^////////^^/. 

as  to  surrender  of  outstanding  certificate,  402. 
as  to  alleged  loss  of  the  old  certificate,  403. 
as  to  attachment  or  execution,  404. 
as  to  decrees  of  court  that  certificates  be  issued,  405. 
as  to  thefts  of  certificates  indorsed  in  blank,  406. 
as  to  interpleader,  407. 

as  to  the  power  to  restrict  the  free  transfer  of  shares,  408. 
as  to  the  corporate  lien,  409. 

as  to  the  formalities  upon  which  the  corporation  may  insist,, 
410. 


s. 

SALARIES.     See  Frauds. 

SALE  of  all  the  corporate  property,  except  by  unanimous  consent,  is 
ultra  vi?'es,  667. 

SALES  OR  LEASES  OF  RAILROADS  without  authority  of  char- 
ter or  statute,  are  ztltra  vires,  668. 

SALES  OF  STOCK.  &^  Non-Negotiability  of  Certificates; 
Dangers  Incurred  in  Purchasing  Stock. 

for  property,  17. 

competency  of  a  corporation  to  buy  shares  of  its  own  stock, 

309- 

transfers  to  the  corporation  by  one  of  the  original  sub- 
scribers, 310. 

the  rule  in  the  United  States  herein,  311. 

the  English  rule,  310,  312. 

statutory  provisions,  313. 

the  stock  is  not  merged  by  such  a  purchase,  314. 
competency  of  a  corporation  to  buy  the  stock  of  another  com- 
pany, 315. 

charter  provisions  and  statutory  prohibitions,  315. 
competency  of  purchases  of  stock  by  bank,  316. 
competency  of  pledges  of  stock  to  banks,  316. 

herein  of  the  right  of  national  banks  to  take  pledges  of 
stock,  316,  n. 
competency  of  purchaser  of  stock  by  insurance,  manufacturing 

and  other  companies,  317. 

by  infants,  318. 

by  married  women,  319. 

778 


GENERAL   INDEX. 

[The  references  are  to  sections.] 

SALES  OF  STOCK— co/ifinucd. 

by  person   non   compos  mentis,  assignees  in  bankruptcy, 

partners,  directors,  etc.,  etc.,  320. 

competency  of  purchases  and  transfers  by  agents,  321. 

by  guardians,  executors  and  trustees,  322. 

sales  or  pledges  herein  in  breach  of  trust,  323. 

liability  of  the  trustee  herein,  324. 

transferee  of  a  trustee,  when  not  protected,  325. 

how  far  protected,  326. 

rights  and  liabilities  of  the  corporation  allowing  such 
transfer,  327. 

competency  of  sales  of  stock  by  a  guardian,  328. 

by  an  executor  or  administrator,  329. 

duty  and  liability  of  the  corporation  herein,  330. 
shares  of  stock  are  transferable,  331. 

restrictions  herein,  332. 

how  far  the  sale  of  stock  may  be  hampered  or  restricted, 
332. 
contract  of  sale  may  be  valid  without  delivery,  or  time  speci- 
fied for  delivery,  333. 

performance  of  contract  or  offer  to  perform   by  vendor 
334- 
the  action  for  damages  for  breach  of  the  contract,  335. 

defenses  herein,  t,t^6. 
specific  performance  of  the  contract,  when  enforceable,  337, 

338. 
statute  of  frauds,  seventeenth  section,  as  affects  this  contract, 

339- 

other  sections  thereof  applicable  herein,  340. 

gambling  or  wager  sales  of  stock  defined,  341. 

statutes  prohibiting  such  sales,  342. 
also  certain  stock  contracts,  342. 

test  of  legality  of  such  contracts,  343. 

the  intent  to  deliver,  343. 

when  a  question  for  the  jury  and  when  not,  344. 

as  between  principal  and  broker,  345. 
the  English  rule,  345. 
a  contrary  rule  in  the  United  States,  346. 

as  affecting  notes,  Ijonds  or  mortgages  growing  out  there- 
of, 347- 

as  affected  by  the  legality  of  the  purpose  for  which  the 
stock  is  obtained,  348. 

779 


GENERAL   INDEX. 
[^The  references  are  to  secdons.^ 

SALES  OF  STOCK— continued. 
fraud,  as  affecting,  349. 

what  has  been  held  to  constitute,  350,  351. 
by  corporate  reports  or  prospectus,  352. 

the  EngUsh  rule  as  to  false  reports  or  untrue  state- 
ments in  a  prospectus,  352. 
remedies  herein,  354. 

{a.)  action  for  deceit,  355. 
{d.)  bill  in  equity,  356. 
may  amount  to  a  conspiracy,  357. 
purchase  of  certificate  and  subsequent  registry  by  the  corpo- 
ration to  another  transferee,  358. 
liability  of  the  corporation  herein,  359. 
rights  of  a  purchaser  of  the  stock  without  certificate,  360. 
legal   proceedings    affecting  sale  of  outstanding   certificate, 

361. 
/is  pendens  as  affecting  a  purchase  of  stock,  362. 
forgery  as  affecting,  363. 

rights  and  liabilities  of  transferees  of  forged  certificates, 

364. 
liability  of  corporation  to  real  owner  for  allowing  forgtd 

transfer,  365,  366. 
rights  of  transferee  who  buys  after  the  registry  has  been 
obtained,  367. 
stolen  or  lost  certificates  indorsed  in  blank  as  affecting,  368. 
when  the  thief  has  obtained  registry,  369. 
real  owner  may  have  new  certificate,  370. 
confiscation  of  stock,  rights  herein  of  the  parties,  371. 
formalities  of  transferring  certificate  and  registry,  372. 
two  steps  usual  in  perfecting  transfer,  373. 

omission  of  either  or  both  of  such  steps,  374. 
method  of  transferring  the  certificate,  375. 

usual    forms    of    assignment,   and   powers   of   attorney, 

375'  «• 
questions  arising  herein,  376. 

a  seal  not  necessary,  377. 

in  England  the  transfer  of  railway  stock  must  be 
under  seal,  377. 
transferrer  estopped  by  assignment  of  the  certificate  from 

claiming  title  to  the  stock,  378. 
effect  of  charter  provisions  requiring  registry,  379. 
assignment  of  the  certificate  indorsed  in  blank,  380. 

780 


GENERAL  INDEX. 
[TTie  references  are  to  sections.'\ 

SALES  OF  STOCK— continued. 

method  of  registering  a  transfer,  381. 

registry  an  essential  part  of  a  transfer,  381. 
formalities  of,  382. 

may  be  waived  by  the  corporation,  383. 
either  transferrer  or  transferee  may  apply  for  regis- 
try, 384. 
corporation  may  require  the  transferee  to  be  identified, 

385. 

and   the    genuineness   of   the    indorsement    to    be 

proved,  385. 

motive  of  transferrer  or  transferee  no  ground  for  refusal  to 

register,  386. 

corporation  may  interplead  between  two  claimants  to  stock, 

must  obey  order  of  court  as  to  registry  and  issue  ot  new 
certificates,  388. 
remedies  of  transferee  against  the  corporation  for  refusal  to 
record  the  transfer,  389. 
by  mandamus,  390. 
by  suit  in  equity,  391- 
by  action  for  damages,  392. 
SCRIP,  defined,  5,  n. 
SCRIP   DIVIDENDS.     .S^^  Dividends. 
SEAL.     See  Sales  of  Stock. 

SECRET   AGREEMENT.     See  Defenses;  Frauds. 
SET-OFF.     See  Defenses. 
SHAREHOLDER.     See  Stockholder. 
SHARES   OF    STOCK,  defined,  5. 
are  personalty,  not  realty,  6. 

See  Subscription  for  Stock;  Sales  of  Stock. 
SPECIAL  AGREEMENTS.    See  Fraudulent  Representations. 
SPECIAL   MEETINGS.     See  Corporate  Meetings. 
"SPECIAL   STOCK"    IN    MASSACHUSETTS,  defined,  9,  274. 

See  Preferred  Stock. 
SPECIFIC   PERFORMANCE,  of  a  contract  to  buy  or  sell  stock, 

how  enforced,  337. 
SPURIOUS   STOCK,  defined,  9. 

STATUTE    OF    FRAUDS,   stock  not  "  goods,  wares,  or  merchan- 
dise" within,  6. 
application  of  the  seventeenth  section  to'the  contract  of  sale 
of  stock,  339. 

other  sections  applicable  to  such  contract,  340. 

781 


GENERAL   INDEX. 

[The  refet'ences  are  to  sections.l 

STATUTE    OF    LIMITATIONS,  how  far  applicable  as  a  rule  of 
laches,  686. 

See  Defenses. 
STATUTE    MAKING    FICTITIOUS    STOCK   VOID,  27. 
STATUTORY    LIABILITY   OF   STOCKHOLDERS  to  corporate 

creditors.     See  Liability  of  Stockholders. 
STOCK.     See  Sales  of  Stock;  Transfers  of  Stock. 

classes  of,  9. 

fictitiously  paid-up,  21. 

objects  of  issuing,  21. 

methods  of  issuing,  22. 

legality  of  such  issues,  23. 

issue  of,  for  property,  English  statute,  18. 

methods  of  issuing,  11, 

{a.)  issue  by  money  subscription,  12. 

(i.)  for  property,  etc.,  13. 

negotiability  of,  7. 
STOCK-BOOKS.     See  Inspection  ;    Transfers  ;    Contract    of 

Subscription. 
STOCK-BROKERS,  definition  of  technical  terms  in  vogue  among, 

445- 
customers  incompetency  or  want  of  authority,  446. 
facts  making  persons  brokers  unintentionally,  447. 
must  obey  customers'  orders,  448. 

must  act  in  good  faith,  and  within  a  reasonable  time,  449. 
cannot  buy  from  or  sell  to  themselves,  450. 
customers'  duties  and  liabilities  to,  451. 
duties  and  liabilities  of,  toward  customers,  452. 
how  contracts  of,  are  completed,  453. 
privity  of  contract  between  broker  and  opposite  parties,  454. 

between  the  customers,  455. 
intervening  sub-brokers  and  sub-customers,  456. 
marginal  contracts,  the  broker  as  pledgee,  457. 
rights  of,  on  failure  of  margin,  458. 
what  will  excuse  demand  and  notice  for  more  margin,  459. 

the  usual  form  of  contract,  459,  n. 
customers'  damages  and  remedies,  460. 
brokers'  damages  and  remedies,  461. 
customs  and  usage  of,  462, 
STOCK,    CERTIFICATES   OF,  defined,  10. 
782 


GENERAL  INDEX, 

[The  references  are  to  seeiioTis.'] 

STOCK    DIVIDENDS,  issue  of  stock  by  a,  20. 

a  means  of  issuing  fictitiously  paid-up  stock,  51. 

as  a  means  of  increasing  the  capital  stock,  287. 
STOCKHOLDER,  defined,  4. 

right  of,  to  prevent  the  corporation  from  undertaking  a  new 
business,  672. 

actions  for  the  frauds  of  directors,  645. 

history  of  this  litigation,  645. 

under  what  conditions  such  suits  can  be  brmmht, 
646.  ^ 

frauds  of  a  majority  of,  as  to  the  minority,  662. 

of  directors,  as  to.     See  Directors, 

actions  of,  against  third  persons  for  frauds  against  the  corpo- 
ration, 663, 

actions,  when  not  allowed-,  678. 

action  must  be  on  behalf  of  himself  and  other  stockholders, 
6gi. 

action,  miscellaneous  remedies,  701. 

general  powers  of,  can  act  only  at  corporate  meetings,  622. 
power  to  make  by-laws  belongs  exclusively  to,  623. 
the  quorum,  what  constitutes,  624. 
powers  of,  624. 

one  person  cannot  constitute  a,  624. 
as  such  cannot  act  for  the  corporation,  625. 

nor  dictate  to  the  directors,  625. 
have  no  power  to  expel. members,  626. 

such  a  power  does  not  exist  in  fiiodern  incorporated  com- 
panies, unless  expressly  conferred,  626. 
nor  to  remove  directors,  627. 
STOLEN    OR   LOST   CERTIFICATES,  368-370,  406. 

See  Sales  of  Stock. 
SUBSCRIBER,  defined,  4, 

bound  to  know  the  legal  effect  of  his  contract,  56, 
SUBSCRIPTION,  books  as  evidence  of  the  subscription,  73. 
delivered  in  escrow,  71. 

generally  implies  promise  to  pay  for  shares,  69, 
consideration  herein,  70. 
in  excess  of  the  capital  stock,  72. 
payable  in  property  when  illegal,  14, 

what  property  may  be  received  in  payment,  15, 

such  payments  when  a  matter  of  favor  and  when  a  con- 
tract right,  1 6. 

783 


GENERAL  IM)EX. 

[7%6  references  are  to  sections.'\ 

SUBSCRIPTION-  continued. 
proof  of,  73. 

See  Contract  of  Subscription. 
defenses  thereto.     See  Defenses. 

See  Colorable  Subscription  ;    Fictitious  Sub- 
scription;  Conditional  Subscription. 

SUBSTITUTION  OF  STOCKHOLDERS  before  issue  of  stock,  75. 
SUITS    AFFECTING    SALES    OF   STOCK,  361,  362. 

See  Sales  of  Stock. 
SUITS   IN    EQUITY,  jurisdiction  of  the  court  in  stockholders'  ac- 
tions, 688. 
parties  complainant,  689. 

where  the  complainant  sues  in  the  interest  of  a  rival  corpora- 
tion, 690. 

or  buys  his  stock  for  the  purpose  of  bringing  the  suit, 
690. 
stockholder  must  sue  on  behalf  of  himself  and  other  stock- 
holders, 691. 
parties  defendant,  692. 
pleadings  herein — 

bill  must  not  join  two  or  more  causes  of  action,  693. 

must  allege  request  of  the  corporation  to  sue  and 
refusal  so  to  do,  694. 

when  this  allegation  may  be  omitted,  695. 
other  allegations,  696. 
prayer  for  relief,  697. 
property  received  under  act  complained  of  must  be  returned 

if  the  act  is 'set  aside,  698. 
the  complaining  stockholder  controls  the  conduct  of,  702. 
SURPLUS.     See  Dividends. 
SURRENDER.     See  Defenses;  Dissolution. 
SUSPENSION.     See  Stockholders,  General  Power  of. 


T. 


TAXATION    OF   SHARES,  four  methods  of  taxing  corporate  inter- 
ests, 561. 

the  rights  of  stockholders  herein,  562. 
tax  on  shares  as  distinguished  from  the  other  methods,  563. 
tax  of  resident  shareholders  of  a  resident  corporation,  564. 
of  resident  shareholders  of  a  non-resident  corporation, 
565- 

784 


GENERAL   INDEX. 

{^The references  are  to  sections.^ 

TAXATION  OF  ^YiA^Y.?>— continued. 

of  non-resident  shareholders  of  a  resident  corporation, 
566. 

double  taxation,  567. 

exemptions  from  taxation  as  affecting  tax  on  shares,  568. 

two  classes  of  exemptions  are  material  herein,  568. 
of  national  bank  stock,  569. 

where  such  stock  may  be  taxed,  570. 

tax  must  not  be  greater  than  that  upon  "other  moneyed 
capital,"  571. 

action  by  a  national  bank  to  restrain  an  illegal  tax 
on  its  stockholders,  572. 

as  between  life-tenant  and  remainderman,  560. 

TENDER.     See  Defenses. 

TRAFFIC,  arrangements  and  contracts,  673. 

TRANSFER   OF    SHARES,  rules  regulating  registry,  393-410. 

effect  of,  upon  the  rights  and  liabilities  of  the  holder,  417,  424. 

liability  upon  transferred  shares  in  general,  254. 

of  the  transferrer  on  unpaid  subscriptions,  255. 

of  the  transferee  on  unpaid  subscriptions,  256, 

knowledge  that  shares  are  not  paid  up,  how  far  im- 
putable to  a  transferee,  257. 

after  transfer  but  before  registry,  258. 

of  transferee  to  transferrer,  259. 

at  what  time  the  statutory  liability  for  a  debt  attaches  to 
the  shares,  260- 

transferrer  not  liable  for  debts  incurred  after  registry, 
261. 

transferrer  is  released  only  by  the  registry,  262. 

transferee's  statutory  liability,  263. 

of  transferee  to  transferrer  by  way  of  indemnity,  264. 

effect  of  a  transfer  to  an  insolvent  to  escape  liability,  265. 

the  English  rule  herein,  266. 

TRANSFER   OF    STOCK.     See  Sales  of  Stock. 

TRESPASS   ON   THE   CASE.     See  Action. 

TROVER.     See  Action. 

TRUSTEE,  sales  of  stock  in  breach  of  trust,  effect  of,  322-327,  397, 

399- 

See  Sales  of  Stock. 

TRUSTEES.     See  Liability  of  Trustees. 

their  right  to  vote  upon  stock  held  in  trust,  612. 

[•^^0]  785 


GENERAL  INDEX. 
[  The  references  are  to  seetioixs.'] 

u. 

ULTRA    VIRES,  definition  of  the  term,  664. 

dissolution  as  a  means  of  accomplishing  an  ultra  vires  act,  636. 

acts  ultra  vires  are  forbidden  by  the  charter  as  a  contract  be- 
tween stockholders  and  corporation,  bdd. 

sales  of  all  the  corporate  property  execpt  by  unanimous  con- 
sent is,  667. 

consolidations,  absorptions,  mergers,  amalgamations,  leases, 
and  sales,  without  authority  of  charter  are,  668. 

when  there  is  express  authority  in  the  charter  therefor, 
are  valid,  669. 

so  where  there  is  authority  by  statute,  670. 

how  far  authority  may  be  derived  from  an  amendment 
of  charter  or  general  statute  passed  subsequent  to 
the  charter,  671. 

miscellaneous  ultra  vires  acts,  674. 

distinguished  from  acts  intra  vires,  676* 

three  kinds — 

(a)  acts  mala  in  se. 

(^.)  acts  mala  prohibita. 

(<;.)  all  other  acts,  683. 

See  Directors;  Defenses;  Frauds  of  Direc- 
tors. 

USAGE.     See  Brokers. 


V. 


VALIDITY    OF    CORPORATE    ACTS.     See  Ultra  Vires  Acts. 

VALUE.     See  Measure  of  Damages. 

VIOLATION    OF    CHARTER       See   Defenses  ;    Ultra    Vires 

Acts. 
VOTE.     See  Elections. 


w. 


WAGER   SALES   OF   STOCK.     See  Sales  of  Stock. 
WAIVER   OF    DEFENSES,  in  actions  to  enforce  payment  of  sub- 
scriptions, 198. 

786 


GENERAL    INDEX. 
[  Tlie  references  are  to  sections.] 

WAIVER  OF  DEFENSES— ^w//'/;/!z/f«'. 

by  corporate  creditors  of  their  right  to  enforce  statutory  lia- 
bility of  stockholdeis,  217. 

WATERED    STOCK,  defined,  9. 

See  Fictitiously  Paid-up  Stock. 

WARRANTY    OF   CERTIFICATE    OF   STOCK.     See  Sales  of 

Stock. 
WILLS.     See  Legacy;  Life  Estate. 
WINDING   UP.     See  Dissolution. 
WITHDRAWAL.     See  Defenses. 
WRITING.     See  Contract  of  Subscription. 


WHOLE   NUMBER    OF   PAGES,    883. 


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